Reporting Requirements for a Mature Startup

There is no cookie-cutter financial system applicable to all startups. The right setup depends largely on the requirements of the business and its stakeholders. Pre-seed companies can manage with a much leaner approach to finance in terms of accounting setup, systems, and reporting.

However, as the company matures and advances, so do the company’s financial requirements. This applies from an operational standpoint and in terms of investor relations and legal reporting requirements. 

Once a company successfully raises Series A funding, it should have a robust financial setup to fulfill reporting and filing requirements with the IRS and other authorities. 

Operational Action Items

Finance Team

A maturing startup also needs a solid team to manage the financial side of a more complex business. Your startup will likely need to fill the following roles:

  • Staff/senior accountant. This person will monitor and manage all accounting-related data.
  • An accounting manager to steer your financial reporting processes.
  • A financial analyst to analyze internal financial data and drive operational decision making with the use of financial information.
  • A controller to manage month-end closing processes and understand budget vs. actuals analysis.
  • A fractional CFO for financial modeling and strategic decision-making.
  • CPA firm to ensure proper reporting, tax filings & planning.

The roles above may not necessarily all be full-time positions.  In fact, that is rarely the case.  In reality you will need a little bit of expertise from each of those roles outlined above.  Hiring each role separately on a part-time basis is time consuming and inefficient.  Hiring each resource as a full-time employee is cost prohibitive.  Instead, the best approach when you’re in this position is to outsource to an accounting firm with these capabilities.  This approach enables you to tap into the different skill sets you need in a cost effective and efficient manner.

Scope of Operations

Your finance team should drive excellence through the organization, constantly updating and maintaining the financial models and driving data-based decision-making. 

Monthly closing and reporting processes should work smoothly while ensuring timely and accurate financial reporting. As the monthly close creates the basis for all reporting processes, the team should consistently improve the processes.

At this stage, the finance team should also take a significant role in ensuring compliance at various levels and functions throughout the organization. 

This could mean making sure the payroll systems are compliant with applicable regulations. It could also mean ensuring the teams follow internal procedures to reduce the risk of fraud. 

Tech Stack

The tools your company uses can have a big impact on the efficacy of the organization. 

Companies that have raised Series-A have likely moved past using simple spreadsheets for financial recording and modeling

Depending on the size and complexity of the business, you might want to reevaluate whether the likes of Quickbooks Online or Xero can still meet your accounting needs. It might be time to look into an ERP-type solution like Sage Intacct coupled with Jirav for your reporting needs.

On a more technical side, A/R (accounts receivable) should rely on software solutions like Stripe and Chargify, while A/P (accounts payable) should be using reputable payment systems, e.g., Bill.com, Airbase, or Melio.

Investor Reporting

In addition to fulfilling the legal requirements, a mature startup needs to provide a formalized reporting package delivered regularly to the board and other key stakeholders. 

Whether you’re publicly traded or privately held, your investors want to hear from you. Although only required for publicly traded companies, regularly sharing a quantitative and qualitative assessment of the company and its performance is much appreciated. 

These investor updates can take the form of a monthly or quarterly email. The frequency depends heavily on the amount of movement seen in key metrics. Especially in the early stages, sending updates too often risks conveying the message that not much is happening. 

However, don’t make the investors ask for updates. Many interpret a lack of info as an ominous sign that the company will not be around for much longer. 

5 Things that Belong in Monthly (or Quarterly) Email Updates

  1. Key financial figures (including the variance vs. the last reported period):
  • Revenue
  • Expenses
  • Cash on hand, burn rate, and runway
  • EBITDA
  1. Traction and how the customer base is developing:
  • Churn
  • Major new business acquisitions
  • Customer lifetime value
  • Number of active and paying users
  • Any other key metrics relevant to your business
  1. Key product updates

All changes you’ve made to your offerings within the period, especially major ones that affect the value of your products or services.

  1. Business Updates
  • Key hires and departures
  • Key partnerships
  • Major operational changes
  • Changes to the marketing strategy
  1. Funding, new investments, and M&A activities

Legal Reporting Requirements

Once you hit Series-A, you should be close to GAAP compliant and use an accrual-based accounting methodology. To ensure compliance and reduce investor risk, investors may require that the company undergo regular audits by an independent public accounting firm. 

In particular, you’ll want to consider the following GAAP standards::

ASC 205 – Financial Statement Presentation: This ASC outlines which accounting statements are necessary considering: overall guidance, discontinued operations, going concern basis of accounting, and liquidation basis.

ASC 605 / ASC 606 – Timing of Revenue Recognition / Revenue from Contracts with Customers : According to the standard, revenue should be recorded when services have been performed, or the product has been delivered. A different standard applies to revenue recognition from the sale of software. This standard requires partial revenue recognition before the contract is completely fulfilled.

ASC 705 – Cost of Sales and Services: This accounting standard contains two sub-topics: overall guidance on codification topics related to selling cost and accounting for consideration received from sellers, which states consideration should be accounted for by reducing the purchase price.

ASC 71X – Compensation: These provide guidance related to different aspects of compensation like deferred compensation, paid absence, and all other forms of compensation.

ASC 730 – Research and Development: This standard provides guidance on which expenses should be capitalized and which should be expensed out. It provides a list of the included and excluded activities for R&D. 

ASC 718 – Stock-based Compensation: ASC 718 prescribes the way companies charge expenses in the income statement under share-based payments. The standard provides three basic steps that should be followed for share-based compensation expenses in the income statement.

  • Calculation of the fair value for an option.
  • Allocation of the expense over the economic life of the option.
  • Reflection of the expense in an income statement.

Achieving Operational Maturity

A mature startup needs to fulfill a much more diverse set of reporting requirements than one just launching.

In addition to building out the team and tech stack, it’s also time to implement regular reporting to investors and fulfill all the legal reporting requirements. 

Decisions and processes can quickly become complex. There is no one-size-fits-all financial system for your startup. That’s where Founder’s CPA can help. Set up a free consultation with our startup experts if you’re ready to put reporting systems in place, or want some guidance figuring out what’s right (or necessary) for your startup.

Curt Mastio

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Curt Mastio

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