How management accountants can support start-ups

Entrepreneurs have long sought to bring innovative products and services to market in every corner of the world. But they need a lot more than a great idea.

Thirty-six per cent of businesses fail within the first two years of operation. The most common reasons for failure include a poorly thought-out business plan, running out of cash, and pricing or cost issues, according to analysis conducted by venture capital database CB Insights.

Analysts examined the postmortems of 101 failed US-based start-ups, written by their founders. Forty-two per cent of the postmortems stated that there was no market need for the product or service, and 29% said they ran out of cash.

Early-stage companies often fall into the trap of surging off in a certain direction too quickly without gauging the viability of what it is they are seeking to achieve. Management accountants can play a vital role to bridge this gap between strategy and financial control. Scenario planning, strategic options, and evidence-based decision-making are among the areas where management accountants can provide expertise. At the same time, start-ups can provide rewarding opportunities for finance professionals in search of a fresh challenge.

CGMA Magazine spoke with several accountants with experience in supporting start-ups. Here are some of the tips they shared:

Understand that it’s a very different job

In a start-up environment, with a bare minimum of staff, the CFO figure often has no one to delegate to, so his or her role might involve basics such as monthly bank reconciliations and posting journal entries, explained Jack McCullough, CPA, founder of the CFO Leadership Council. Balancing that reality with a natural inclination to be at the cutting edge with customers, investors, and fellow executives isn’t easy. “It can be a challenging transition to make for someone coming from a big company who had people to do all that for them,” he said.

Be resilient

If you like highly charged environments where there’s a lot of hard work to do — not to mention the chance to see results quickly — then a start-up is a great place for you to be, said Donna Mackenzie, CPA, CGMA (at left), executive director of FireSpring Fund, a Florida company focused on raising early-stage capital for start-ups. “It’s not for the faint-hearted,” she said. “I almost guarantee any start-up is going to have a stage where they don’t know if they can make payroll, and a lot of sleepless nights that go with it. You just have to be able to walk through those fires without giving up or falling apart, even though you may want to at times.”

Believe in the business

Working in a start-up takes dedication and commitment, and there are likely to be long hours involved. Find a start-up that you believe in, one that you can help grow, and find an entrepreneur whom you really get along with. “This is a marriage,” Mackenzie said. “The relationship between the CFO and the CEO or founding partners is a much tighter bond than you’re going to find in almost any other type of company.”

Alex Soskin, ACMA, CGMA (at top of page), has been managing director of Impact Hub Westminster in Central London since its inception in 2011. The hub acts as an incubator, providing facilities and business support to social innovation start-ups in London. Working in a start-up is not a job, Soskin said. It’s a lifestyle. Accountants must be motivated by the company’s mission. “You are a lot more productive, proactive, and achieve better outcomes if you believe in what you work for.”

Be curious and creative to find data and investors

Organisations based at Impact Hub share a mission to generate positive social or environmental outcomes as well as revenue. To support a non-traditional business model, you need to be open to learning about new scenarios and new conditions — don’t just think along the lines of a textbook description of the development of a business, Soskin said.

For example, in the world of social innovation, one often has to use combinations of funding methods. These might include new options such as crowdfunding and impact investment, both of which are growing markets.

There are more unknowns in a start-up than in an established company, where there would be a wealth of historical data upon which to help build projections. If your company is truly breaking new ground, there may not even be other companies to draw comparisons with. However, your projections and budgets still have to be credible and based on some kind of rationale. “If that rationale has data points that people can understand, then they will buy into it,” Mackenzie said. “You have to be a lot more creative in finding those data points and helping to make the business case.”

Be adaptable to change

The most important attribute of a start-up CFO is the ability to adapt and change. “You can’t be risk-averse,” Mackenzie said. “You really have to have an entrepreneurial mindset to be an effective CFO, because things are changing, sometimes on a daily basis. If you can’t adapt to change and lack that entrepreneurial spirit, you won’t be able to lead the team. The people around you are going for it, and you have to as well.”

Know that many options and employment models are open to finance professionals

If the idea of supporting entrepreneurs and helping businesses grow is appealing, consider the capacity in which you want to be involved. “If you are getting involved in a very early-stage company,” Soskin said, “do you want to just be taking a salary? Or do you want to be involved in the whole story with them? For example, drawing a subsistence-level income, while having some kind of stake in the business. I would ask about the shared risk for a shared-reward scenario.”

A range of contract models and levels of commitment can suit your work patterns and availability. The lowest level of commitment with the least risk is as a freelance, part-time CFO. There is a growing network of CFOs for hire, particularly in start-up hubs, McCullough said. But this option requires constantly prospecting new clients, which could be a challenge if self-promotion doesn’t come naturally.

Know that the skills you gain will always be — no matter the start-up’s fate

Bear in mind that while many start-ups fail, there are startups — and, therefore, opportunities for finance professionals — everywhere. “Start-ups are providing the most economic value and the most job creation, and solving more and more issues more readily than companies that have been around for many, many years,” Soskin said. “And, obviously, this is a phenomenon that carries across the world, whether it’s inside or outside of our growing network.”

And if you decide not to pursue a start-up job after leaving a failed one, take comfort in the fact that the skills and lessons learned at a fledgling company can be applied to businesses of all shapes and sizes.