Startups often find themselves in the position of one individual managing the core financial functions of a business – accounting, forecasting and most importantly, cash management. Each area, when operating effectively, has an extraordinary impact on the health of the business and conversely, the risk of error is incredibly high if appropriate systems and processes are not in place. For a business to have effective financial functions typically requires extensive resources, experienced teams with robust control processes. For BOMANI, like many startups, the majority of our labor and capital at this stage are poured into our product, which Amin writes in The Creation of Alcohol Infused Cold Brew Coffee however, a formidable financial system is still achievable in a leaner state, and we use the below as some of our guiding principles to help along the way.
- Automate when you can
Not only does it save precious time, it significantly mitigates the risk of error. With a manual process – the longer it takes to complete, the more opportunity is available for a mistake to occur. For example, recording invoices into the accounting system and setting up payment procurement is a seemingly mundane and simple task however, manually entering data brings countless opportunities for error that could be easily mitigated. Not only is it error prone, recording invoices usually falls at the end of the priority list with a startup team dealing with time as its most scarce resource. Early on, we streamlined the invoice process by requiring all invoices to be sent to a designated finance email address on the BOMANI domain. From there, the invoice automatically sends itself to bill.com, where their AI machine learning software scans the invoice, and prepares the appropriate journal entry to be ready for review. At the end of each day, I log on, I review, approve, and set up a payment date for everything sent that day, without entering anything manually.
- Multi layered reviews
Just because the invoice was scanned and prepared into the books with automation does not mean it frees the team from maintaining accountability in what we are charged for. Kai Amin and Sam are still the points of contact for billing for each of our third party vendors and they do a great job of staying familiar with what we are charged and communicating whether or not invoices are consistent with their expectations. If I see something come through without their review, I will ask them directly, but it is rare. Its also great when one of us points out inconsistencies, because it confirms our review controls are working. Once the monthly books are closed, we hold a team financial review session to discuss how the prior period went. Not only is this informative for our BOMANI family, it is an opportunity for discussion and critique as everyone is encouraged to dive in and ask questions about something that may look off. This is another check for errors that may not have been prevented by our automation processes or detected by multiple internal reviews. Errors and misstatements sadly will still occur, but the steps above work to shrink down their magnitude and frequency.
- Build for the long run
On the forecasting front, most of our work is done in Excel. Excel is powerful tool but its far from a system we can hang our hat on when it comes to scalability. All our models have been built from scratch and like any startup, the outlook and circumstances of our business seemingly change by the hour, and our forecasting is expected to keep up. In my previous job before BOMANI, my boss quickly taught me the importance of building models that not only can withstand constant modification but can be operated without their original creator present. I remember on my first day at my previous role, I was working with complex models but thanks to their clear instructions and minimal room for interpretation, they were used daily by multiple team members and contained years of data, because they were built to last. When I joined the BOMANI team, I set out to my best to ensure those same characteristics were present in anything we built. This may sound obvious or insignificant, but simple rules of avoiding linking cells at all times and instead prioritizing the use of formula’s and mapping will not only support the perpetual change in projection assumptions, it significantly mitigates the potential of spreadsheet error.
- Stress test
Cash management ultimately is the balancing act of deploying an appropriate amount of resources to achieve our objectives, monitoring how far each of our dollars travel, while ensuring our cashflow picture can endure uncertainty in the future. Like most brand new businesses, the team is brimming with optimism about the project, that is why one jumps two feet in to all the risks that accompany a startup, right? For all the measured upside of the venture, it is also imperative that the startup’s perpetual state of uncertainty is appropriately included. Stress tests are simply the intentional inclusion of a few curveballs in future projections in anticipation of uncertainty. For BOMANI, that could be assuming entering a new market is going to be more costly than we originally thought or maybe we need to bring on additional team members to get the word out, who’s expertise do not come for free. Both are expensive, and BOMANI, like many businesses, need to be confident knowing we’ve done our best to prepare for what we don’t know, because as Sam discusses in his post on Navigating Uncharted Waters, BOMANI still needs to be in a position to succeed even in the headwinds of something as unprecedented as a pandemic.