This great post on Corporate Board by Greg Samuel contains some tips and best practices process ideas about what should and shouldn’t be included in your notes. Keep in mind that the best records of board meetings are corporate board meeting minutes and most attorneys will advise that those should be the only board meeting documents to be retained.There may be times when you might still want to take personal notes. In those cases…

1. Be clear.  Eliminate any ambiguity in your notes. Document both sides of a controversial discussion as well as conclusions reached.
2. Be neat. Avoid jumbled verbiage and scribbles that may make little sense or can be misinterpreted when the context of the notes has long been forgotten.
3. Be brief. Coalesce key points on a single page. Any discussions subject to attorney-client privilege should be noted in both minutes and personal notes. No further elaboration should be made.
4. Be consistent. It could be a red flag in hindsight or future discovery proceedings if you take copious notes in some meetings and none in others.
5. Be discreet.  Documents and materials used during meetings will be included as part of your company’s board minutes. Once the board minutes have been drafted and approved, and they accurately reflect what transpired during the meeting, it is appropriate to discard hand-written notes. On the other hand, if you’ve decided that you still want to retain your notes and are later sued, it’s probably not so appropriate to suddenly decide to start shredding your notes (think of some recent scandals and you’ll understand why).

There is another thing to consider if you’re the CEO of a startup and are still drafting your own Board minutes.Look into hiring an outside attorney to take care of this for you. Their attention to detail and knowledge of corporate law might just save you headaches, time and money in the event an unforeseen lawsuit arises in the future.

If you’re a startup or expansion stage company, some of these formalities may seem to be…well….just formalities, until you go through a painful litigation process. Keeping these simple tips in the back of your mind can make a big difference!

It’s important to understand the difference between these items, and it’s just as important to track these items regularly. If you’re looking for investors, you’ll definitely want to make sure that you can provide this data for your company, and that you can explain the trends within the data.

Bookings are not a GAAP defined term, and thus, the definition might vary by company. Typically, bookings correspond to the value of a contract signed during a certain period. Where this gets tricky is making sure that whatever data you are reporting for bookings is apples to apples. It’s not a good idea, and it is also very misleading, to combine the value of a 12-month contract with a 24 month contract booked in the same period and report the sum of the two contracts as your company’s bookings for that period. Even if you have booked a multi-year deal, the amount that your company reports for bookings in that period should typically be limited to the value of the first 12 months of the contract. When you’re presenting bookings numbers to a VC, be prepared to explain exactly what your company’s bookings policy is.

Revenue is a GAAP defined term, although many startup companies might not be reporting revenues 100% correctly. In the most simplistic sense, revenue happens when a service or product is actually delivered. For most SaaS companies, revenue is recognized ratably over the life of the subscription. As I mentioned, many startup companies may not yet know whether the revenue they are reporting is correct under GAAP…what is important is to understand how you’re reporting revenue, be able to articulate how you’re reporting revenue, and show that you’ve consistently followed this methodology for the periods that you are presenting to a VC.

Collections are simply when you receive cash from your customers. This may or may not correspond to when you’ve recorded a booking or when you’ve recorded revenue.

A fourth item which often causes confusion is Billings. Billings are simply the amounts that you’ve invoiced your customers. They may or may not correspond to bookings (in the case where you’ve booked a 12 month contract but are billing the customer monthly), and they may not correspond to revenues (when you’ve billed a customer up-front, but will be delivering the product or service in the future). Your company’s billings amounts within a certain month might not be for consistent time-periods. For instance, you might bill 1 customer for 12 months up-front, and another customer for 3 months up-front. This doesn’t mean that the amount you calculate for billings is incorrect…but it does mean that if a VC asks for your billings data that you should really make sure that you provide specifics about what exactly is being billed. The VC might be running analysis on the data unbeknownst to you, and the outcome could be radically different depending upon the assumptions they’ve made around the periods billed within the dataset.

Hopefully these tips are helpful whether you’re seeking expansion capital or growth capital, or if you’re just trying to understand the complexities of your companies’ revenue cycle.

Please check out Fred Wilson’s post on this topic as well. I highly recommend it!

It’s important to understand the difference between these items, and it’s just as important to track these items regularly. If you’re looking for investors, you’ll definitely want to make sure that you can provide this data for your company, and that you can explain the trends within the data.

