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Controls failures at Start-up examples

What are the top areas of controls that start-ups get wrong, in your experience? The ones that do damage or are simply horrible to fix a year later.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Cash and anything having to do with the preservation of cash.
Lack of a accounting system (any double-entry system). Many use Excel.
Lack of understanding costs, fix/variable/material, needed markups to make a profit

This is just a start....

Topic Expert
Jaime Campbell
Title: Chief Financial Officer
Company: Tier One Services, LLC
(Chief Financial Officer, Tier One Services, LLC) |

Without a doubt: Lack of segregation of duties.

Startups which are not yet sufficiently capitalized for staffing or consultants are often found with a single person wearing multiple hats, especially in the finance function. Coupled with this is too often the phenomenon of abdicating rather than delegating, so while one partner or team member is already wearing too many proverbial hats, no one follows up until checks start bouncing.

Why do you ask? What's on your mind - do you consider Rexanto to be in the startup stage and you want to evaluate the controls?

Topic Expert
Keith Perry
Title: Director of Global Accounting
Company: Agrinos, Inc.
(Director of Global Accounting, Agrinos, Inc.) |

I was asked this by another startup....I wanted to check my gut feel.
The one thing not mentioned yet is customer info security (not a problem if you are using a third party cloud app, but a problem if you collect info).

Topic Expert
Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

Scaling is often the major challenge. By that I mean the ability to step back from day to day operations at times, see how your company has changed, and adapt appropriately to the change.

This can be a challenge for any business - it is critical for tech startups.

The segregation of duties comment is a great illustration. There is no segregation of duties when smaller - it isn't possible. The people are the process - and you add the controls you can. When you grow you need to continually re-evaluate, throw out old models, put in new models and systems - the need to innovate in a start-up effects everyone.

Bob Scarborough
www.tensoft.com

Topic Expert
Mike Caruana
Title: Director of Financial Services
Company: Diamond Resorts International
(Director of Financial Services, Diamond Resorts International) |

Another control mistake is not structuring, capturing and reporting on production/transactional data outside of Accounting needs (i.e. inventory or supply chain controls).

Anonymous
(CFO) |

Cost controls. Plain and simple.

I've worked for two start ups that grew fantastically. One fast enough to be listed in the Inc top 100 one year.

And yet, both were out of business within ten years.

Both offered new services to businesses and initially had the market all to themselves. But, when much bigger players saw the success of these two startups, they set up to compete for market share and changed the whole dynamic.

Both developed the bad habit from the initial rush of rapid expansion and growth, of throwing money & people at every impediment to continued growth that they encountered. This worked fine as long as sales were booming. But, when sales plateaued, as they always will, and margins slipped as competition put pressure on them, there were no controls in place to reign in expenses and the growth in costs continued, eventually forcing both out of business.

Growing sales can cover a lot of sins. Even more so when growth is astronomical. Getting cost controls in place from the beginning, positions the firm well for future situations.

I'm a big fan of Mr. Spivak's fixed vs variable cost reporting and control and helping all of senior management to understand that as a way to avoid this kind of shooting star scenario.

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