Finance Policies Every Startup Needs: Guardrails Not Handcuffs and a Minimum Viable Policy

Why Your Startup Needs Financial Policies (and When to Write Them)

The 'move fast' mantra drives product development, but it is a risky approach for your startup’s finances. In the early days, paying for company expenses on a personal card or signing a contract on the fly feels efficient. Soon, however, that speed creates chaos. Ad-hoc reimbursements, surprise vendor bills, and unprotected cash become significant drags on your budget and a source of anxiety for you, your board, and your investors. Establishing basic financial controls for new businesses is not about bureaucracy; it is about creating a stable foundation for growth. These startup finance policy templates provide clarity and protect your runway. This guide outlines the three essential policies every early-stage company needs. For more details, see our hub on setting up your finance function.

As a team grows from two founders to ten employees, what was once common sense becomes a source of confusion. This is the point where unwritten rules become inconsistent, unfair, and impossible to scale. Financial operations must shift from informal agreements to documented procedures. The reality for most pre-seed to Series B startups is pragmatic: you do not need a 50-page enterprise manual. You need a 'minimum viable policy' that provides guardrails, not handcuffs. The goal is to enable speed by providing clarity. When your team knows the rules for spending, purchasing, and managing cash, they can act confidently, freeing up founder time and setting up internal controls that support future growth.

Policy 1: Your Startup Expense Policy Template

An expense and reimbursement policy is the first one every startup should create. It tackles one of the most common pain points: unapproved employee spending and the resulting audit headaches. Its purpose is to define what the company pays for, how employees get reimbursed, and the documentation required. A clear policy ensures fairness, controls costs, and maintains tax compliance. For tool recommendations, see our finance tech stack guide for US startups.

For US companies, this is a matter of financial hygiene. To prevent reimbursements from being treated as taxable income, you must follow the IRS 'accountable plan' rules. An accountable plan has three core requirements: the expense must have a business connection, the employee must substantiate it, and any excess reimbursement must be returned. In the UK, HMRC rules similarly require that expenses are incurred "wholly, exclusively, and necessarily" for business purposes. While the terminology differs, both jurisdictions demand robust record-keeping.

What to Include in Your Expense Policy

• Clear Categories: Define what is and is not a reimbursable expense. For example, distinguish between client-related entertainment and internal team meals.
• Spending Limits: Set clear per-diems or limits for categories like meals, travel, and software subscriptions to prevent budget overruns.
• Approval Workflow: Establish who needs to approve expenses before reimbursement. A simple, tiered matrix is often the most effective way to avoid confusion and delays. For example:
  • Up to $100 / £80: No pre-approval needed (with a valid receipt).
  • $101 to $1,000 / £81 to £800: Requires manager approval.
  • Over $1,000 / £800: Requires founder or department head approval.
• Submission Timeline: Require employees to submit expenses within a specific timeframe, such as 30 days, to comply with accountable plan rules and keep bookkeeping current.
• Receipt Requirements: A valid receipt is non-negotiable for tax purposes. A credit card statement is not enough. The IRS states a valid receipt must show the vendor name, date, amount, and an itemized list of what was purchased. For example, an itemized restaurant bill is valid, while a credit card slip showing only the total amount is not.

Policy 2: The Procurement Process for Startups

A procurement policy governs how the company buys goods and services, preventing founders from signing vendor contracts on the fly and locking the startup into unfavorable terms. This is particularly crucial for SaaS, Biotech, and Deeptech startups that rely on specialized software or research materials. The goal of a good procurement process for startups is not to slow things down, but to ensure spending is intentional, approved, and documented. Key risks often involve long-term cash commitment and unfavorable contract terms like auto-renewal clauses. A simple policy can prevent a costly mistake, such as being locked into a three-year software contract the team stops using after six months.

Key Elements of a Procurement Policy

• Spending Thresholds: Define who can approve purchases of different sizes. For example, any purchase over $2,500 requires founder approval, while a department lead can approve anything under that amount.
• Vendor Selection: For significant purchases, such as those over $10,000, require at least two quotes to ensure competitive pricing and fair value.
• Contract Review: Mandate that all contracts are reviewed by a designated person, typically a founder at this stage, before signing. This person should use a checklist to spot potential issues.

