Four Ways to Protect Your Technology Business from Start-up Risks
May 11, 2023
Protecting Your Start-up Begins with Understanding Your Business’s Risks
Technology companies in the start-up stage have a seemingly never-ending list of to-dos to ensure business success. From hiring to protecting intellectual property to finding the right investors, CEOs in this space have a lot to juggle.
Companies can prepare for unexpected events like banking collapses, pandemics, and economic downturns by implementing best practices. This will help them become more agile and resilient, allowing them to come out stronger in the end. Leaders of emerging technology companies in the current unstable economy need to take four essential steps. These steps will ensure that their company’s financial and operational systems are prepared for any situation. This is particularly important in light of recent bank failures.
1. Focus On Liquidity To Reduce Financial Risk
Technology companies need to ensure they conserve enough cash for short-term needs and basics, such as making payroll. During a recession, when it’s hard to raise capital, business leaders should focus on using the cash they already have. They need to find a balance between growing their business and making a profit. To reduce liquidity risk, technology companies need to:
- Analyze recurring charges that impact the monthly burn rate.
- Communicate with their investors regularly for transparency.
- Review banking relationship(s) and cash in excess of FDIC limits.
- Utilize government programs available to obtain cash, such as the Employee Retention Credit or Research and Developments Tax Credits. Some states have a refundable credit or utilize federal credits to reduce payroll taxes if certain criteria are met.
- Review expenditures to determine what is driving top-line growth and reduce costs for those items that are not driving growth.
2. Create or Strengthen Processes and Controls Framework
By centralizing your company’s data, technology and financial controls in an accessible location, you establish an organization that not only keeps all regulatory requirements in place but also allows for real-time visibility of data. This provides reporting and analytics to effectively measure performance and manage risk.
An important factor to keep in mind when aligning data and controls is to test the strengths of the cybersecurity and data privacy systems. When a company has the right systems and tools in place to monitor its financials, not only will processes and controls be improved, but it ensures the company meets any risk and/or regulatory compliance requirements while minimizing risks associated with non-compliance.
3. Maintain Accurate Reporting to Inform Wise Decision Making
Most high-growth, early-stage technology companies work so hard to get their product to market and scale the business that the back office can be neglected. When the month-end reporting takes too long or your team is buried in spreadsheets, not only do operations fall behind, but the business is at risk of greater reporting errors.
Maintaining better, more accurate financials month after month gives leadership real-time insights into the business, allowing for faster and better decision making. Outsourcing these activities can further reduce costs while saving time and allowing your core team to execute on the business’ strategy and growth initiatives.
Selecting the right ERP solutions, accounting software and other tools to streamline financial processes is crucial during times of uncertainty or change. More specifically, companies should seek to utilize automation within the billing and sales process by identifying a thoughtful mix of digital platforms that communicate with one another.
4. Protect Your Start-up’s Financial Assets
To start and grow your technology company successfully, you should be aware of how and where you are keeping your money. A trusted institution with the Federal Deposit Insurance Corporation (FDIC) insurance provides the best protection for your funds.
Research your bank’s overall financial condition by reviewing audited financial statements as well as the bank’s quarterly CALL reports. Take adequate precautions to secure your money beyond FDIC insurance limits with programs such as the Certificate of Deposit Account Registry Service (CDARS). Finally, we recommend diversifying your banking relationships to facilitate ease of transition from one bank to another bank.
How We Can Help Protect Your Tech Start-up from Financial Risks
It is never too early to take a good, hard look at your technology company’s financial and operational health. At Cherry Bekaert, our goal is to guide you forward: to help protect and grow your business’ assets, establishing resilience for long-term success. For more information on establishing or enhancing your organization’s risk program, contact Cherry Bekaert’s Risk & Accounting Advisory practice or your Cherry Bekaert advisor.