Xero Helps Startups Use Financial Transparency To Raise Capital
At any life stage of a company, being truly open and transparent about your finances can be intimidating. If you’re doing well, you may be happy to show them off. But if you’re starting out or going through difficulties, you’re opening yourself up to scrutiny.
What if our accounts show we’re wasting money? What if we’re not making enough money? What if our competition finds out and is doing a lot better than us? It’s understandable to be paranoid.
At last week’s XeroCon in San Francisco, Xero’s inaugural conference, the idea of being financially transparent emerged in a conversation with founder and CEO Rod Drury. For startups raising money from an investor or a bank, sharing financials is expected. But with Xero’s online accounting software, customers can share a read-only version of accounts in real-time with anyone all the time.
Xero accounting dashboard
“Startups should be capturing data to build up value. They should have a clean set of financials to get funded,” said Drury.
Raising capital is tough. Clawing for cash against fierce competition can be draining. That’s why Drury argues that having a well-maintained, comprehensive accounting system is an advantage for getting funded. Firstly, “credible founders care about financials,” and secondly “investors want to know that [startups are] spending money wisely,” added Drury.
Especially in Asia where investors put a bigger emphasis on traction and financial fundamentals, it’s an advantage for startups to prove their accounting management rigor by allowing them to see behind the veil. Venture investing in Asia is still relatively new, so many investors perform more due diligence on the numbers of business rather than take a large bet on crazy moonshot ideas.
Investors don’t want to see startups burning cash on unnecessary expenses, especially at a precarious time. “You will be judged on whether you will be a good financial steward. It is a huge red flag if they do due diligence and they don’t have an accounting function in place,” said Kenji Kuramoto, CEO of Acuity, a bookkeeping service for start-ups.
Likely the most daring display of transparency for a startup is Buffer. They are known to have a public facing dashboard of their financial metrics including revenue and churn. They even publicly publish employee salaries and how they are calculated. For startups wanting to attain the same level of financial and performance metric transparency with investors, CrunchBoards is a Xero plug-in that can create a forecasting and reporting dashboard based on actual accounts.
As rules and regulations in Asia develop to catch-up to speed with the pace of innovative startups, it is beneficial for startups to always have their accounts and financials in order. Founders don’t want to be panicking about if something is an expense or an asset, or how much debt they owe. This is especially true for highly-regulated industries like fintech.
Being financially transparent can be daunting. But if it makes the difference between securing valuable capital or not, you should.
(Here cover technology, entrepreneurs and start-ups in Asia and Australia.)