I’m Dan Kang, VP of Finance at Mercury. I was the first finance hire at Mercury, and a first finance hire before that, too — so I’ve spent a lot of my career thinking about what startups can and should do to properly manage their cash in the early stages. At this year’s TechCrunch Disrupt in San Francisco, I joined Mercury’s Expert Sessions to talk about setting up a scalable financial framework for the future of your business. Here, I'm sharing some of the highlights of that talk with you.
Founders often get advice on how to raise money or network with VCs, but they don’t tend to hear enough about what to do once funds are in the bank. There are some essentials around managing cash, setting up systems, and building a financial framework that can help you make smart money decisions as you scale — and even before you’ve made your first finance hire.
I like to think of the finance needs for an early-stage company as a three-layer pyramid akin to Maslow’s hierarchy of needs. You need to make sure each layer from the bottom up is taken care of before you can strategically manage your finances.
Here are the three layers that provide a framework to distill early-stage finance.
The bottom of the pyramid: Operational necessities
The foundational layer of the pyramid consists of the operational necessities you just can’t mess up when running a business. This covers (1) paying employees, (2) paying vendors, (3) getting paid by customers, and (4) taking care of taxes.
Once you go from founder to employer, the one thing you truly can’t miss is paying your team in a timely and accurate manner. Build processes, invest in the appropriate systems, and thoughtfully build your employee experiences so that you never miss payroll and always have confidence that their paychecks are correct. Taking care of your team should be priority number one if you expect them to help you build a company.
Taking care of your team should be priority number one if you expect them to help you build a company.
In addition to employees, you’ll also likely start working with vendors that help power your product or provide additional resources — these might be cloud computing platforms, software providers, and professional services. Similarly, build accounts payable processes that help you stay on top of a growing list of bills to be paid so that your business’s services are never put at risk — and to avoid potential penalties for late payments.
Once you win customers, you’ll also need to build your billing systems and processes to ensure a smooth customer experience and ensure cash is properly flowing into the business. Think of this as part of your customer’s product experience. When we launched Mercury subscriptions, for instance, we put as much thought into the billing experience as the product design. A smooth billing or invoicing flow shows customers that you’re serious and capable — it’s part of the overall experience — and reduces the likelihood of late or missed payments.
Another operational necessity you can’t ignore is taxes. Early-stage startups may think taxes aren’t relevant to them because they’re not yet making money, but they do still have to file taxes, which can include federal, state, and local filings. The good news is that when handled properly, taxes can actually be an advantage for early-stage businesses — for example, R&D tax credits can help offset current payroll taxes and built-up losses can reduce future tax payments when tracked properly.
The middle of the pyramid: A finance stack of systems, technology, and services
Once the foundational layer is under control, the next level is establishing a finance stack that will serve your company as it scales. Much of this goes hand in hand with setting up the operational necessities. Your finance stack will include systems and technology providers spanning banking services, accounting software, payroll and HR providers, billing software, spend management tools, and potentially more.
Rather than thinking of each component as one-off decisions, evaluate how all of them fit together through integrations to enable as much automation as possible. This will impact how much time and energy is required to complete the operational necessities — and how seamlessly you’ll be able to understand how your business is performing through accounting.
Accounting requires that every transaction in the business is recorded for down to the penny, but with most of the transactions occurring in the various systems noted at the start of this section, you’ll want to make sure they can automatically be captured and recorded as easily as possible within your accounting software. Ideally, these tools empower you to spend less time chasing down data or trying to close your books, and more time focusing on building product and your business.
With the right systems in place, spend time developing processes and a rhythm to enable a solid financial data foundation. This involves activities like categorizing transactions and reconciling your various accounts and tools with your financials. Spend time reviewing your company’s financials every month to understand how your revenues are growing, where the company is spending money, and your company’s liquidity position. You may need to get smart on financial concepts that are new to you — think of it as a new skill to learn that’s all part of being a founder.
Beyond tooling, your finance stack might also include services such as accountants, tax advisors, legal counsel, and outsourced HR services. A lot of founders try to handle every facet of their business themselves — but hiring a third-party service might be a (much) better use of your resources than moonlighting as an accountant. Founders should have a basic understanding of the nuts and bolts around their company’s finances, but they shouldn’t be so bogged down by the minutiae that they can’t focus on scaling their business. Time is often as much of a constraint for startups as cash, so don’t be afraid to invest in the right set of services that’ll help you ultimately go further with higher confidence.
The top of the pyramid: Strategic cash management
With the prior two layers in place, you can now focus on bigger picture strategy. As the founder prior to a finance hire, you’ll likely be the one person thinking about the company's financial health overall. Apply an investor mindset to the way that your company is actually spending money and managing its cash. An “investor mindset” is as simple as ensuring every hire and dollar of spend is being directed to the highest impact work and outcomes. Scrutinize every cost and the decision and thinking behind the spend’s impact.
Apply an investor mindset to the way that your company is actually spending money and managing its cash.
For an early-stage company, strategic cash management goes beyond managing your costs — it’s also about managing broader cashflow dynamics of your business to really understand metrics like cash burn and runway. It’s surprisingly common for founders to take an overly simplistic approach to managing runway: they take their prior month cash balance and divide that by how much they spent, and extrapolate runway from that. But that doesn’t take into account future expenses, big contracts, or hiring plans that don’t show up in basic historical calculations.
Depending on your business model, cash dynamics vary: e-commerce companies need to factor in inventory costs, while SaaS companies might benefit from upfront customer payments for service terms. Also paybacks on sales and marketing expenses can differ widely depending on product and market, impacting how quickly you can grow with limited cash available to spend.
Rather than thinking of your company’s finances as a separate necessity from building product or driving growth, think of sound financial management as a way to ensure your business has the fuel necessary to hit the right milestones on your journey. You don’t want to burn cash too quickly before you’re able to confidently raise your next round or reach profitability. Or invest too cautiously and not make the progress needed due to under-resourcing important efforts.
You can do anything, but you can’t do everything.
A colleague of mine says, “You can do anything, but you can’t do everything.” As a founder, you’re making countless small decisions, and each one might make sense on its own. But add them up, and you could be stretching resources too thin. Great financial management isn’t a single big decision — it’s a series of daily choices that add up over time. Strategic finance at the founder level should include prioritizing ruthlessly and focusing on what drives real growth and impact.
Looking for more insights to help you build your company? Explore Mercury Raise, our platform offering free expert mentorship, fundraising support, and resources for founders. Find more events and upcoming expert sessions (in person and virtual) at events.mercury.com.