April 16, 2024

218. Early Financial Pitfalls feat. Karyn Miller, Principal at AVL Growth Partners

218. Early Financial Pitfalls feat. Karyn Miller, Principal at AVL Growth Partners
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Season 4

Text your thoughts directly to Rich.

Avoiding some common financial pitfalls can help with both cashflow and fundraising.

About AVL Growth Partners
AVL Growth Partners, founded in 2009, is the leading fractional Finance and Accounting firm supporting organizations in pivoting from growth to scale. AVL brings an experienced team of CFOs, Controllers, and Accountants to your organization, delivering transparent, strategic actions for short and long-term success. Transform your financial approach affordably with AVL, supporting companies coast to coast - get to know AVL Growth Partners at avlgrowth.com. (Sponsored)

About SpringTime Ventures
SpringTime Ventures seeds high-growth startups in healthcare, fintech & insurtech, and logistics & supply chain. We look for founders with domain expertise, forging a path with a truly transformative technology. We only invest in software-based businesses in the USA. We bring a people-focused approach, work quickly, and reach conviction independently. Our initial check size is $600k. You can learn more about us and our approach.     

Transcript
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Financial pitfalls that early stage companies can avoid, revenue is probably one of the biggest issues.

00:00:06.410 --> 00:00:13.669
Having revenue recognized accurately and properly so that nobody questions it, especially when you go out to do a fundraise is super important.

00:00:14.220 --> 00:00:16.820
Every investor's looking at revenue and does it make sense?

00:00:17.320 --> 00:00:21.899
Investors are going to look at, do you have your cost classified correctly?

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I worked with one company where they did not understand the concept of cost of goods sold.

00:00:26.449 --> 00:00:31.350
They didn't want to understand the concept of cost of goods sold because they had never thought about it that way.

00:00:31.390 --> 00:00:33.380
It wasn't how their board was thinking about it at the time.

00:00:33.380 --> 00:00:38.509
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.

00:00:38.509 --> 00:00:40.270
And they said, well, no, no, we just want to keep it the way it is.

00:00:40.700 --> 00:00:41.119
All right.

00:00:41.649 --> 00:00:43.799
Well, you know what happens when you keep it the way it was?

00:00:43.799 --> 00:00:53.570
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?

00:00:53.570 --> 00:00:56.450
And I was like, yes, I think that is right.

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Yes, yes.

00:00:58.369 --> 00:01:00.060
I think that's absolutely accurate.

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And so that's now how the company is looking at it.

00:01:02.320 --> 00:01:05.414
You don't want to find those things out when potential investors are looking at it.

00:01:05.700 --> 00:01:08.004
You want to know it going into the process.

00:01:08.584 --> 00:01:14.575
Another really important thing, I had a client who, when I came on board, they had a huge amount of accounts receivable.

00:01:14.834 --> 00:01:23.284
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.

00:01:23.635 --> 00:01:26.334
I came on board and said, wow, if you looked at your day sales outstanding?

00:01:26.418 --> 00:01:28.507
You probably need to put a human against this.

00:01:28.998 --> 00:01:36.658
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.

00:01:37.237 --> 00:01:43.778
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?

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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.

00:01:54.731 --> 00:01:56.272
It's super meaningful to investors.

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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