GETTING STARTED CASH & EXPENSE PLANNING

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1 FINANCE TO SCALE Brex has partnered wth Hubspot for Startups to provde a fnancal plannng and expense management resource for your startup. These materals are a framework for fnancal plannng pror to scalng your busness to help maxmze your opportunty for success.

2 GETTING STARTED Brex has partnered wth Hubspot for Startups to provde a fnancal plannng and expense management resource for your startup. These materals are a framework for fnancal plannng pror to scalng your busness to help maxmze your opportunty for success. CASH & EXPENSE PLANNING Cash / Equty Balances 1 / Mantanng suffcent cash n your busness s crtcal n the early days partcularly f you are prerevenue. 3 / Brex recommends havng 3 months of "cash burn" on hand at any tme. Cash burn s defned as last month's "change n cash balance." 2 / Early stage companes often need nfusons of cash to get ther operatons started. These can ntally come from founders or outsde nvestors. Payroll / Compensaton 1 / Payroll s typcally the largest expense of any company. 2 / Payroll expense comprses both salary / wages and employee benefts (.e., health nsurance, dental nsurance, etc.). 3 / Benefts are typcally ~20% of cash compensaton. 4 / Employees often receve benefts from ther employers whle contractors do not. 6 / Stock-based compensaton arses from equty granted to employees. 7 / Accountng rules are used to help companes estmate the "expense" assocated wth optons granted to employees, as these dlute ownershp n the company and therefore have a "cost." 8 / Early stage companes often use outsourced servces (such as law frms) or software to help calculate these expenses (such as Carta and Shareworks). 5 / Stock-based compensaton s another payroll expense, but t s not pad n cash so t does not contrbute to cash burn. 1

3 Rent / Facltes expenses 1 / Early stage companes often begn n co-workng spaces or even n resdences. 2 / As companes scale, they often seek ther own offce space. 3 / Typcally companes wll sublet (meanng lease a space from a party who has a drect relatonshp wth a landlord) to provde flexblty as they grow. 4 / Subleases are often shorter n term than drect leases. 5 / Rent s typcally quoted n prce/sq ft. Ths s an annual number (Total rent = annual rent x sq. ft of property). 6 / Companes should plan for the number of employees they expect to have n 12 months. A good forecastng estmate s 100 sq/ft per employee. v Hardware / Software 1 / Companes often purchase hardware and software for ther employees. 2 / Technology organzatons typcally spend $1,000-$1,500 per employee on hardware, usually at the tme an employee s hred. 3 / Technology organzatons typcally spend $500 / month per employee on external software. Examples nclude: productvty / collaboraton software (Dropbox, Offce Sute), hostng and computng (AWS), developer tools (Twlo, CrcleCI), etc. 4 / Companes wth sgnfcant data storage needs often ncur larger hostng and computng expenses. v Travel & Entertanment 1 / Travel and entertanment expenses are related to the number of employees that travel often. Employees that travel the most typcally have more of a sales or busness-orented role. 2 / Early-stage companes should budget $500 - $2,000 monthly per employee travelng for these expenses. v Advertsng / Marketng 1 / Some companes use pad channels to acqure customers. 2 / Companes that focus on consumer markets rather than B2B busnesses are more lkely to pursue pad channels early n ther lfecycle. 3 / Estmatng acquston expenses s a combnaton of converson rates and costs per lead (Customer acquston cost = cost per lead / converson rate). 4 / Whle t vares for every market and product, busnesses typcally try and earnback ther customer acquston cost wthn 6 12 months of revenue from ther product / servce. 5 / Some companes wll also spend advertsng dollars on brand marketng, whch ncreases awareness of ther product / servce, but s not drectly attrbutable to customer acquston. 2

4 FINANCIAL CONTROLS Accounts Payable 1 / Companes are typcally nvoced by vendors for expenses they ncur, and these nvoces can be pad by check, ACH / bll pay, wre, credt card, or cash. 3 / A good rule s to ensure that before any expense s pad (any money leaves the company) an approval s requested and granted by a person dfferent than the payor of the nvoce. 2 / Credt card s typcally the fastest and easest way to pay for an expense. The controls and expense management features ncluded wthn the Brex platform elmnate the complants around lack of control that many busness owners have wth credt cards. Accountng 1 / Accountng entres are made to track the actvty n a company. 2 / A good rule s to ensure that every entry s revewed by a separate employee from the enterer of the transacton to ensure accountng accuracy and ntegrty. Reconclatons 1 / Organzatons that mantan good fnancal controls wll typcally reconcle ther nternal accountng to verfable, thrd-party documents. 2 / Bank accounts and credt card statements are good examples of source documents for reconclaton. 3 / A good practce s to reconcle nternal records wth thrd party sources monthly. 4 / Usng the Brex credt card, no reconclaton process s needed as long as Brex s ntegrated wth your accountng software. If so, Brex autoreconcles wth each sync. FINANCIAL INFRASTRUCTURE Bank Accounts 1 / Companes wll use a corporate bank account to store funds and facltate payments. 2 / Bank accounts often come wth payments tools ncludng the ablty to pay nvoces by check, wre and ACH / bll pay. 3

