In today’s episode of The Startup Chat, Steli and Hiten talk about startup money management.
In the startup world, it’s very common for founders to overlook the significance of how their money is managed. Properly managing your startup’s financing is super important and not doing so can have serious consequences for your startup.
In this week’s episode, Steli and Hiten talk about what money management means, why you should take money management seriously, how to deal with upfront revenue and much more.
Time Stamped Show Notes:
00:00 About today’s topic.
00:32 What money management means.
01:40 What money management is all about.
02:43 How to deal with upfront revenue.
04:11 The best money management advice for new startups.
05:53 Why you should take money management seriously.
07:15 How founders run into money management issues.
10:31 Our first sponsor.
10:46 Why you shouldn’t do your own accounting.
11:30 About Pilot.com.
3 Key Points:
If someone pays you upfront for a year, how do you recognize that revenue?I will find a way to make it someone else’s problem.You can’t afford to completely ignore it.
Steli Efti: Hello everybody. This is Steli Efti.
Hiten Shah: And this is Hiten Shah.
Steli Efti: Today on the Startup Chat, we're going to talk about startup money management. Ooh, what does that mean?
Hiten Shah: Yeah, this is the one we've been wanting to do for awhile. And this is one of those where like, "Ah, what's this money management thing? That's not the fun part of startups?" You know, and it's like, well it's what startups in business is all about. You make money, or maybe you don't make any money yet, but you're still managing money because it's likely you're spending money somewhere, right? Even if it's with a bunch of software that you buy. So we wanted to talk about money management and why it's important as a founder, and why it's a skill that you need no matter what.
Steli Efti: So you said not sexy. So this is not about how do we take the money in the bank and invest it in other startups to get a faster ROI or higher ROI that we can. This not about any of that shit, right? This is about money's coming in, money's going out. You have to keep track of all of this. There's taxes to be paid. We've heard many stories of founders and startups getting into real trouble. Maybe we should do a whole episode on how not to get in trouble with your taxes, because-
Hiten Shah: Oh that's great.
Steli Efti: Right. Because this is such a big topic. It's not sexy, but you know how many founders get in real trouble, because they mess up the bookkeeping, or the mess up their taxes, and boom, all of a sudden surprising big bill that comes from the government and there no money in the bank. And what the hell do we do? Like scramble, scramble, scramble, or you're the case that's like you get audited. Congratulations. Ever gotten audited before? It's not a lot of fun.
Hiten Shah: Yeah we have. Yeah. It's not a lot of fun. Another one is revenue recognition.
Steli Efti: What is that? Do I just look at my revenue and try to recognize it? Or what exactly did you mean?
Hiten Shah: If someone pays you upfront for a year, how do you recognize that revenue? [crosstalk] All at once? Or is it for the month that ... Do you spread it out across the month that you actually are supposed to get it for, because they paid up front for a year. Which means that you're supposed to amortize it as they say across the 12 months. You're supposed to split it up by 12, and provide basically accounting in a way where you know that that's how it impacted let's say your MRR. Right? Because that's monthly recurring revenue.