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After a startup gets an influx of cash, it can be tempting for the management team to spend money indiscriminately. There are 4 roadblocks to this:
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The CEO’s conscience: a startup CEO was able to secure funding because they are truly passionate about what they are building. They’ve given up equity in their company in order to build something much bigger. I’ve worked with over 150+ CEOs and not a single one spent money freely. In fact, they’re often the poorest paid employee (by their own choice).
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Board Meetings: during a board meeting, your financial history and financial projections will be bench marked. If there any accounts that have ballooned beyond reason, the management team will be lit on fire. (Not literally, but it will feel like it.)
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Investor Financials: the angels, VC firms, and other institutions will request to see your financials on a monthly or quarterly basis. They want to know how their money is being spent.
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Your Interim CFO: A good interim CFO will let you know if your spending has strayed from the norm. Having a financial model that shows your startup financial projections can really help - this gives you a budget against which to compare the company’s actual performance. And well run companies with boards should have a board approved budget, so this can serve as a guideline and check on the management team spending too much money.
Hope this helps, but feel free to reach out to me at vanessa@kruzeconsulting.com if you have any more questions.
