Avoiding some common financial pitfalls can help with both cashflow and fundraising.
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Karyn Miller:
Financial pitfalls that early stage companies can avoid, revenue is probably one of the biggest issues. Having revenue recognized accurately and properly so that nobody questions it, especially when you go out to do a fundraise is super important. Every investor's looking at revenue and does it make sense? Investors are going to look at, do you have your cost classified correctly? I worked with one company where they did not understand the concept of cost of goods sold. They didn't want to understand the concept of cost of goods sold because they had never thought about it that way. It wasn't how their board was thinking about it at the time. And I was like, well, there's all these costs that are sitting in operating expenses that should really be in cost of goods sold. And they said, well, no, no, we just want to keep it the way it is. All right. Well, you know what happens when you keep it the way it was? When we went out to talk to investors, all the potential investors said, shouldn't all these costs being up in cost of goods sold and shouldn't we be looking at your business on a gross margin basis? And I was like, yes, I think that is right. Yes, yes. I think that's absolutely accurate. And so that's now how the company is looking at it. You don't want to find those things out when potential investors are looking at it. You want to know it going into the process. Another really important thing, I had a client who, when I came on board, they had a huge amount of accounts receivable. Their business has shifted from credit card to invoicing over time, and they didn't recognize the fact that they needed to go collect all this money that was sitting on their AR. I came on board and said, wow, if you looked at your day sales outstanding? You probably need to put a human against this. And this was a great example of a company who was doing fantastic, had one person working for them internally in the accounting department, but she was trying to do everything herself. And I came along and said, you need more people and you definitely need to be focused on day sales outstanding, because who doesn't need some more cash in the bank? These are what investors are going to look at and why I think it's important that if you're going to fundraise you want to have a good financial team in place that can help you ensure that everything is buttoned up. It's super meaningful to investors. It shows you understand your business and you know it's important when you come to them with financial statements that make sense and that, investors aren't questioning