Advice for Startups from your Financial Partner — myStartUpCFO
I recently spoke with finance leaders from a couple dozen startups. These businesses ranged from seed stage companies where the CEO was the finance leader to growth stage companies with an in-house CFO. In these conversations, I observed each finance leader had a different perspective and approach with their financial accounting partner.
I caught up with Sandeep Shroff, Co-Founder and CEO of myStartUpCFO, an accounting firm that provides on-demand full-stack CFO services for startups. Over the course of 7 years, myStartUpCFO has helped thousands of entrepreneurs realize their dreams. I’d like to thank Brian Bordley at SkyDeck for introducing me to Sandeep.
1. Please introduce yourself, your firm, and the services you provide. How did your journey with myStartUpCFO begin?
The founding of myStartUpCFO was a bit of an accident.
My career has spanned software development, equity research on Wall Street, M&A and IR at Infosys, and entrepreneurship. My first startup was an equity research firm focused on operational data; we were early adopters of cloud technology and used software to automate systems to pull unstructured data and scrubbing it into a usable structured format. Unfortunately, that journey came to an end because of The Great Recession.
I regrouped and started consulting for various clients, private and public, in roles ranging from product to operations to finance to general management. There was an obvious pattern: most of these clients needed help raising money, cleaning their books, and creating a pitch deck. More and more, I found myself playing the role of an outsourced CFO — especially with tech founders who knew their code like the back of their hand, but struggled with handling finances responsibly. It seemed like a niche opportunity to explore, and after a conversation with a friend and former colleague from Infosys who specialized in taxes, we started myStartUpCFO.
I believe companies are social entities that should serve a purpose to society, beyond just commercial profit. For me, the social purpose is rooted in education and literacy. I’ve been involved with the India Literacy Project for 30 years; we raise ~$1 million each year to teach 500,000 children in India. It’s a cause close to my heart — I have observed how many women are forced to drop out of the workforce to raise families and lose valuable skills they have spent precious time earning — negotiation, analytics, and even just general people and time management skills. This not only tips the family dynamic unfavorably, but the children, too, lose out on this learning. I believed the 9-to-5 3-hour commute to job concept is a relic of the industrial era — even before Covid-19!
With that inspiration, we hire many mothers who work from home, giving them the opportunity to build a career and raise a family at the same time — no sacrifices needed!
2. What are the services that startups most utilize you for? What are services that startups underutilize and should use more?
At myStartUpCFO, we help our clients with all their finance and accounting needs — from taking care of their day-to-day bookkeeping, data entry, reconciliation, cash management, to building the three financial statements. Traditionally, bookkeeping is our most popular service. We are also currently helping businesses apply for the PPP, as well as PPP forgiveness, under the CARES Act.
However, there’s one thing I wish our clients engaged us earlier for: strategic decisions. Our founders have a great product vision but that doesn’t mean they know the difference between running accounting on Quickbooks vs NetSuite. We had an early stage startup almost switch to NetSuite before they needed too; fortunately, we spoke before he made the decision and avoided an unnecessary 50x increase in cost.
Supplier contracts is another area where mistakes often happen. The first page of the contract may stipulate X amount but there are overage fees, contingency fees, bundling requirements, etc. hidden throughout the contract. The final contract amount actually appears on page 6.
I encourage my team to have an ongoing dialogue with the CEOs. In these casual catch-up conversations, we can pick up on business decisions and provide some guidance on how to think about these decisions. We certainly don’t want to undermine the CEO; we recognize it is their business to run. But when it comes to accounting and finance related decisions, we can take best practices and lessons learned from thousands of other startups.
3. How do software tools fit into your operation?
Software is key to our operation. “Data entry, once only” — that’s our philosophy. The data should be entered only once and then we use integrations between systems so that the data flows from the origin source to all the other systems. For example, if the data originates in the banking system, it should automatically feed into Quickbooks.
We have an internal team that evaluates new tools and integrates tools that can automate low value tasks. Fortunately, Quickbooks, Expensify, and Bill.com have excellent integrations built in. But some other tools do not talk to each other. In these cases, we’ll look for an outside vendor to provide that integration. We do all this in an effort to save costs for our clients: the less busy work we have to do, the less our clients have to pay.
4. When your clients scale and hire their first in-house finance person, how should they think about who to hire? How does the working relationship change between you and the startup? How do you split the responsibilities / maintain your value add? How can both sides make the transition easier?
It’s a funny world I live in. If my customers succeed or fail, I lose revenue. I live in that middle area, those 2–4 years from when a startup has just started to when it has a firm product-market fit and really takes off. Ultimately, success for us means the client has outgrown us and will hire an in-house finance person. It’s usually a senior level CFO or VP Finance person who will focus on strategic finance, negotiate with clients, and maximize revenue. Startups often leave bookkeeping tasks with us.
Finance and accounting consist of many niches: accounts receivable management, invoice collection, bill approval, general ledger data entry, bank reconciliation, expense reports, payroll taxes, income tax, compliance, and so on. Whichever person you hire, that 1-person team cannot have all these skills. It also won’t be an effective use of their time. Consider a situation where you need a bookkeeper for 40 hours a month, an accountant for 7 hours a month, a controller for 2 hours a month, and a CFO for 1 hour a month. None of these amount to a full-time job; if you hire a full-time, in-house person, they are underemployed! When the company grows to a point where you need a full time CFO, you may not have full time work for the other roles. This is how we continue to maintain a working relationship with our startups.
The last consideration I’ll mention here is flexibility. If you hire a full-time finance person prematurely and the economy hits a downturn (as it recently did), then you may need to fire this person. As a CEO, you need to balance flexibility with bringing strategic responsibilities in-house.
5. In the current pandemic, what financial advice do you give to early stage startups? What can they do to stay resilient in the face of economic uncertainty?
The situation has not improved over the last 2–3 months. The stock market might have bounced back but that hasn’t reflected in the books for most of our clients. Big enterprise sales continue to be at a standstill. Enterprise customers are still sitting on their hands and not making any purchasing decisions. Given this reality, we are advising our clients to continue focusing on cost control and not to expect revenue growth any more than you did 2–3 months ago. We’ll believe the revenue growth when we see it.
6. Now that you’ve grown myStartUpCFO to this level, what are your business priorities? What do you spend your day optimizing for?
As I mentioned in the first question, we are a deeply mission-oriented company. I optimize for the collective happiness of my employees and customers. We don’t have a fancy corporate vision or strategy. Our mission is summed up in two words: Be Nice. That is the mindset that guides everything we do — and everyone in the team knows that!
