Rose Report: Issue 13

Starting Up Without Stalling Out

It’s not easy being a start-up. Entrepreneurs trying to get their companies off the ground face two monumental challenges: first, they have to secure funding, and second, they have to properly manage those funds to ensure the money doesn’t run out before they’ve proven out their concepts by generating profits.

For entrepreneurs without a track record, finding investors requires some astute strategizing. They have to strike a very careful balance—spreading the word about their concepts to garner interest and funding, without inadvertently giving their ideas away to potential competitors. They have to be similarly cautious when raising capital. Indeed, start-ups need funding, but accurately valuing companies in their infancy is very difficult. So, once they find backers, entrepreneurs have to be smart when hammering out agreements with them. It’s important to obtain the necessary capital, while also making sure they maintain adequate control to execute their business plans.

Retaining both sophisticated legal and accounting help can be hugely beneficial to a new company trying to understand the terms of such an agreement. For finance and accounting support, experts like the ones at Rose Financial Services can help ensure that a young company receives the capital it needs at an appropriate cost of capital.

Many entrepreneurs rely on the support of family, friends, and angel investors to get their concepts up and running. But in order to be taken seriously by these investors, start-ups need to have realistic, well thought out business plans in place. These don’t need to be a 100-page document; however the plan should reflect the passion and market knowledge of the entrepreneur, and also include a clear financial analysis of the funding required to achieve the objective.

A good business plan will demonstrate that the entrepreneur has a firm grasp on how cash will be managed, including specifying how much of the capital will be spent by certain benchmarks, and at what stages it will be necessary to raise additional capital, if applicable. To put potential investors at ease, it’s also critical to have contingency plans in place in the event that unforeseen circumstances result in funding running out more quickly than anticipated. A start-up with an experienced finance and accounting team on its side will be at a great advantage when mapping out its financial future. For a young company without the resources or need to house an internal accounting department, outsourcing its accounting and finance functions to a firm such as Rose Financial Services can be an ideal solution.

Though shoring up funding is a big challenge, overcoming that hurdle doesn’t mean the work is over. Now the start-up must continue to wisely manage its capital and maintain its credibility with investors going forward. Without the right controls, it can be very easy for start-ups to lose sight of their long term business plans and burn through cash far more quickly than originally planned. The options presented to a start-up without cash are generally not good alternatives.

But entrepreneurs that rely on RFS eliminate much of this risk by letting sophisticated finance and accounting professionals forecast and manage their financial position. For investors, knowing that their money is being closely managed by an experienced team is a big reassurance—and most importantly, financial clarity usually results in more sleep for entrepreneurs!