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  • Writer's pictureMonty Montgomery

Importance of Confidence and How to Scale Your Finance Function

Updated: Mar 22, 2021

Click below to hear Monty’s financial advice and tips for SaaS startups in the Uncharted 30 min podcast.

Podcast summary:

Poya (Uncharted Host) Tell us about yourself, Monty. Monty My background is startup finance. For the past 18 years I’ve worked in finance. Originally I was in a junior accountant role, then controller, and director of finance, and I’ve been a consulting CFO. I’ve also been the CFO and general partner at a couple of VC funds. I really enjoy working with early stage startups and entrepreneurs to help them get to that next level.

Poya (Uncharted Host) Tell us about MontPac. Monty MontPac is an outsourced finance and accounting firm. We have about 150+ offshore employees in the Philippines that perform internal accounting functions for our clients. We work with a lot of startups and we have as a SaaS specific division. We help companies manage the internal accounting function in a cost-effective and scalable manner. We get to work in a bunch of different situations and we have clients all over the globe - many here in the bay area, and also in Hawaii, Hong Kong, Australia, Canada. Poya (Uncharted Host) One of the things I've learned that separates the best startups from the pack is organization - not only when it comes to their books, but just building the foundation. So let's assume I'm starting a company today. What should I think about from day one?

Monty You need to set up systems and software that you need now, and that you might need in the future. These allow you to be efficient and get the job done so you can accurately interface with your employees and customers. If you're in the US, you incorporate, and then you get a bank account. Once you start selling something, you have sales tax. When you start hiring employees you need to make sure you are staying in compliance. So it can quickly get pretty complex. From a finance perspective many founders think ‘OK, I’ll deal with that later’ and then ‘later’ can become an issue. Also organizing your data is key. You might not need all the data now, but eventually you will. If you're going to raise some capital, you're going through financial diligence and your investors will need to see all your data. So it really is best practice to organize your documents and data from the get go.

Poya (Uncharted Host) And when you say tools where should I start? Do I just start with Google sheets?

Monty You can start with Google sheets but I would start with more sophisticated systems like Quickbooks online or Xero. They're both pretty effective. They have their limitations, but they’re easy to use. Even if you don't want someone doing your books right away because there's so few transactions, just get it set up right - so that you have a place to put things. Then once you have employees you’ll need a payroll system. If you start a company without these basic systems, you're more prone to error. It’s almost 100% likely that you’ll have to redo your basic finances later, and ‘later’ has a higher cost associated with it in terms of time and effort.

Poya (Uncharted Host) So the mentality should be that even if we don’t want to spend money setting up our systems, we really should. It makes you more efficient and frees up your time in the long run. It pays for itself, and helps you avoid expensive and unnecessary errors like late fees. Good advice!

So moving on - nine out of ten times, startups get to a point where they need to raise money. When do you start thinking about that next phase, or scaling the company?

Monty As the company grows, you may outgrow your systems so you need to think ahead. Let's say your business is going well and you keep scaling, then you’ll likely max out Quickbooks online in terms of its ability to manage large chunks of data and transactions. I was talking to a client this past week doing 60,000 transactions a month. They said “we're thinking to go to Netsuite” and based on their transaction volume I think the timing is right for them. If you wait too long, it's a big ordeal to move systems.

On the other hand, if you switch to NetSuite too early, then you’re burdening your team because it's a more complex system. However, you can take the company public, with a tool like Netsuite. So it definitely has value. You kind of have to look at it from a different angle and see when the time is right to switch systems. Another great example, revenue recognition. Tracking all of these contracts in a simplistic system makes it prone to errors. If your revenue is wrong, your books are wrong. Not only do you look incompetent, there are downstream effects like overstating or understating your revenue - which we all know is a problem. So you need a system that can handle revenue recognition as you grow. Poya (Uncharted Host) So once you’ve scaled, the next typical milestone is acquisition or IPO. So what happens in that scenario from a financial perspective?

Monty Like anything in life, you’ve got to prepare for the next phase. If you think an acquisition or IPO is going to happen in the next year, then let's start casually putting things in place now, so that the due diligence process goes smoothly. The due diligence phase is an auditing phase, and that’s a big deal. Acquisitions are tough because they are very rigorous, very detailed. Everything you've ever done seems to have come up. Like if someone thought they exercised their options but didn't, or were two days late on the 90 day expiration period - all those things become an issue. So what we do is we create this big checklist of all the stuff we might need. Let's start gathering it early and mitigate any potential issues before we get a letter of intent from someone. Once a company gives you a letter of intent, they are going to give you a big check list and it’s likely that their list and your list will have a 95% match. The last thing you want is to be surprised by a deal killer. For example, maybe the CTO never signed the assignment of inventions, or you had this great software contractor who didn't sign the agreement - so it doesn't state work for hire. This adds uncertainty to whether he or she owns your IP. All these loose ends make the process more expensive and drags out the due diligence process. Bad stuff can happen and blow the deal.

Poya (Uncharted Host) So anything I'm not asking you that's important as part of these scaling milestones?

Monty My philosophy is that you want to take the middle path, when it comes to the systems and compliance. You don't want to be super cheap and neglectful because that will definitely cause problems. On the other hand, don't overspend or over invest in systems years before you need them. Don't distract your team. Don’t take you away from the more important missions of developing great products and selling them cost effectively. Also, get help and advice from people, you know. Don’t be afraid to tap into your network. Finally, think about the rule of three - look three weeks ahead, look three months ahead and envision three years ahead.

Poya (Uncharted Host) If people want to get help from you, what's the best way of reaching Monty?

Monty I’m at or I love to talk SaaS with anybody! I’m happy to give my two cents to help people stay on track. A lot of times, it’s just a nice conversation. And then sometime down the road, it might turn into a business relationship which is great. I love learning what entrepreneurs are doing. And I also believe that we have to support entrepreneurs. I think your podcast is great because it gives people insight and helps them. Hopefully I answered a few questions and have given your listeners something to think about. Poya (Uncharted Host) If you were to go back to your younger self right before you joined this finance startup world, and you could give yourself one piece of advice. What would that be?

Monty I think it would be to have more confidence in my own ability. I was always just sort of happy to plug along and didn't take personal risk by starting my own company. And once I did, it went really smoothly, which to me indicates I should have done it earlier. I should have been more confident early on just to take the leap.

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