In the world of startups, not every venture ends in success. As a COO of two venture-backed SaaS companies with starkly different outcomes, I’ve seen firsthand the impact of financial management on the survival of a business. One company thrived and was acquired multiple times, while the other failed. The contrast between these two startups provides valuable insights into what works—and what doesn’t—when it comes to managing finances in a high-growth environment.
Here’s what I learned about finance these two startups and the red flags to look out for:
1. Transparency Is Key: Share Financials Openly
Acquired Startup:
This startup shared its financials openly with investors and senior leadership. By making sure everyone had access to the company’s financial health, it fostered trust and accountability. Investors were always aware of where their money was going, and there were no surprises.
Failed Startup:
In contrast, the failed startup kept its financials private, limiting access to just one founder. This lack of transparency is a major red flag—it often signals poor financial management or, worse, fraud. Without openness, there’s no way for investors or leadership to course-correct when things go wrong.
Lesson: Transparency isn’t just about being ethical—it’s about setting a strong foundation for financial accountability. Keeping your financials hidden only erodes trust and opens the door to potential mismanagement.
2. Regular Financial Updates Are Essential
Acquired Startup:
Monthly updates with accurate analyses were standard practice. Whether good or bad, investors and the leadership team were always informed. This consistent communication allowed for strategic adjustments and kept everyone aligned on the company’s financial goals.
Failed Startup:
The failed startup rarely updated investors, and when they did, the information was often outdated or incomplete. This created a disconnect between the company’s real financial situation and the expectations of its stakeholders.
Lesson: Investors have a right to know what’s happening with their investment. Regular, honest financial updates aren’t just a formality—they’re essential to maintaining investor confidence and ensuring that the company stays on track.
3. Keep Clean Books: Close Them On Time
Acquired Startup:
Books were closed by the 7th of each month, and reports were ready by the 15th. This discipline ensured that the company had a clear, up-to-date picture of its financial health at all times, allowing for swift decision-making.
Failed Startup:
The failed startup went months without closing its books or reviewing financial reports. Operating without clear financials is like flying blind—it makes it impossible to manage cash flow, assess profitability, or attract savvy investors.
Lesson: Clean, up-to-date books are non-negotiable if you want your startup to be attractive for acquisition or investment. Keeping your finances in order shows that you are serious about growth and sustainability.
4. Active Budget and Cash Management
Acquired Startup:
This company had a monthly budget and projected cash flow 12 months ahead. By actively managing cash, the team was able to anticipate low points and plan accordingly.
Failed Startup:
Did not operate off a budget or do cash flow projections. This lack of planning meant that the company was constantly reacting to financial crises instead of proactively managing them.
Lesson: Cash has to be actively managed. Without a budget and cash flow projections, you’re setting yourself up for failure. Proper planning is essential to avoid financial pitfalls, especially in the unpredictable startup world.
5. Outsource Bookkeeping to the Professionals
Acquired Startup:
From day one, this startup outsourced its bookkeeping to a professional firm. This ensured that financials were handled by experts, freeing up leadership to focus on strategy and growth.
Failed Startup:
In an effort to save money, the failed startup attempted to do its own bookkeeping with no experience. As a result, financial records were a mess, leading to costly mistakes that could have been avoided with professional help.
Lesson: Bookkeeping is not an area where you want to cut corners. Attempting to save money by doing it yourself can end up costing you far more in the long run. Leave it to the professionals, so you can focus on growing your business.
What Can We Learn?
The difference between these two startups boils down to one simple concept: financial discipline. The successful startup prioritized transparency, regular updates, clean books, budgeting, and professional help. The failed startup neglected these essential practices, leading to its downfall.
If you’re a startup founder or executive, take these lessons to heart. Financial mismanagement is one of the top reasons startups fail, but with the right systems in place, you can set your company up for success.
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