5 Credt Cards 1 / Credt cards are often the most effcent form of payment for companes as they pay the merchant mmedately, offer 30 day float (blls are not due untl 30 days later), and are accepted by most vendors. 3 / Most credt card companes struggle to underwrte early stage companes, partcularly those that are pre-revenue, and therefore ask the founders / employees to personally-guarantee the credt card or put up a securty depost. 2 / Many vendors, partcularly those sellng software and other goods onlne, only accept credt card as a form of payment. 4 / Brex solves ths problem by ntegratng wth the bank account to get better data about the company and therefore not requre a personal guarantee. Payroll Systems 1 / Companes often use software frms to manage the payroll of ther employees. payroll taxes owed to the local and natonal governments. 2 / Payroll systems help companes mantan complance wth local and natonal laws ncludng 3 / Some common vendors used by early stage companes nclude Gusto, Zenefts and Intut Payroll. ACCOUNTING & TAXES Accountng 1 / Early stage companes typcally use accountng software such as Quckbooks or Xero to track the fnancal actvty of ther busness. Brex has ntegratons wth Quckbooks, Xero and Netsute. 2 / Some early stage companes wll outsource ther accountng to a thrd party professonal, partcularly f there s no one n-house wth that expertse. 3 / Early stage companes should use accountng software to establsh ther Chart of Accounts whch s a lstng of all of the busness actvty types used by an organzaton (.e. Revenue, Compensaton Expenses, etc.). Monthly accountng reportng 1 / Accountng and fnancal records are typcally mantaned and revewed on a monthly bass. 3 / The ncome statement captures the flows of revenue and expenses over a perod of tme. 2 / The two most common reports that are examned are the ncome statement and the balance sheet. 4 / The balance sheet s a statc look at the outstandng balances of cash, debt, equty, and other tems at a pont n tme. 4

6 Federal taxes 1 / Federal ncome taxes are pad annually to the Government based on the amount of profts earned by a company durng the fscal year ended the pror December. 2 / Federal taxes are owed by the 15th of Aprl. 3 / Busnesses fle a Form 1120 wth the Internal Revenue Servce to outlne the proftablty of the busness and the assocated taxes owed. 4 / Even when a busness s not proftable and therefore owes no taxes, t stll must fle ts Form v State taxes 1 / Most states have a corporate ncome tax as well. 2 / Ths ncome tax s also owed by the 15th of Aprl based on a fscal year ended the prevous December. 3 / Each state has ts own tax form and tax code rules, but lke Federal taxes, state taxes are based on corporate proftablty / ncome. 4 / Companes should always fle taxes n the state n whch they are headquartered, not necessarly ncorporated. 5 / Companes should consder the specfc tax laws n all states where busness s conducted or where t sells ts goods and servces. 6 / Many companes ncorporate n Delaware due to ts favorable tax and ltgaton envronment. Companes ncorporated n Delaware owe an annual franchse tax that s typcally payable n February. v Local taxes 1 / Many ctes and other locatons levy corporate taxes and or franchse taxes on companes headquartered or operatng wthn ther borders. 3 / Check the webste of any cty n whch your company mantans ether a physcal presence or employs a worker to determne any tax lablty. 2 / These taxes are sometmes based on ncome, but often are based on gross recepts (revenue) or even payroll. 5

7 BREX FAQ How s Brex dfferent from a normal corporate card? Brex s a new type of corporate card for early-stage technology companes. Brex bult ts payments technology stack from scratch - the underwrtng model, customer nterface, statements and bllng capabltes, cardholder lmts and controls. We have an ntegrated software sute that makes expense management, accountng, and budgetng smple and easy. Brex offers 10-20x hgher credt lmts, no late fees, and less rsk (no personal guarantee). Our system has clean, transactonal data that ntegrates wth your accountng software and auto-reconclates expenses at the end of the month. How does Brex collect payment? Brex offers 30-day statement perods. We automatcally debt your busness checkng account (the same account you lnk n the onboardng process) at the end of your bllng statement. How does Brex underwrte? Brex underwrtes busnesses not people so ndvdual credt scores are not affected. Brex consders all of the relevant factors of your busness: your nvestors, your cash balance, and spendng patterns, and sets your lmt accordngly. Brex s the only corporate credt card wth a dynamc credt lmt that adapts to your busness actvty. v What s the dfference between a vrtual card and physcal card? Brex cardholders have both a physcal and vrtual card. The vrtual card s helpful for swtchng subscrptons and a great way to contnue usng the card f for some reason the physcal card was lost. The physcal card s metal / plastc and can be used for n-person transactons. 6