The United States has the most startup companies in the world by a large margin, and COVID-19 has not dampened these business prospects. In fact, startups were established at a rate of more than 20% after the pandemic started. Since more than 69% of startups originally commenced operations as a home-based businesses the impact of forced business closures certainly made it easier to launch new enterprises. Despite these encouraging numbers the harsh reality is that maintaining business operations beyond a few years is one of the most common challenges startup founders face.
There are dozens of reasons why some startups succeed while others simply fade away. This often includes access to capital, demand for products and services, and profitability among many others. Clearly understanding the market, competition, and customer demand are certainly important steps on the path to success. However, it is also important to spend time on budgeting, financial forecasting, exploring new sources of capital, and financial reporting. Without an accurate assessment of the company’s financial position, it is very difficult for a Chicago start up to succeed. For this reason, it is important to work with a CPA as early in the process as possible to ensure efforts are properly guided. To help clients, prospects, and others, Selden Fox has provided a summary of the key financial aspects that startups should be assessing as they embark on a new business.
The Value of Financial Guidance
Financial advisors are essential to startup success. Although it is a smart move to involve outside accounting and tax support at any stage in a business, bringing in CPAs and accountants as early in the planning stage as feasible has been shown to produce the best results – and avoid unpleasant outcomes.
According to former startup founders themselves, the top reason most startups fail is that they simply run out of cash. Whether it is due to lack of funding, inability to secure financing from a bank, or budget mismanagement, money can, not surprisingly be an obstacle to ultimate success. A great idea without a consistent profit isn’t enough. Banks and investors need to see financial statements, organized records, and a clear plan before they will grant funding. This usually isn’t possible to do alone.
Pricing and cost issues are another common hurdle preventing startups from succeeding. Without forecasting, analysis, and a clear understanding of how to scale, startups can find themselves with a successful product/service but no profitable way to keep it going.
There are other challenges that experienced CPAs and accountants can help startups avoid, like navigating regulatory compliance, establishing a well-thought-out business plan, and ensuring the business model makes sense and serves as a tool for the business to thrive. Additionally, the use of advanced data analysis, AI, and automation opens the door to further insights into market opportunities.
Most startups don’t have the financial resources to employ an internal accounting team. So, during the early stages, working with an outsourced provider on an as-needed basis allows the founder and executive team to leverage their time and resources where accounting support is most needed in a cost-effective manner.
Even for larger or high-growth startups with an internal team, still need help prepping the company for the next stage of growth. It can be hard to know what kind of support is needed – a general accountant, a CFO, a controller, or someone in between? Startups seeking investor funding will need strong financial reporting when seeking out valuations and funding. Investors will want to see continued and sustainable growth evidenced in the financial statements. An internal team needs guidance and support to make that goal a reality and ensure the financial reporting supports this growth. An experienced CPA can help advise on establishing these reports so the startup can be prepared for the rigorous due diligence that often accompanies these fundraising efforts.
How to Evaluate Outsourced Providers?
Startups should consider working with an outsourced firm that is familiar with the industry: the regulatory requirements, tax planning opportunities, and market landscape. The consultant should also have experience working with other startups in their industry or other industries. An understanding of the issues facing startup founders is key to anticipating their needs and helping them succeed.
The external advisor should be flexible enough to deal with a myriad of issues as they arise and be able to offer support wherever it’s needed. For example, more startups are hiring part-time, or fractional CFOs since the pandemic. Getting strategic insight on the management team during a transitional or pivotal stage in the startup’s development has been a crucial element to success.
And, whether a part-time CFO or an external advisor, the ability to offer an objective, outside perspective not tied to company profits is invaluable. This kind of advisory support often tends to be more analytical and less driven by personal goals, ambitions, or emotions.
How Selden Fox Assists Startups
Selden Fox advisors can help startups at any stage of their development, from the initial planning and pre-planning stages to growth, scale, funding, and beyond.
Planning/Pre-Planning
- Advise on corporate structure and tax benefits
- Guide the internal team on selecting the appropriate accounting and reporting software
- Integrate various accounting platforms for business operations, such as invoicing systems, automation of accounts payable, and payroll system
Scale
- Serve as an outsourced accounting department in a full- or part-time capacity in the following areas:
- Process transactions
- Post journal entries in the general ledger
- Prepare monthly reconciliations and relevant periodic reports as required by management
- Educate owners on various applicable tax reporting requirements
- Examine the tax consequences of various transactions and advise on strategies to minimize tax liability
- Prepare applicable tax returns
Growth
- Prepare GAAP financial statements
- Implement relevant internal controls
- Advise on process standardization and improvement
- Respond to investor and regulatory requests as needed
- Help create cash flow forecasts and analysis
- Ensure that existing systems and platforms are scalable and align with operational goals
Contact Us
Chicago startups will inevitably face challenges on their road to success. While some cannot be avoided, the assistance of an outsourced accountant can help to ensure the business can respond appropriately. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.
