Ellen Wood, co-founder and CEO of vcfo, shares how to avoid the most common financial—and non financial—pitfalls startups make.
By Sommer Brugal, Photo courtesy of Ellen Wood
Ellen Wood loves the strategic elements of finance. She enjoys thinking about business strategies and contemplating questions like what optimizes a business, what makes a business better and what makes a business simply go.
Luckily, as the co-founder and CEO of vcfo, a financial and human-resources consulting firm that helps strengthen companies through solutions-based finance, HR, technology and recruiting support, she’s able to ponder and execute those questions daily.
Wood studied management, accounting and finance at the University of Texas, and later acquired her certified-public-accountant license. An active member in the Austin community, Wood served as the 2017 chair of the Greater Austin Chamber of Commerce and currently serves as the chamber’s vice-chair of innovation and technology.
Throughout her career, Wood has founded many successful businesses. Austin Woman asked her to shed some precautionary insight on the potential financial pitfalls, mistakes and unexpected roadblocks startups and small businesses face when starting out.
Ask the right questions.
Wood says there’s one question all entrepreneurs should ask themselves when starting a new business: How much can I afford to lose?
“I’ve seen a number of early stage founders really in a world of harm by risking everything— and sometimes risking other people’s everything—which turned out to be more than they could afford when it didn’t work out,” Wood says.
She advises new business owners to conduct an in-depth financial forecast of the company, adding that entrepreneurs must look at their worst-case scenario to understand whether they can afford that situation. Entrepreneurs, Wood says, must ensure they can afford to cover their assets should things not work out as planned.
Most companies start out with an American Express business card, Wood says, and while attaining the company’s first credit card isn’t the concern, she notes the problem can arise a few years later, particularly if the company continues to use the same card. That’s because the card is based on the credit score of the individual who opened the card account, the same individual who, in many cases, is no longer connected to or with the company.
Although it’s a mistake made by many early stage entrepreneurs, Wood says it’s something to be cognizant of, as the oversight can cause financial distress many years down the road.
Assign proper roles.
One of the more serious mistakes a company can make both early on and throughout the success and growth of the company is misclassifying its employees, referring to them as “contractors” instead of “employees.” Wood says if the IRS conducts an audit and finds the contractors should actually be listed as employees, it can recalculate the payroll taxes the company should have withheld, which can amount to hundreds of thousands of dollars the company must pay in back taxes.
To mitigate the problem, Wood says to make sure to evaluate every employee against their credentials and use a legitimate payroll service to manage taxes on the company’s behalf.
When establishing someone’s status as either an employee or contractor, Wood also suggests setting boundaries with each individual. As the CEO of a company, it’s OK to care for your employees. But Wood says it’s important to remember you aren’t their mother. And while she admits to filling that role at times, Wood works to find a balance while still showing compassion for her employees.
Fostering relationships and a positive environment within one’s company is another factor to consider when starting out. One way of doing so, Wood says, is by giving back to the community.
“Don’t let the early stage status keep you from giving back to the community. It’s really important to do that from day one,” Wood says, adding it’s an important element of a company’s culture.
Think about your priorities.
According to Wood, being the CEO isn’t all it’s cracked up to be. For small-business owners, she suggests considering whether it’s a role you would enjoy having after the business’ initial launch. If a role within the company sparks your interests more, Wood suggests developing a path that allows you to redirect your focus from CEO to that role.
Whether you remain the CEO or commit to another facet of the company’s network, Wood says creating a positive work environment and culture are key to a business’ success.