My startup is finally gaining traction

As a founder of a startup it feels great to see traction in the business. The business has started to grow, new customers are being added and a few funding rounds have been secured. There is cash in the bank and growing the business is the only priority.

But wait, I do not have a finance partner. Who needs one anyway. I know my business. I need to invest all my precious resources into generating leads, securing customers and revenue and cash flow. Do i really need to increase my costs? After all I can just hire a book-keeping service and they can handle all the finance aspects.

What you do not know can hurt you

Everyone could use a crystal ball to see into the future. The ability to look around corners would also be great. But only if wishes could come true. Often companies view the finance function as a statutory compliance function instead of a business partner. While compliance and reporting activities are important, the commercial and business partnering aspects are often the value added activities of the finance function. Generating international growth is quite exciting. But often countries have their own rules, their own ways of doing business and there are significant differences in doing business in an advanced economy versus a developing economy or even an under-developed economy.

What pitfalls should I look out for?

Often in the rush to secure customers, revenue and cash flows startups are quite willing to agree to what the customers want. Legal contracts, sales contracts used are fairly simple and may not protect the company interest’s fully. Keeping a lid on legal costs is also important.

Taxes are another area where ignorance or insufficient information can be quite a drain in the long term. Lack of clarity on taxes impact pricing, profitability and cash flow negatively. But often by then the damage is already done. It is important to plan ahead and put the right legal structures, tax planning, legal contracts and other related items in place before they are needed to minimize the adverse effects of poor planning.

The risk of inadvertently creating a permanent establishment in another country due to a lack of awareness of the rules can create complications down the road. While CFO’s absolutely are aligned on business growth often they have to advise against going down a preferred path while suggesting alternative paths to adopt.

Fortune favors the prepared mind

Investing in good financial advice upfront has a lot of benefits. While it may still be early for startups to bring a full time finance professional on board in the initial years, the need for sound advice early on cannot be discounted.

Fortunately there are some options in terms of bringing in finance advisors early on. There are a few companies that provide a CFO on Demand or Interim CFO services. These are usually very experienced finance professionals and some may have even worked on multiple startups before. The CFO on Demand can really perform three value added functions.

Firstly, the finance advisor can review the existing book-keeping and accounting processes. This is to ensure that the information is accurate, reliable, complete and relevant to making forward looking financial decisions. Secondly, the advisor can put in the right metrics as the levers to manage the business. A good Financial Planning and Analysis function can establish excellent routines for monitory Budget versus Actual versus Forecast results to steer the business in the right direction. Thirdly, the CFO can provide valuable advise on the right corporate structures to adopt, conduct tax planning activities and structure the business commercials to benefit the operations. This would include reviewing the customer contracts for terms and conditions especially Withholding Taxes (WHT) deducted by companies in overseas countries. These WHT’s are often non-recoverable and have to be expensed as costs that reduce operating profit margins.

Lastly, the CFO on Demand can help with setting up the correct finance infrastructure to generate the required management reporting. In addition, the CFO can help with setting up the right banking relationships and treasury management systems to support the business expansion.

CFO on Demand / Interim CFO…is worth the investment

There is no doubt that a good financial controller, brought in early on can help the company avoid numerous pitfalls. Besides the pitfalls highlighted above, there are a number of other considerations to look out for. For example, Anti Money Laundering Rules (AML), Sanctions, Regulatory Rules (if your business is a regulated activity), the formation of Permanent Establishments in other countries.

At Ezee Pte. Ltd. (www.ezeesg.com) an accounting and advisory company located in Singapore, we can help startups with a CFO on Demand or Interim CFO service. We can partner with domestic startups or even startups from other countries that wish to take advantage of setting up a holding company structure in Singapore, thereby taking advantage of the excellent infrastructure, various benefits, grants, funding and highly developed startup ecosystem already present in Singapore. Singapore also has one of the largest network of double taxation agreements with many countries which is a significant advantage to reducing taxes. The Singapore government is also keen to develop a vibrant startup environment culture and look for new areas of growth leveraging technology and other important sectors which are expected to be critical growth areas in the future.

The author of this article is Piyush Singapuri, a director at Ezee Pte. Ltd. providing Accounting, Tax, Outsourcing, as well as advisory services like CFO on Demand, Interim CFO, Systems Implementation, Data Migration, Project Management and other related Financial Consulting services.