Chapter 13 Treasury and Cash Management
For a startup, the most important part of cash management is just being able to accurately forecast it and not run out. But there are some basic things to keep in mind as you scale:
Parking money for low yield. Although it is almost never a good idea to chase yield, and increasingly difficult in 2021, you can sometimes put excess cash in a money market or a very safe and liquid vehicle that provides essentially the same safety as cash but provides a bit of income. And it is very important to be aligned with the Board on the philosophy and operationally of how you are approaching cash management.
Cash reconciliation. Performing a bank reconciliation to match the cash balances on the balance sheet to the bank account is a helpful control early on to keep an eye on different types of expenses, bank fees, and in transit payments, collections, and outstanding checks. Over time some of these numbers can be material and if you are not doing a reconciliation, you may receive some surprises.
International funding. Companies that start to expand out of the US into other countries for sales and marketing will need to fund these operations by sending money to those entities to cover payroll and other expenses. It's important to consider timing and how much cash to leave in the foreign bank accounts, which will vary based on your business dynamics and foreign bank rules. Depending on how you are accounting for revenue recognition and customer billing, you may also have to build in sophisticated transfer pricing agreements and corporate business unit dividends in order to optimize your cash. Some countries can be challenging when trying to get cash back to your US accounts.
Debt after financing. Commercial banks that market to venture‐backed companies are most likely to offer a debt facility, both a term loan or revolver, right after you have closed an equity fundraising. You might feel that this is a time when you don't need more cash, so you'll dismiss the revolver since it adds the expense and hassle of debt. But don't dismiss it too quickly because there are some scenarios where this is a good time to add a line to the business to start to build the relationship with the commercial banks and have some cash to cover any cash balance volatility. That being said, you shouldn't add debt just because you can, so you'll want to support the cost and complexity of a debt facility with clear operating reasons.
Cash controls. In the early days there are usually not enough people to install proper controls around cash. But as you scale, you should consider putting in controls so no one person is able to send money outside the company or pay for personal expenses without some oversight. There are many, many examples of relatively small‐scale theft in small companies. For example, you will want to ensure that the person who enables the corporate card payments doesn't approve their own credit card usage. In one story from my early days (before I was on the Finance team), the accounts payable accountant ran up charges on car services and shopping on their corporate card and then paid off the card without any oversight. One easy thing you can do is have the people who are able to create wires be unable to approve them, and vice versa. Or you can put in a control so that wires/checks over a certain amount require two signatures. Bank reconciliation is also helpful to have in place to ensure some oversight.
Cash burn. It is also useful to have a clear understanding of cash burn and cash runway. I have used metrics like months of payroll or months of last month cash burn as metrics for cash runway. In addition, it is also helpful to include in cash forecasts known large cash variability. Some examples include early in the calendar year payroll which will have more payroll taxes than end‐of‐year payrolls, new office space expansion, seasonality around billing and collections and large vendor annual payment cycles.
Chapter 14 Building an In‐House Accounting Team
Outsourcing your bookkeeping can certainly work a lot of the time with the right partner and processes. But at some point, you will need to hire an internal team. At first, this will include a general accountant able to do it all, but eventually you will need to hire specific functional roles including Accounts Payable and Accounts Receivable.
Here are some common roles to hire as you scale a startup:
Controller. At a startup, the controller will manage the entire accounting team and processes, be the point person for all audits and compliance and tax, and generally be responsible for ensuring that the financials are accurate and timely. When the company is smaller, you can have someone a bit more junior who is able to grow with the company. If you are scaling rapidly and complexity is being added quickly to the accounting function, it is a good idea to find someone who has done it before, giving you a critical partner in cleanly scaling accounting.
General accountant. This is often the first accounting hire. A person who can do it all in the early days, and especially keep an accurate and timely set of books is a good first hire. Ideally they will be able to keep the chart of accounts organized as the business grows and generally do a little bit of everything with the bookkeeping. It is usually helpful if this person has an accounting degree or some experience with an internal audit firm. They will be making a lot of small decisions early on that will end up being the team process for the next couple of years. So, the cleaner you can make it, the better!
Accounts payable (AP). At some point, the volume of work paying vendors, employee expenses and other day‐to‐day clerical duties will become too much for the general accountant. The primary area to focus on for this role is proper timing of payments to vendors (not too early, not too late), accurate tagging of expenses to the proper accounts and departments, and effectively managing employee expense reports and expense attribution. This role may also help out with payroll and other reporting.
Accounts receivable (AR). Similar to the AP role, there will be a point where it makes sense to hire someone internally to collect payments from customers. For startups, this person will typically be responsible for generating invoices, maintaining the AR records, dealing with the many, many ad‐hoc and custom invoices the team asks for, and of course, collections. An effective AR role can easily pay for themselves through quicker collections and lowering bad debt. Both the AP and AR roles can be effectively carried out by junior people as long as they have excellent self‐management skills.
As you scale, there are a few additional roles you'll want to add to the accounting team.
Revenue controller. Some companies end up with complicated deals, invoicing, and revenue recognition. In these cases, it may make sense to consider a senior accountant whose primary responsibility is to review each transaction to ensure they are invoiced correctly and that the deferred revenue and revenue recognition schedules are accurate. This is typically a fairly complicated job so it is not something you'd hire a junior employee to do. You may never need this role as it is only really found in mature organizations with complicated deals.
Transaction specialist. There could be a few different titles for this role, but essentially as you scale, there may be a role for accountants who help process and approve individual transactions. This could include ad‐hoc requests for changes to invoices, checking the data in the systems against agreements, and approvals for pricing and packaging requests. There are a lot of different elements in transactions and at some point it may make sense to have this role to keep the data timely and accurate.
Chapter 15 International Operations
When an organization is ready to expand globally, they may be trying to expand its sales footprint, create more product development capacity, or find manufacturing capabilities. If