For a startup, the one thing that haunts any CEO or a business owner is the thought of complying with the innumerable regulations in India and simultaneously managing bureaucratic officers. Finance, not being a direct revenue-generating function, is often neglected by the top management initially. However, subsequently it ends up squeezing major chunk off their pockets, in terms of cost of hiring good finance personnel, clearing the past nuisance created due to lack of proper financial planning, penalties for non-compliances, and so forth.
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They fail to decipher that finance being a core business-enabling function forms an indispensable part of every organisation’s growth story. Finance facilitates cost cutting, charting out better investment avenues, understanding strategic roadmaps and structuring deals.
Ideally, once the Series A is closed, the first priority of a CEO should be to get on board a senior qualified finance professional who can steer the wheel of the ship in the right direction along with the management. Many startups that fail to recruit an able finance person end up paying large sums to consultants as they do not possess adequate finance knowledge internally.
The entire finance function can be broadly categorised into three parts – finance controllership, investor relations & business finance, and regular compliance. Here are some of the key areas that require ones’ attention from the very inception:
The laws prevalent in various countries are diverse and need to be complied with. For example, social security law may not be that strict in India, whereas it is a nightmare in the US or other western countries when not complied with. On the other hand, the transfer pricing regulations may be a cakewalk in Tokyo when compared with the draconian annual compliance rules in India.
The investors who have put in money in your company deserve to be periodically updated about the whereabouts of the company and the target their portfolio is heading to. A good finance professional knows the critical metrics required to be presented to the investors, hand in hand helping the management to keep a close tab on the control points Thus, the MIS preparation, reporting and board presentations are strict and important artefacts that cannot be shunned.
The company should start automating its process from the initial stages and having the effective CRMs (SAP, Salesforce etc.), accounting software (Tally ERP, SAP B1 etc.) in place. It is always easy to capture and decode the data when the organisation is in the developing phase and further collate it for the next level of growth, whether you want to impress the incumbent investors or pass the due diligence test smoothly.
Listed below are the key areas which any startup should eye for healthy growth and strong internal control:
Rahul Saria is a chartered accountant. He has advised many startups and helped them set up whole finance function. Presently, he works with a B2B startup Near.co (formerly Adnear.com) and heads the controllership function there. He can be reached at firstname.lastname@example.org.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory)