The business world thrives on ideas, but only a select few transform into successful ventures. This elite group, known as start-ups, fuels the ‘start-up ecosystem’: a network of innovators, entrepreneurs and investors. Each player brings a unique skillset, but can being a chartered certified accountant offer an advantage? Absolutely!
Entrepreneurs are often captivated by the initial spark of an idea. As the concept takes shape, however, numbers become crucial. Investment needs, revenue projections, growth estimates and profit margins are the cornerstones of a compelling business plan; this is where accountants excel. However, many entrepreneurs, enthralled by their vision, might neglect the financial aspects until it’s too late.
I was surprised by the limited financial information presented in most pitch decks
The accountant’s edge
So, where do accountants fit into the ecosystem? As either entrepreneurs or investors, their financial expertise provides a significant edge. My personal experience as an angel investor in Turkey serves as a prime example. Networks like Arya and ŞirketOrtağım offer membership, simplifying the path to becoming an accredited angel investor through Turkey’s Ministry of Treasury and Finance.
This accreditation unlocks tax benefits, allowing deductions of up to 2.5 million Turkish lira (approximately £60,000) from the annual tax base.
As an accredited investor, I started evaluating startups seeking funding. With over a decade of experience in finance, I expected well-structured business plans with key metrics like weighted average cost of capital, internal rate of return and return on investment. However, I was surprised by the limited financial information presented in most pitch decks, the presentations entrepreneurs use to secure investment.
This lack of data reflects the diverse backgrounds of entrepreneurs. While financial information is crucial, it shouldn’t be the sole factor for considering an investment. This is where another strength of accountants comes into play: making sound decisions with limited data.
Navigating seed funding
My angel investments primarily focus on the seed funding stage. Here, companies are newly formed, developing products or services, and striving to acquire customers. Entrepreneurial plans at this stage rely more on projections than concrete data.
Accountants, by nature, are adept at scrutinising data and challenging assumptions
Forecasts typically cover short-term periods: quarterly projections for the next year and yearly estimates for the following two. These financial models often resemble cashflow statements, outlining revenue, HR expenses and development costs. The primary goal is to determine when the company will achieve positive cashflow. While such projections are essential, they can be vulnerable to unforeseen circumstances.
Scrutinising assumptions
As an accountant-investor, I possess a distinct advantage when evaluating startups with limited financial data. Here’s how my expertise benefits the decision-making process:
- Considering macroeconomic factors: many financial plans lack basic assumptions about inflation and interest rates. Accountants can incorporate these crucial macroeconomic factors into the evaluation.
- Accrual vs cash basis: entrepreneurs often focus on maintaining positive cashflow. Accountants can introduce the accrual accounting perspective, providing a more comprehensive financial picture.
- Scrutinising assumptions and challenging projections: a critical review of the underlying assumptions behind financial projections is essential. Accountants, by nature, are adept at scrutinising data and challenging assumptions, leading to more informed investment decisions.
Beyond investment
Start-ups, by definition, are small businesses often lacking a strong financial foundation. Accountants can provide invaluable guidance beyond the initial investment stage. Their expertise in bookkeeping, financial reporting, and tax compliance can significantly benefit a growing start-up. Furthermore, as shareholders, accountants have a vested interest in the success of the venture, fostering a long-term commitment.
The start-up ecosystem presents a fertile ground for accountants to leverage their expertise
Many accountants might even consider founding their own start-ups. Their general business knowledge and financial acumen would be invaluable assets in transforming ideas into reality. Whether as founders, partners or angel investors, accountants have a significant role to play in the start-up ecosystem, contributing to its growth and reaping its rewards.
Accountants are traditionally known for bringing a dose of reality through numbers. The start-up ecosystem presents a unique opportunity: high-risk, high-reward ventures that require meticulous risk assessment and mitigation, areas where accountants excel. Becoming an accredited angel investor offers tax advantages and a voice in shaping young companies.
Ultimately, the accounting profession is evolving to embrace more value-added tasks, and the start-up ecosystem presents a fertile ground for accountants to leverage their expertise and contribute meaningfully to start-ups, the ecosystem and the society in general.
