Have you been managing your working capital and cash flow right? Aravind Gopalan from Growfin asked me a lot about this topic and I enjoyed our conversation about my mission to help early-stage startups ace their accounting and finance woes. In this episode, I share how managing your working capital and cash flow, and maintaining good accounting hygiene can help your startup increase its chances of survival.
Scroll down and tune in to listen to some great insights on finance and accounting on The Cashheroes!
Intro
Jana Ludwig-Martyushev, ex-VP Finance at Omni:us, which specializes in AI products for the insurance market. Currently, Jana is on her mission to help startups survive. At Start Finance Now, she invented a toolbox for start-ups, freelancers and small businesses. She also helps women become financially independent.
Key Takeaways
- Advice to Founders: If you know what is booked, have a look at your profit and loss statement and understand what’s behind, you will feel more confident when you talk to investors, tax authorities etc. Does not matter if you do a loss, but know why you are doing a loss.
- Advice for female employees: Don’t hesitate to negotiate and get what you think you deserve.
- If you don’t have good accounting hygiene, you could ruin your company
- A good financial knowledge can help a founder and his/her startup survive better
- Make your sales team understand how important their valid opinion (sales forecast) is.
- Advice to Finance Execs: Get your processes right before getting a tool in place.
Managing Working Capital Management & Cashflow
Importance for startups to manage Working Capital Management & Cashflow:
- Knowing your runway and when your last cent used are essential
- Everything starts from having a good financial plan
- Applies to startup of all sizes and stages
Maintaining a good Accounting hygiene
- Must have in order to make right decisions, create reports and do calculations
- Set-up a good Account plan
- Think about the cost center plan
- Have clear guidelines for accounting and pre-accounting (even if outsourced)
- Set up an approval process for incoming invoices
Have good Financial plan (in other words, Budget or a Business Plan)
- Know what sales are coming in and expenses (basically cash inflow and outflow)
- Track the above on a monthly basis
- Know your burn rate and track it every month
- Compare your financial plan with the actuals
- This is where your accounting hygiene and financial plan go together
What you need to do from Day One
- Make sure your team members and other departments are knowing what’s exactly happening in your company
- Conduct weekly sales meeting to know what’s there in the sales pipeline, when are sales coming in
- Have a sales forecast every week
- Make you sales team clear about the payment terms
How can you go about setting up your AR process?
- Do a weekly or bi-weekly checkup
- Are your customers paying in time? If the customers are not clear with the due dates, something is wrong with your accounting hygiene
- It’s not always the customers fault. Make sure everything is right on your side, before following up with the customer for payment due
- Ask yourself how you help your customers pay you on time. For example: Does the customer have a longer approval process? Should I have to send the invoices much prior?
How can you go about setting up your AP process?
- Do you have a good approval process?
- Are you only paying invoices for the services you use?
- Do you really pay the invoice just once? (Bad accounting hygiene could leave you paying the invoice 2 or more times)
- Are the payment terms you have with your suppliers in line with that of your customers? (For example: If your customers pay you after 60 days, but you pay your suppliers after 30 days, there is an issue here)
Rapid Fire with Jana
When do you start and end your workday?
Start at 9 am. Pause at 4 pm. And continue later at night.
How much sleep do you get?
7 hours
Podcast/Book suggestion for people joining fast-growing startups
“CFO Yeah!” podcast for finance folks
“Essentialism: The Disciplined Pursuit of Less” by Greg McKeown (teaches how you can do more with less)
Apart from core finance skills, what is the additional skill that a Finance Member can learn which will help them during the early fast-growing startup phase?
Meditate and have a calm mind
Something that you would do differently or take a different call during your personal or professional life if given a magical wish?
Would focus more on my inner growth. Would not work 15 hrs a day like I used to.
