October 31, 2024

How to simplify your finances from the start*

Today, Dan Kang, the VP of Finance at Mercury, shares his guide to simplifying your startup's financial workflows from day one.

As a founder or member of a growing team, you're busy focusing on growth and innovation, trying to pinpoint product-market fit, and managing your runway. Add navigating the complex financial intricacies of a growing startup on top of that, and it can be overwhelming.

That's why we put together this guide—to delve into essential financial areas to prioritize, practical strategies to streamline operations, and the strategic role of outsourcing in your fast-evolving financial ecosystem. With these tips in mind, you'll be able to hold down the financial fort confidently until you're ready to make your first finance hire.

Becoming a finance expert probably won't yield the best return on your time. Here are a few ways to ensure you give yourself a clear understanding of the business' performance in the short term, and set your growing team up for success in the long term.

Foundational finance functions

Payroll. Ensuring your team is compensated accurately and on time is non-negotiable, and this might include paying yourself as well. This is a pretty direct reflection of your company's reliability and respect for its workforce. In the very early days of your company, this is probably easy enough for you to run on your own depending on where your employees are located.

Basic bookkeeping. It can be tempting to punt bookkeeping until you hire an operations or finance person and to just rely on your bank account activity as a good enough solution until that point. But failing to get your bookkeeping in order early will mean that you're flying blind on how your business is truly doing, which can set you up to make poor financial decisions. Getting a bookkeeper in your corner sooner rather than later will help ensure that you don't overcomplicate things down the road.

Customer payments. Streamlining the process of receiving payments affects your cash flow and, by extension, your business's operational viability. The area where you might actually opt not to outsource to your bookkeeper is customer payments. It will largely depend on volume but, in general, managing customer payments will determine how quickly cash comes into your business and could require more discussion with customers that you'll want to own more of in the early days.

Vendor payments. Not to be overlooked for its impact on your operations, timely payments to your vendors preserve essential business relationships and prevent supply chain disruptions.

Record keeping and obligations

Taxes. You may not be focused on taxes in the early days (especially if you aren't profitable yet) but meeting tax obligations and taking advantage of any tax benefit is important from the get-go. You may want to outsource this to a tax firm or CPA with experience in your industry.

Cap table management. Keeping a precise record of equity ownership helps ensure that you're maintaining accurate records, which can be especially tough in the early years of a startup where your dozens of shareholders might include a handful of friends, family, and angel investors. You might also consider retaining legal counsel or exploring specialized tools for cap table management.

Understanding financial performance

Growth and product data. You're best positioned to understand your startup's financial performance in the context of your business. Trends in your customer numbers, retention rates, engagement metrics, and any relevant segmentation or quality measures (e.g., paid users versus free trial users, or monthly active users) will offer valuable insights into your customer base. Beyond customer metrics, you should also assess the metrics in the context of your business model — e.g., sales funnel and ARR if you're a B2B software company, and transaction volumes if you monetize payments.

Basic P&L. Understanding your startup's income statements will help you understand the financial health of your company over time. The best part? You don't need an accounting degree to understand them. Your bookkeeper should be providing monthly reports that you should take the time to go over.

A few key things to glean from your P&L reports: How revenue is trending, your gross margin when considering costs directly related to delivering your product or service, how much you're spending on vendors, what you're spending to acquire customers, your labor costs, and how profitability is trending as you scale.

Cash and runway. For most startups, unless you're working with physical goods, your cash is the biggest thing you'll want to understand on your balance sheet. You'll want to track your cash balance over time to understand cash flow patterns based on how you earn revenue. Having a clear understanding of this will allow you to better forecast your cash position at any given time, which can help with more informed decision-making.

Your bank account** should do more than hold your money. Now, it can.

As it is, financial operations are needlessly complex. Mercury simplifies your financial operations by powering them from the one thing your business needs: a bank account.* With powerful banking and financial software in one place, allowing you to:

Get complete and accurate visibility into all money movements
Control how and when money flows in and out of your business
Close the books faster

200K companies use Mercury to simplify their finances

Ready to make light work of all your financial work?

Apply online in minutes!

**Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust, Members FDIC.

*Sponsored by Mercury.

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