· 2 min read
How to Fail Out of the Gate
Explore a bad characteristic that dooms many startups. You will not be able to make any progress or grow if your financial hygiene is poor.
The picture above shows a company having a meeting and analysing how their company is doing. Imagine what that meeting would be like if they didn’t have any numbers to talk about. For instance, if they didn’t have an accountant, or if their accountant wasn’t doing their job. They would have to turn off that beautiful dashboard with all those pretty graphs. It seems ridiculous, but this is exactly the situation at many startups.
I have been a Fractional CFO for about five months now. I want small brands to succeed. But I have reluctantly come to a sad conclusion. Without exception (so far), companies under $1 million in revenue have no accounting in place. They may have signed up for QuickBooks online and connected their bank accounts, but that’s about it.
When I meet with them, I am unable to give them any advice regarding how to fix their financial problems because there is no idea how much their product costs to produce, how much they are spending on promotions, or even how much they are spending on other expenses such as marketing, salaries, office, travel, and so on.
It gets worse. When the company meets with investors, they are unable to provide basic financial information such as an income statement or a balance sheet. No serious investor is going to invest in a company that can’t be bothered to track where investors’ money is going.
You might think this is the exception. It is not. It is the case in every company under $1 million I have dealt with. Unfortunately, this is a quick road to oblivion.
Business is all about making money. If companies don’t keep track of their income, expenses, assets, and liabilities, they should never have gone into business in the first place.
85% of CPG companies fail. There are many reasons for this. However, one reason is that many founders simply do not have what it takes. If they do not take their accounting seriously, they have no business being in business.
The difference between big companies and small companies is more than their sales. It is fundamentally the people who are running the company. Ask yourself if you have what it takes to run a large company. Start by being able to produce an income statement and balance sheet at any time for whomever asks for it.
