The Safest Financial Strategy for Tech Startups
You’ve heard it all before, we are in the tech mecca of the century! While things can only go up from here, it’s a safe option to be getting into the tech industry, you’ve made a great choice! Before you go ahead and get too excited, you absolutely need to make sure that you have all of your ducks in a row, because while a tech company can be a golden goose, those who don’t prepare, will find they fly about as well as a penguin.
You may be asking, is there a safest strategy? The answer to this is a bit arbitrary, because there is always the possibility that you do all of your setup correctly, and it still fails. But as we have all heard time and time again;
“You miss one hundred percent of the shots you don’t take”
Our standard advice to everyone goes as follows:
- Get organized early – late means messy to start and people get confused.
- Get on QBO or Xero right away. Trust us, we know all the software existing on the market, these are terrific. Not wonder we have been working with them for years, either for us or for our clients
- Get Hubdoc to have documents organized. Seriously. Look it up, you won’t believe what you’ve been missing out on.
- Get your bank feeds in QBO or Xero. The less you flip flop between apps and procedures for your banking and statements, the more time you have to focus on
- Get your catchup done. If you have any residual financial tasks needing to be done, DO THEM FIRST, otherwise you’ll be like a dog chasing its tail.
- Amass documents, whether it’s online or hardcopy, have everything prepared and organized.
- Register for GST. Check out our blog post on saving money as a startup.
- Think about the burn rate. Know your spending on a month to month basis. Think ahead 3 and 6 months, do you have the money to cover that?
How Will You Fund It?
Dipping more into that last point, you need to be prepared to properly manage your burn rate – or how fast you’ll be spending money compared to the estimate of revenue you’ll be bringing in. Our formula for keeping it frugal is to budget at 25 – 50 thousand as a small to mid-sized enterprise, working your way up to 100 thousand monthly when you are around the 20 people mark.
The burn rate should be your key metric
A doomed owner is one who does not know when you will run out you crash. The CEO has to know what the cost will be for a 3 month period, and start with that much ready to go.
As the CEO, you need to face the question: “How will you get more?”. Debt equity? Will you pony up? How about a shareholders loan agreement? When you’ve decided on your path, take the time to get all of your paperwork and legal portions sorted to avoid later conflict. Sort out share option, and your best strategic options and predict how it will pan out. This avoids arguments later.
6 Things to consider:
Have solid founders:
This may seem like it doesn’t need to be said, but here it goes; make sure everyone is on board!!!! The founders of your company need to be solid, no wavering, no hesitation or doubts. It’s disruptive for a startup to lose a founder, and it doesn’t look good to investors.
Burn Rate and Profit:
The safer strategies aside from the aforementioned preparation is to look into your options. Sources like SRED and IRAP are a possibility if it’s a viable option for your company, BDO for lending is another way to go – compare the circumstances to see what bodes the best for you.
Investors and Fundraisers:
Start off with a reasonable 3 year projection that includes a pitch deck – we happen to know an expert that can help you out with that – a structured budget – again, who likes doing that? We do, that’s who! – and look into self-funding options like Bitcoin and decide if you will use it (though it’s a bit difficult to account for). Prospective investors will want to see all of it.
Initial hires are key, you don’t want a lot of turn right out of the gate. Make sure that everyone climbing on board is ready to weather the storm for the first 2 years. To help out, focus on team building, and keep the team as small as possible so you have room for the compensation that will make your people stay. Side note – get the right people on the bus in the right seats!
You investors will want to know who your demographic is, how big it is, how you plan on reaching it, planned methods, your strategy for customer acquisition, the whole nine yards. Our advice is to build out a roadmap as early as possible and build around that.
Think about the exit!!
How will you exit? Is your goal to be acquired? IPO? What are the requirements for your options. Or will you stick with it for the long term.
While that was a lot of different choices and options and outcomes thrown your way, we appreciate you sticking it out, it shows you’ve got the drive to push your way to a successful tech startup. We look forward to seeing what amazing things you bring to the industry!