Bookings are not a GAAP defined term, and thus, the definition might vary by company. Typically, bookings correspond to the value of a contract signed during a certain period. Where this gets tricky is making sure that whatever data you are reporting for bookings is apples to apples. It’s not a good idea, and it is also very misleading, to combine the value of a 12-month contract with a 24 month contract booked in the same period and report the sum of the two contracts as your company’s bookings for that period. Even if you have booked a multi-year deal, the amount that your company reports for bookings in that period should typically be limited to the value of the first 12 months of the contract. When you’re presenting bookings numbers to a VC, be prepared to explain exactly what your company’s bookings policy is.

Revenue is a GAAP defined term, although many startup companies might not be reporting revenues 100% correctly. In the most simplistic sense, revenue happens when a service or product is actually delivered. For most SaaS companies, revenue is recognized ratably over the life of the subscription. As I mentioned, many startup companies may not yet know whether the revenue they are reporting is correct under GAAP…what is important is to understand how you’re reporting revenue, be able to articulate how you’re reporting revenue, and show that you’ve consistently followed this methodology for the periods that you are presenting to a VC.

Collections are simply when you receive cash from your customers. This may or may not correspond to when you’ve recorded a booking or when you’ve recorded revenue.

A fourth item which often causes confusion is Billings. Billings are simply the amounts that you’ve invoiced your customers. They may or may not correspond to bookings (in the case where you’ve booked a 12 month contract but are billing the customer monthly), and they may not correspond to revenues (when you’ve billed a customer up-front, but will be delivering the product or service in the future). Your company’s billings amounts within a certain month might not be for consistent time-periods. For instance, you might bill 1 customer for 12 months up-front, and another customer for 3 months up-front. This doesn’t mean that the amount you calculate for billings is incorrect…but it does mean that if a VC asks for your billings data that you should really make sure that you provide specifics about what exactly is being billed. The VC might be running analysis on the data unbeknownst to you, and the outcome could be radically different depending upon the assumptions they’ve made around the periods billed within the dataset.

Hopefully these tips are helpful whether you’re seeking expansion capital or growth capital, or if you’re just trying to understand the complexities of your companies’ revenue cycle.

Please check out Fred Wilson’s post on this topic as well. I highly recommend it!

At OpenView Venture Partners, we provide management consulting services to our portfolio companies, often entailing career coaching, counseling, professional development and mentorship. The variety of circumstances that we’ve encountered with our portfolio companies and their management teams have run the gamut…none, thankfully, have included ethical challenges for the finance leaders of our portfolio companies. We hope to keep it that way!

Unfortunately, the world is not a perfect one, and it is more than likely that most finance professionals will find themselves faced with a situation that clearly crosses or pushes against ethical boundaries.

The CFO, or the finance leader in an organization, is expected to be the moral compass of an organization. There are several aspects to this; some aspects where the expectations of the CFO’s influence are crystal clear, and other aspects where the CFO must be able to influence the natural and healthy conflict of an organization in a positive and constructive manner.

The natural and healthy dynamic can be seen where the CFO functions as the yin to the yang of other members of the management team who may push the envelope as part of their drive to grow a business, meet targets and influence customers and investors.  These are the situations where…

• the sales team pushes on revenue recognition criteria in order to try to close a deal, 
• the CEO might want to embellish key facts in an investor presentation,
• marketing might get ahead of product features in their rush to influence customers or make headway with competitive positioning.

Here, the CFO is expected to be the voice of reason and the gate-keeper. This does not mean that the CFO automatically or capriciously says “no” to any idea or strategy that other members of the management team may have. What it means is that the CFO is expected to understand the end-goal and find a balanced and ethical solution that can help meet those goals.

By the same token, it is also the CFO’s job to ensure that a company is abiding by all statutory and legal requirements, presenting financial results accurately and fairly, and ensuring adherence to codes of conduct, governance, policies and controls.  This is where a CFO or finance leader’s ethical standards and backbone may be tested…and it will not be comfortable for most individuals when it occurs.

Let’s walk through some examples.

