Audit internally and review the financial statements each month

1. Audit your own financials

Internal financial audits are one of the things that graduate this stage. You will want to start putting a cadence in place for them. It does not have to be an outside firm, it is said; the aim is to be able to audit your own financials and make sure they are legitimate.

Why now. At this size you are making a lot of money: a lot is coming in, and you are not close to it. So you need some sort of check system. The horror stories are many, from one practice and from other founders known to it who got to this size and beyond: millions of dollars lost, stolen or misallocated. It is not a matter of 10 grand here. You are losing that right now, for sure, every day, all over the place, it is said. But millions of dollars can get lost.

Checks and balances. The reason to audit is checks and balances. It is called uncomfortable to say, but it is said that theft most likely happens from inside. However much insurance you hold, and however much you guard against malware, phishing and other scams, the people most likely to steal from you work for you.

2. Review the financial statements every month

A point added to that: as the founder and chief executive, a thorough review of your financial statements each month is not a luxury but a requirement, if you want to get ahead of those things. That means understanding how to read the P&L, and reading it consistently.

Stay in the detail. Do not think that, because you probably have a whole finance team now, you can stay at the high level. The suggestion given: keep digging into it every month, and treat it as part of your job, however big the company gets.

The meeting. Hold a meeting of one or two hours every month to review it with your head of finance, going through the line items:

• This seems high. Why is it high?
• Who is this charged for?
• What is that?

Sometimes you find out that is what a vendor costs, and it has to go. You have to keep a pulse on this, or have a finance chief, an absolute savage, who might do it on your behalf.

What a P&L is, and why you keep one, is on SOP 150 — Set up the finances stage by stage, section 6.

3. Get a note beside every line

The view given, stated firmly, is that at this point you should not just be getting the financial statement. You should also be getting notes on why things changed each month: why is this higher this month, why is this lower. At this point you basically want that from anyone, it is said.

So you have all the financials, and beside them a notes section, next to each line item, saying why it held steady, went up or went down.

Numbers that tell a story. You do not want people who only deliver numbers. They need to be able to tell the story of the numbers: what they mean to the business. If your team cannot tell you what the financials say about the business, you probably have the wrong finance team.

4. What a good finance team knows

A good finance team has operational awareness: it knows the key levers that drive outcomes in the business. Fundamentally, the team is allocating your money as a resource, so it should be very astute about how that money generates a return. The more granular financials of an earlier stage, where finance and operations start to meet, are on SOP 154 — Get granular financial data. That stage is, it is thought, two stages back.

The finance chief: one view. The view here: the best finance chiefs met in one practice are cheap and ruthless, the ones saying they do not think you need that. You want somebody even more aggressive than you are; there, no finance chief has ever wanted to spend money more than the founder did. Founders want to throw money at growth, so you need the other side of it: yin and yang. That view comes from one practice's experience.

5. Tax mitigation

Specialized finance roles, especially around tax mitigation, are part of what graduates this stage. At this point you probably qualify for some significant write-offs; sometimes they are R&D tax credits. The amounts are said to be now in the range of hundreds of thousands to millions of dollars, so it is thought worth doing: what matters is what you keep, not what you make.

These statements about tax are carried as they were made. Tax law is not covered on this page. Tracking write-offs as they build up is on SOP 151 — Budget and forecast, section 6.

6. What this page does not decide for you

• What "2011 301" means. The point about finance teams is called a "2011 301 version of Finance", words that do not resolve to one meaning. Not established on this page.
• How often the internal audits run. A cadence is called for. This page gives no figure for the audit interval.

7. What this page does not cover

Tax law is not covered on this page. Audit procedures and audit requirements are not covered on this page.