Now that you have the funding from investors, then the company must deliver what it promised in its plan. Earlier blogs discuss the elements of a business plan. Part of the plan has to include milestones to reach, financial projections, and the description of the execution of the business plan. Generally, these milestones have to be in months. With the financial projections, you can now begin to make a comparison of what the planned financials look like versus the actual expenses incurred – namely, the variance analysis.
You hope that your projections fall closely with the actual expenses. You have an outside CPA provide a monthly balance under GAAP standards. An outside, licensed CPA should provide the comforting reports that third party investors will rely on. Given that a start-up financial transaction volume should be small, the costs are reasonable and merit the incremental cost (which should be included in the projections). Purchasing an accounting software will help reduce those costs by following the entries and keeping the records diligently.
The next but most important step is to meet your projections and milestones. Credibility is the best currency in attracting and maintaining investors. That credibility can only be created by delivering what the business plan promised. This recommendation cannot be over-emphasized. This aspect of startup management is so critical that I prefer to present this presentation to the startup team during the first week. Mind you that even a publicly traded company undergoes credibility issues in front of Wall Street analysts. Failure to meet one quarter expectations is not a failure but to continue to fail meeting targets after 2-3 quarters can be fatal. There is no better time to learn this critical lesson from day 1 of a startup.
Why are the milestones so important? Let us say that you stated that you will have a platform ready in 3 months. Your plan suggests that you and your team have the right skills and experience to deliver that platform. Your statement also suggests that you know how to select your team. Then the quarter passes by and the product is not ready. Assume that I am the VC manager evaluating what had happened. Does the CEO know what he/she is doing? Maybe the platform is too complex for this team? Possibly the managers didn’t select the right resources?
In fact, any reasonable investor will begin to question each and every element of the plan that had been presented – all derived from the failure of not meeting a milestone. The same thought process goes through Wall Street analysts as well. The bottom line is that failures to meet milestones raises the specter of lack of credibility between the Company and the investors. Not a place anyone one want to be at any time to raise additional capital.