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How to Scale Startup Finances

How to scale startup finance nitrobox blog feature image of growing saplings

Scaling a startup’s finances presents opportunities and challenges in equal measure. Consider that about 90%1 of startups fail—and this often happens in the scale-up phase2.

When companies scale too quickly, a tell-tale sign is they acquire more customers than they can serve. This often leads them to over-hire in a bid to keep up. While this strategy might work for a while, worrying problems will be swept under the rug as the company chases short-term results over long-term stability.

Errors compound and key work slips through the cracks, impacting the company’s customer retention rates. Budgets tighten while salaries stay static—further impacting the organization’s culture and prospects. It’s a bleak prospect, but what about the alternative? 

If companies scale too slowly, they may lose out on their first-mover’s advantage. Their innovations will be replicated, and rolled out at scale, by competitors. They might have been the first to make a product or sell a service, but they will quickly become second-best by moving at a snail’s pace. 

But timings aside, why exactly do so many startups/scaleups fail? Often, it’s because they’ve neglected their financial infrastructure. Consider that 82% of failed startups suffer from poor cash flow management3.

This post will examine why startups should focus on scale, not growth when outlining how to implement the right financial infrastructure to succeed.

The difference between scaling and growth

It’s worth first clarifying the difference between growth and scaling to create a little structure. There are a lot of interpretations, and sometimes scale and growth are used interchangeably. For the sake of this article, growth means adding more resources (people, budget, technology, etc.) to increase revenue. Scale, however, means unlocking greater revenue from the same number of resources. In the case of many SaaS providers, growth can also be used to describe the growth of one’s user base. However, for the sake of ease, we will stick to the definitions mentioned above throughout this article.

Scaling requires maximizing the value from existing resources—whereas growth relies on pouring more and more in, expecting this to generate greater results. Therefore, companies should focus on setting themselves up to scale successfully instead of chasing growth.

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How to scale a startup’s financial infrastructure, setting the business up for long-term success

Keep these 6 points in mind when building intentional, reliable startup finances.

1. Automate billing & invoicing

Billing and invoicing is the lifeblood of any organization. If you don’t bill/invoice your customers accurately and on-time, your cash flow will suffer. Scaleups must establish foolproof billing and invoicing processes that are as accurate, and efficient, as possible. Reducing the change for error and time required enables your team to complete the same work, faster, and to spend time on more business-essential projects.

This is where billing automation comes in.

By implementing automation-based solutions, companies can wave goodbye to time-consuming manual processes, creating accurate invoices without lifting a finger.

2. Establish the customer payment lifecycle (from purchase to recovery and dunning)

Make it as easy as possible for customers to pay your business. Create a financial infrastructure that accepts one-time transactions, issues recurring payments, and automates payment assignment and allocation at scale. Ideally, your financial infrastructure should seamlessly integrate with a range of bank accounts and payment service providers (PSPs). This is simple to set up with the right payment management software.

You should also automate entire stages of the customer lifecycle, such as the dunning process, thereby reducing days sales outstanding (DSO) and preventing revenue leakage. Additionally, consider automating all contract renewals to prevent churn. This will allow you to seamlessly handle a time-consuming (yet crucial) administrative process while you focus on other projects.

3. Set up real-time financial reporting capabilities

Many scaleups lack the financial reporting and analytics to identify valuable new insights. For example, they might miss out on key cashflow opportunities and potential revenue drivers. They may offer subscriptions but have no subscription analytics. The solution? To implement accurate, real-time financial reporting and analytics capabilities.

By doing so, they can create high-level reporting dashboards to easily view key metrics—and communicate these insights to stakeholders. Or they can dive deeper, configuring custom data visualizations with charts and tables.

4. Establish audit flows/double authentication of ledgers

 Audits wreak havoc on a scaleup’s momentum. When auditors are knocking at their door, companies must scramble to get everything in order. For example, they need to ensure their subledgers and general ledger are both up-to-date, reconcile their internal ledgers with their bank accounts, and identify where their mountain of financial data is stored.

This can be a painful and time-consuming process—unless scaleups have the correct financial infrastructure in place.

What’s more, the platform extensively logs all important events, giving staff and admins the peace of mind to know that you’ve met all compliance criteria.

5. Ensure compliance and data security

Scaleups must partner with financial technology vendors that prioritize data security. This is crucial to their long-term success.

It doesn’t matter how strong your company’s internal approach to data security is. If you partner with an external third party who also has access to your data, this data is only as secure as their data security protocols.

If you operate in Europe, or sell to European customers, ensure your financial technology is GDPR-compliant. Only partner with vendors that prioritize information security. Make sure their information management systems are ISO 27001-certified if possible.


6. Ensure you have the right tools to manage tax and accounting across your current and desired markets

Finally, make sure you stay on top of your tax and accounting duties. Partner with vendors that can effortlessly handle multiple foreign tax scenarios as well as allow you to establish custom rules for currency, geography, or business model.

 This also makes it easier to expand into new markets. Scaleups can seamlessly roll out flexible monetization structures worldwide, automatically ensuring compliance with global regulatory and tax requirements.

Measure twice, cut once

Scaling a startup is a fun, exciting time, but the process is also fraught with risk. You need to scale at the right time, at the right pace, and ensure you have the right infrastructure (especially financial) in place.

If you’re getting started scaling your startup (like if you just closed series A or even B), schedule a demo with a Nitrobox expert today to ensure you’re following the right approach. They’ll look at your current financial operations approach, share best practices, and answer any burning questions you might have.

In other words, they’ll help you bring your startup’s financial infrastructure up to scratch.


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