First off, what do we mean when we say startup infrastructure?
We literally mean everything from technology, to systems to talent, to the actual bricks and mortar of your workspace, plus the service providers you choose to partner with. Having the right systems and infrastructure in place to make decisions will enable you to minimize risks and easily recover from mistakes.
Ready? Then let’s get started.
1) Startup ecosystem
When you’re setting up, choose professional services firms with broad networks and enough visibility to offer you access to new ideas that you wouldn’t be able to get exposed to on your own. You should be looking for long-term value in terms of expanding your connections as well as for recruiting talent and potential business collaborators. Look for partners that can support your needs now, but who can also scale with you so you won’t have to bring in new ones once your business is mature.
How do you identify the right firms? Ask around. Get recommendations and referrals from like-minded people. You’ll find you hear the same names over and over again.
This encompasses everything from an AP/AR system to account for, track, and pay your bills, to accurately generating billing to facilitate collecting payments. QuickBooks is a good platform to start with and it can scale.
3) Expense reporting
The level of granularity companies need varies, but one thing that absolutely will not work is doing this through a checking account or on spreadsheets. Create separate business and personal accounts and DO NOT commingle them. Use your business account to track all expenses and receipts.
You need to create and revise projections, develop short and long-term budget plans, and especially manage and remain vigilant about your cash position. Bottom-up financial forecasts are more realistic versus top down ones and show investors you understand all the key levers (headcount, marketing, sales spending, customer acquisition costs, etc) that will drive your spending/funding needs. All of these essential functions, plus your financial controls, GAAP compliance, and accounting system (accrual-based, not cash), fall under the category of financial infrastructure.
Oh boy, this is a meaty one! Not devoting enough attention to setting up all the elements of your regulatory infrastructure can really come back to bite you, not just at tax time, but also in the form of lawsuits or other potentially expensive situations.
6) Legal entity
This will be one of your first questions. It’s an important decision, with far reaching and long-term consequences. All your options (partnership, sole proprietorship, LLC, etc) have pros and cons, so how much flexibility you want as an organization versus the degree of complexity you can live with will weigh heavily here. It’ll also be influenced by any plans you might have to take on external partners or shareholders.
Definitely make sure you understand your tax obligations. You’ll need to properly estimate, pay and record quarterly taxes as well as calculating and withholding payroll taxes. And if shareholders are part of your capital structure, you’ll need to arrange for certain type of valuation. This ties back into your financial reporting. Poor financial controls will make doing your taxes a nightmare…and it’s a big red flag for audit screens!
8) HR Compliance
This is an especially big deal. It’s definitely not an area where you should play fast and loose. Typically 80% of the funds founders raise gets spent on human capital. There are multiple pieces to manage such as: payroll, insurance, and expense management. Hiring vendors here can be much more efficient than managing these functions yourself.
Partner with providers who offer not just transactional services but true end-to-end systems that can help you put best practices and systems in place and support you with things like incentives and employee development plans. And document, document, document! That will help enormously with risk management (i.e., potential litigation).
Think big picture as you plan your workspace needs. Consider the environment you want to be in. Are you looking for a collaborative space? How will that work if you’ll be doing a lot of outbound sales? Do you need to have flexible month-to-month lease terms because you expect your employee count to fluctuate? Where do your employees live? What are your technical needs? What type of community are you looking for?
10) Legal infrastructure
Have a credible support resource to pull into negotiations. Consider both your current needs (contracts, technical licenses, patents, IP, and documentation management) and your future ones (term sheets, M&A transactions). Don’t be shortsighted by going with the cheapest guy. Lawyers and bankers are great sources for referrals and introductions to potential funders. Focus on the relationship’s long-term strategic value and your future growth needs. While you might pay a bit more than you’re comfortable with, it’ll pay off when you’re trying to leverage your network later on.
11) Sales & Marketing
Don’t underestimate the value of a well-designed, great looking website. And pay attention to details: every aspect of how you conduct your business from employees, to your workspace, through logo and business cards, right down to your email address, is branding.
Bottom line — You don’t have to have it all solved and you will make mistakes. That’s why pulling together a solid group of partners who can help you navigate both the early days and the later stages will save you a lot less pain and expense.
Deborah Adeyanju is a New York based Content Strategist & Social Media Manager. She provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. Deborah is a Chartered Financial Analyst (CFA) charterholder with more than a decade of experience as an investment analyst and portfolio manager in New York, London, and Paris.