New York City based NewtonX has revolutionized the way that businesses quickly and effectively acquire the right information. With clients like Microsoft, Google, and many other major tech companies, you’ll find NewtonX published in the pages of Fortune and other business tomes which vet its importance in today’s business climate. The company’s Head of Finance Lorenzo Seu was brought aboard in a role which exceeds traditional definition by helping the NewtonX scale at every level. AI is a core of the NewtonX approach and is essential to delivering the expedient and customized information it’s known for delivering. Mr. Seu’s role as a financial expert is similarly unique within this process.
Though NewtonX’s use of AI takes advantage of a sleek approach which includes less humans, the company itself makes optimal use of people who contribute more greatly than their counterparts throughout the industry. Mr. Seu’s role as Head of Finance saw him collaborating with the Product, Engineering, and Operation teams to implement new methods and communicate with the global experts who add such value to the company’s innovative approach. From a fully automated reward system to automated project management tools to the design of fraud protection controls, Lorenzo redefines the contributions of a modern Head of Finance. Accounting, leveraging automation and APIs (Application Programming Interfaces-software intermediaries which allow the building of a “bridge” between two applications), are just some of the fresh approaches Lorenzo brings. As such an integral part of the finance approach of NewtonX, Seu is immensely qualified to coach others on how young entrepreneurs and startups can build a finance function from scratch. What follows is the expert advice of Mr. Seu in hopes of creating a sound and exemplary finance foundation.
Accounting as a starting point (=source of truth)
Begin by making sure all the historical transactions are booked (opening balance sheet and P&L + bank statement reconciliation). Get the right accounting software. No need to get an expansive one. Online accounting software is available for just a few dollars per month. The success of a Finance function is rooted in solid foundations based on accounting. Having a well-organized classification of revenue and costs allows leaders to better understand the company and make the right business decisions. Create an organized but not overly detailed Chart of Accounts (revenue, rent, insurance, payroll costs, etc.). Daily bookkeeping and monthly statements will avoid huge headaches and hours of extra work at the end of year when preparing the income tax returns. Hire an external accountant to help you understand what is required and give you advice to help you handle the accounting operations on your own. Startups don’t necessarily need to have an accountant with ten years of experience. You can also find a great deal of inexpensive or even free advice online to supplement this.
Set a few basic accounting processes around bookkeeping, revenue, and expenses
Discipline is the key to success. Adhere to the concepts of (i) repetition and (ii) rules/best practices.
Repetition – In order to stay organized, I recommend defining a strict calendar of tasks during the week. For instance, work on sending all the invoices on Monday, review and pay all the vendors invoices on Wednesday, work on bookkeeping every morning during 20 minutes. Remind clients to pay late invoices on Tuesdays, etc.
Respect the Rules – Design a Finance Strategy with a set of rules for each process
-Clients: define the payment terms (i.e. number of days given to a client after the invoice is sent). Usually payment terms are defined by the industry or the sector. “Net 30 (days)”, “Net 45 (days)”, etc. Make sure you negotiate the payments well with each client; the earlier you get paid, the better. You can implement some additional fees or interest for late payment. Send reminders to your clients before the due date and multiple reminders as soon as an invoice is not paid in time.
-Vendors: You also want to negotiate the payment terms with your vendors. The later, the better. Implement a systematic “Net 45 or “Net 60” days after you receive the invoice but also define when the invoice should be sent. For instance, instead of accepting to pay upfront, negotiate quarterly payments. Also, always negotiate the price of contracts or licenses purchased. Ask for trial periods. Be organized, store all the contracts in the same place, and put calendar reminders of when a contract is ending: you want to avoid an automatic renewal that you cannot cancel after the renewal date has passed. Volume is one of the best ways to negotiate with a vendor.
Identify the most urgent needs for the finance function of your company
Lorenzo confides, “When I joined NewtonX, it had been in existence for more than two years and almost nothing had been done to structure the finance function. It is extremely important to design a roadmap with reasonable and realistic objectives. NewtonX processes hundreds of payments every day. Creating a finance function from scratch is overwhelming, especially if the finance function has been neglected in the past. Helping the business to scale is in my opinion the highest objective for the Finance team.” Mr. Seu proposes following these tips:
-Prioritize – Ask yourself what is the most urgent? Cleaning the accounting? Creating Reporting or activity dashboard ? Building new processes?
– Automation – Finance teams usually have the smallest budget in startups. The Finance team is also very low in terms of priorities, time and, resources. A good finance leader needs to find ways to automate the manual work, then reduce time spent and errors. This helps allocate more time on value added task such as designing processes, roadmaps, or analyzing data.
-Take shortcuts – Finance professionals tend to be organized and seek perfection. In my experience from being a consultant at KPMG, I had high quality standards in my work. Quality and efficiency don’t always get on well with each other in a startup. While I was obsessed with always improving bookkeeping, I finally decided to pause accounting processes development to focus on more value added tasks such as automation of payments or developing reporting for the top management.
– Be flexible : things rarely go as planned and in a young start up, the process can significantly change in a six-month time period. Don’t spent too much time implementing complex and expansive tools.
Train all the teams to instill discipline, rigor on finance related processes
The key to success can be a simple as explaining why rules and processes are so important at the company level. Relating why a startup needs to be cost conscious is obvious but executives or team members need to understand the reality of it with quantitative inputs. Any Finance leader needs to provide a “Budget versus actuals” dashboard to help executives and leaders stick to their expenses in the plan. At a minimum, the dashboard needs to be provided once per month (end of month). Make this information easily accessible. Lorenzo conveys, “At NewtonX, I gave a lot of training on best practices to make sure the Finance team collected accurate and timely information to invoice. One of the many things I implemented was code projects, or PIDs. The business urgently required code projects to better track revenue and costs at the project level. Implementing this was more complicated than it seemed. In addition to the training, it was necessary to repeat instructions and provide written instructions on an internal web page to ensure people were fostering the best practices. While many people were seeing it as a new constraint, I explained the advantages for everyone to ensure adoption.
With this approach, a finance foundation is established that not only serves the company, it empowers it to grow and concentrates efforts in lacking areas. Vigilance is paramount. Knowledge is a powerful asset and should be constantly sought out. Lorenzo suggest partnering with other leaders and building dashboards to track metrics and performance and establish an ease of communication. Keep your eyes and ears open for new CFO tools, management tools, and your competitors. You can set an example of excellence that others will readily follow.