• Your CEO wants you to falsify your company’s bookings numbers.  The argument is that these really aren’t GAAP financial measures, and your investors may pull your funding if you don’t put lipstick on the pig. You know that your company doesn’t have signed contracts to back up the bookings numbers.
• You’ve found that your company has a potential sales tax liability of a material amount that you’ve never filed, paid or recorded. You’ve alerted your CEO and he or she doesn’t want you to estimate or disclose the potential liability since it will impact his or her bonus (not to mention your previously reported financial results)
• Your CEO doesn’t want to implement a code of ethics or whistleblower policy and thinks it’s too much work, too much hassle and really only applies to big companies. You are aware that there is a potential issue that an employee may report.
• Your CEO doesn’t like the revenue that you’ve calculated after applying GAAP revenue recognition principles, and would like you to find just a bit more in order to make sure that the company meets its annual or quarterly targets (and so that bonuses can be paid out).

Well, what do you do?

Some finance professionals will cave, and this is unfortunate for the profession. Hopefully, this won’t be you. First and foremost, you must remember that you have an obligation to follow the ethical codes of this profession, the ethical codes of your company, the whistleblower policies of your company, and the laws and regulations of the countries in which you operate. If you can’t do this, sorry, but you are in the wrong profession…find something else to do.

1. You have a responsibility as a finance professional to raise an ethical or illegal issue to your CEO (or to your immediate manager if you don’t report to the CEO). Present the facts of the situation clearly and objectively. Explain the ethical issue(s) and ramifications involved.Give the CEO or your immediate manager an opportunity to remedy the situation. Document the details of the issue and your conversation, as well as the outcome. Hopefully, this conversation is productive and things will be remedied appropriately.

2. If you have raised the issue to the CEO, and have been met with a refusal to correct the situation or continued pressure to commit a wrong-doing, as the CFO you have a responsibility to escalate the issue to a member of your company’s Board of Directors (or Audit Committee Chair). (Before you do so, you should inform your CEO that you will be taking this step and give the CEO one last chance to remedy the situation.)Hopefully, however, your CEO comes to his or her senses before this conversation has to take place. If not, hopefully your Board member can work with you and the CEO to help resolve the issue. 

3.If after speaking with a member of your Board or your Audit Committee Chair, the situation still has not been remedied, you should raise the issue to the partner at your company’s external audit firm and/or the partner at your company’s law firm. Many times, the partner can help to provide an additional 3rd party objective view on the situation that can be helpful to your company. If your company has a whistle-blower policy or hotline, you should utilize that at this point. Again, make sure that you have thoroughly documented your actions and conversations.
 
Many, many times, an issue will be resolved during the course of these discussions. This does not mean that the situation won’t become an uncomfortable one for the CFO. It may become quite difficult, and perhaps intolerable. You may create a breach between yourself and the CEO that cannot be remedied. From a practical perspective, you may find that your job may become so difficult that you will have no choice but to leave in order to preserve your own ethical code.

Only you can decide how far you will push an ethical issue to resolution in a difficult environment. The key is that you make an attempt to resolve the situation, and that you do not commit wrongdoing despite whatever pressures may be upon you to do so.  Remember, once you’ve crossed that ethical line in order to keep a job, your career probably doesn’t have long to live anyway. It’s much easier to explain why you left a position with your ethical standards intact than it is to try to salvage a career after you’ve been found guilty of a wrong-doing.

Food for thought…where’s your ethical line?

Are you a startup CEO managing a finance professional for the first time?

Do you attend management team meetings where financial results are discussed and you don’t feel you can adequately participate?

You’re not alone! As a Boston-based venture capital firm that focuses on expansion stage tech companies, we work with management teams who are often hiring their first finance professional.

Check out this video where FinanceDog’s Joe Knight explains the basics of what you need to know.

For instance:

Do I need to understand debits and credits?

What is the difference between accounting and finance?

Am I playing a game without understanding the score?

Do the employees in my company understand how to drive the right performance to affect the right metrics that will help them reach their incentive goals?

Is there enough transparency around our company’s financial results?

You really don’t need to be a financial wizard or a CPA to be able to understand how to interpret financial reports, how to use financial metrics to drive improvements in your organization, and how to present and explain your company’s financial results and projections to venture capital advisors.

You do need to understand the basics…it’s never too late to learn! Check out this video and let us know what you think!