Finance stack for the first 18 months

In the first 18 months of an Italian SRL, the right finance stack is small and boring: a dedicated company account, an e-invoicing tool connected to the Sistema di Interscambio (SdI), an accountant (commercialista) with whom you have agreed tasks and deadlines, a month-by-month cash model, and a monthly close done the same way every time. You do not need complex software. You need every euro to come in and go out through one place, to know at any moment how many months of runway you have, and to have the numbers ready when an investor asks for them.

In short

• Separate the company's finances from the founders' personal finances straight away: one account, one card, rules on reimbursements.
• Since 1 January 2019, invoices between parties resident or established in Italy must be electronic, in XML format, and sent through the SdI.
• Agree in writing with your accountant who does what and by when.
• Keep a monthly cash model with up-to-date runway.
• Run a short monthly close, with reconciliation and a comparison against budget.

The account and spending rules

The first piece is the simplest and the most neglected. Open an account in the company's name and use only that for business receipts and payments. Compare several offers on cost, payment services, cards for founders and links to accounting software.

Then write three short rules:

• who can spend, and up to what amount, without asking the other founders;
• how expenses paid personally are handled, with what documentation, and within how many days they are reimbursed;
• which subscriptions and services are in the company's name, and who checks their renewals.

Software subscriptions are one of the items that grow fastest without anyone noticing. A list with cost, owner and renewal date, reviewed every month, avoids surprises.

E-invoicing

In Italy, e-invoicing is not optional. According to the Agenzia delle Entrate (the Italian Revenue Agency) guide, from 1 January 2019 invoices issued between parties resident or established in Italy can only be electronic, both business-to-business and business-to-consumer. The invoice must be prepared in the mandatory XML format; a PDF can be used for viewing, but the file transmitted is the XML.

The SdI, which the guide describes as a "postman", checks that the mandatory data and the recipient's address are present, verifies the VAT number or tax code, delivers the invoice and sends a receipt with the date and time of delivery. The Agency also provides, free of charge, a compliant electronic storage service for invoices that pass through the SdI, activated from the reserved area of the Fatture e Corrispettivi portal.

The guide cited dates from 2018 and the rules have been updated since: check the current rules for your case with your accountant, for example for foreign customers. In practice, choose an invoicing tool that:

• generates and sends the XML to the SdI and receives incoming invoices;
• connects to your bank account, or at least exports data your accountant can use;
• handles storage, or make sure you have activated the Agency's service.

Working with your accountant

The commercialista is not just the person who files returns. In the first months it pays to agree in writing:

• which obligations the firm handles and which stay with you;
• who records invoices and how often they update you;
• in what format, and by which day of the month, you send documents and bank statements;
• whom to ask about VAT, founder pay, reimbursements and employment contracts;
• whether the firm also supports the annual accounts, investor relations and eligibility requirements for incentives.

If you plan to register as an innovative startup or apply for incentives, say so at the start: some early accounting choices can make later checks simpler.

The cash model and runway

The most important financial document in the first 18 months is not the annual accounts: it is the cash model. A spreadsheet with one column per month and these rows is enough:

• opening balance;
• expected receipts, split by customer or type, with the date you expect to be paid, not the invoice date;
• fixed outflows: people, rent, subscriptions, advisers;
• variable and one-off outflows;
• taxes and social contributions, with the deadlines your accountant gives you;
• any inflows from loans, rounds or grants, only once they are certain;
• closing balance and months of runway at the current burn rate.

Keep two versions: one with contracted receipts only and one with forecasts. The runway that counts for decisions is the first one.

The monthly close

Once a month, always in the same week, spend an hour on:

1. reconciling the bank account with invoices issued and received;
2. updating the cash model with the month's actual figures;
3. comparing actuals with budget and writing two lines on the main variances;
4. checking overdue receivables and chasing customers;
5. sending your accountant the agreed documents.

After a few months you will have a reliable history, which is exactly what an investor asks for during due diligence.

What to do this month

1. Check that every business transaction goes through a company account.
2. Write the rules on spending, reimbursements and subscriptions.
3. Make sure your invoicing tool handles sending, receiving and storage.
4. Agree tasks, formats and deadlines with your accountant.
5. Build the cash model with both runway versions.
6. Put the monthly close in the calendar.
7. If you want a second opinion on your cash model, get in touch.

You will find a monthly cash model template in Resources.

Sources

• Agenzia delle Entrate, guide "La fattura elettronica e i servizi gratuiti dell'Agenzia delle Entrate", September 2018 (Italian; copy hosted by Diritto Bancario)

This article is general guidance and does not replace advice from your accountant.

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