Fundraising Radio Podcast Excerpt: Georgia Athanasiou, On-Demand CFO Advice for Startups
I had the pleasure of being interviewed by Konstantin Dubovitskiy for his podcast Fundraising Radio. Below is an excerpt from the podcast where I offer answers to some of the questions I typically get.
What type of financial projections should a founder have prior to fundraising?
Many early stage startup founders I speak with run their own financial projections. Their resources are limited and their operations are not complex. The financial plan can be high level and simple - and provide an adequate road map. Links to a financial planning template is in the first comment for the DIYers.
As their business develops and they start fundraising they'll probably need professional help. At a minimum their financial plan should include:
✔ Three year financial projections - higher level for years 2 and 3.
✔ A bottoms up approach when building the plan, and a reality check top down approach (i.e. $20B market, we’ll get 1% so we’ll be a $200M company).
✔Key metrics (drivers) for your business and/or industry
✔Use of funds for investment being sought and milestones reached
✔They should absolutely know your numbers
Financial plans will change regularly, especially if they are an early stage startup, so they should not get too wrapped up in perfection, but their assumptions should be defendable.
What are the major mistakes founders make from the financial perspective?
In working with early stage startups, I have found that they don’t hire the right people to put financial systems in place early in the company’s life.
It’s overhead and resources are limited - and it often ends up costing more to get their books cleaned up on the back end, when potential investors ask for financial statements.
Cash flow is the biggest pain point I’ve seen with startups, and it results from not having strong financial systems in place. Infact, 82% of small businesses that fail do so because of cash flow problems.
Founders can avoid these mistakes by:
Setting up their accounting systems and implementing a cash flow tool early on.
Hiring a bookkeeper or accountant on a part-time basis to do this work.
Putting a high level cash flow forecast and financial plan in place if they are financially savvy. There are plenty of free templates online!
Becoming knowledgeable and developing good money habits early on - it will pay off when they start fundraising.
What are financial concepts founders need to understand?
Cash flow and how it works is at the top of my list for financial concepts entrepreneurs need to understand and more importantly to take control of. They need to be clear and have a solid financial plan about how much money they will be raising from investors, how they will spend the money and the milestones they will meet.
They also need to balance growth and profitability as they build their company - as the trend of “growth at all costs” seems to be muted in the current fundraising environment.
They need to know their numbers and the key financial drivers and metrics of their business. Different business models have different key metrics. For example, the key metrics for an ecommerce subscription business will be different from a B2B hardware company.