Part One
It’s been more than two months since I returned to the Philippines from a United Kingdom work to start my CFO consultancy practice with a focus on start-ups in the country. Through this consultancy, I’ve worked as the CFO for eight start-ups that operate in various industries.
Here are my answers to a few questions that my clients frequently ask me, which might be relevant to your start-up.
When should I seek funding?
Hold off until you really need it. Early funding can take away a huge chunk of your company’s precious equity because of its poor valuation at the ideation or creation phase.
There are loads of ways to seek funding when you need it. Here are a few recommendations:
- Seek angel investors who are willing to get minimal shares.
- Fund your operations with debts and IOUs from your angels.
- Get a few prepaid purchase orders that allow you to fund your product with somewhat guaranteed customers.
Angel investors are mostly family and friends who are willing to support your ambitions without expecting much in return.
Prepaid purchase orders, on the other hand, can mean crowdfunding from sites like Indiegogo or Kickstarter. Most product-based start-ups who need funding go through this route to make sure that they have committed customers who’ve made down payments as early as possible.
There’s a lot of reasons for an early-stage start-up not to seek external funding. One with an inexperienced management team is likely to sell their company’s equity at a bargain or mumble some magic number that doesn’t make financial sense. Further, at the ideation stage, you need more advisors than sharp eyes looking for a quick exit.
Should I register my business now?
Are you already incurring business expenses that amount to a month’s worth of salary? If the answer is yes, register your company.
(Remember that the expenses you incur before you incorporate your company cannot be claimed as an expense unless they are part of the cost to organize a business.)
To register a business, understand the structure of your business first—sole proprietorship, a partnership or a corporation.
Depending on the target structure, go to the proper regulator to start the process. In the Philippines, this will be the Department of Trade and Industry for sole proprietorship and the Securities and Exchange Commission for partnerships and corporations.
Registering a business right now is easy and you should be able to do it yourself. Otherwise, hire someone experienced to save time and transportation costs.
That’s it for now. Next week, I’ll share more of these frequently asked questions.
Filbert Tsai has his own consulting firm, the UpSmart Consulting Inc. His key areas of interests are start-ups and micro, small and medium enterprises (MSMEs). His blog and page, “Ask the Accounting Advisor,” provides relevant insight for start-ups and MSMEs in the Philippines.
This column accepts contributions from accountants, especially articles that are of interest to the accountancy profession, in particular, and to the business community, in general. These can be e-mailed to boa.secretariat.@gmail.com.