Sample Vendor Contract Review Checklist

1. Term Length: Is it a 1-year, 3-year, or auto-renewing contract?
2. Payment Schedule: Is it monthly, quarterly, or annual-in-advance? An annual-in-advance payment can be a significant cash drain.
3. Termination Clause: How much notice is required to cancel? Are there financial penalties?
4. Price Increases: Does the contract allow for price increases upon renewal, and are they capped?
5. Data Ownership: Who owns the data generated while using the service?

This process creates a strategic pause before cash leaves the bank, a critical step for all early-stage company finance procedures.

Policy 3: Cash Management Best Practices

How do you protect the cash in your bank? Before 2023, this was an afterthought for many. The Silicon Valley Bank crisis made cash management a board-level topic. A cash management policy outlines how your company will manage its funds to ensure safety and liquidity. For a startup, the primary goals are capital preservation and liquidity, not chasing high returns. Your investors gave you money to build a business, not to play the market.

One of the most important cash management best practices is respecting deposit insurance limits. The FDIC/SIPC insurance limit is $250,000 per depositor, per institution. Holding millions in a single bank account exposes your company to unnecessary risk.

Core Components of a Cash Management Policy

• Bank Account Strategy: Define the purpose of each bank account. At a minimum, startups should operate with two accounts to manage funds within insurance limits. An effective strategy includes:
  • An Operating Account holding 2-3 months of operating expenses like payroll and rent. Funds here are used for daily transactions and are kept near or below the $250,000 insurance limit.
  • One or more Reserve Accounts holding the remainder of your cash runway. These funds are typically spread across multiple institutions or invested in low-risk, liquid assets like Treasury bills.
• Payment Controls: Implement dual-approval controls for large payments to prevent both errors and potential fraud. While accounting software like QuickBooks or Xero can manage approvals, the actual bank transfer should require a formal internal check.
  1. An initiator, such as an operations manager, sets up the wire transfer in the banking portal.
  2. An approver, such as a founder, receives a notification, reviews the payment details, and provides the second approval before the funds are released.

See our guide on finance workflows that scale for more on designing approval processes.

A Staged Approach to Implementing Finance Policies

Implementing formal finance policies does not have to be a bureaucratic nightmare. It is about building a scalable foundation for financial discipline. Start simple and add complexity as your company grows. The pattern is consistent: tackling these issues sequentially prevents future chaos.

Your Stage-Specific Roadmap

• Pre-Seed: Your absolute first priority is the Expense and Reimbursement Policy. This addresses an immediate and constant operational need.
• Seed: Introduce the Procurement and Vendor Contract Policy. As you spend seed funding on tools and services, this policy is essential for preventing costly long-term commitments.
• Series A and Beyond: Formalize your Cash Management and Treasury Policy. With a larger balance sheet, protecting your runway becomes a critical fiduciary duty.

By establishing these guardrails early, you create a culture of financial responsibility that protects your runway and supports sustainable growth. For more on designing finance processes and controls, visit our hub on setting up your finance function.

Frequently Asked Questions

Q: When is the right time to create formal finance policies?
A: The best time is when you grow beyond the founding team, typically between two and ten employees. This is when informal, "unwritten rules" start to break down. A minimum viable policy for expenses should be in place as soon as you hire your first employee to ensure consistency and fairness.

Q: What tools can help enforce these startup finance policies?
A: Modern software is essential. Expense management tools automate reimbursement and enforce spending limits. Procurement platforms can manage purchase orders and vendor contracts. For payments, accounting systems like QuickBooks or Xero combined with business banking portals can create robust dual-approval workflows.

Q: Do we need a lawyer to approve our internal finance policies?
A: For these foundational internal policies, a lawyer is generally not required. The startup finance policy templates provided here cover the key operational controls. However, for specific vendor contracts with complex terms or for treasury policies involving investment vehicles, consulting legal or financial advisors is a prudent step.