If you’ve read any post on the Pasquesi Partner’s blog, you’ll know there are many posts dealing with things like metrics and key performance indicators (KPIs). And as a founder or business owner, you recognize the importance of well-tracked data.
There’s another element to this puzzle. These tracked elements must be leveraged to actually improve the performance of your business.
Here are four ways to leverage figures found in many regular financial reports.
1. Cash Flow
Some view cash flow statements as a marker. A sort of look at how you did over the past quarter. If that’s all you currently do with your report, you’re missing an opportunity to make your cash flow a part of the growth plan in your business.
Use Cash Flow as a Growth Lever
- Improve flow to become profitable (or improve profitability): Working to limit drains on your cash flow, get accounts receivables paid faster, and really taking a look at expenses improves profitability or even helps you cross the line into profit territory.
- Use positive cash flow to reach critical growth mass: Use the extra cash to increase budgets on profitable processes. For instance, if certain marketing campaigns have a positive return on ad spend, increase the budget.
- Attract a wider range of investors: Monthly recurring revenue (MRR), product roadmaps, and a loyal customer base are great ways to bring investors to the table. Show those investors that you care about becoming cash flow positive, and you may have even more interest.
2. Budgets and Expenses
As a founder, being busy is a way of life. But too many companies fail to think about new and upcoming expenses that naturally result from rapid growth. Budgeting isn’t only about foreseeing upcoming expenses—but timing them properly.
Use Budget/Expenses as a Growth Lever
- Be specific: Every budget likely has a “miscellaneous” section, but it’s worth the time to really dig into what you spend and why. (Note: A more specific budget often improves cash flow.)
- Build on previous budgets, but don’t copy/paste: If you’ve had budgets for previous years, pull them out and compare them with what you actually spent. Use this data as a starting point and factor in potential growth, big purchases coming down the line, and other factors to really get accurate numbers.
- Include it in your forecast: If you really put the time into the budget, it’ll help build a roadmap. Add it to your forecast and you’ll better understand not only “what we need” of big upcoming purchases, but “when’s the best time to buy it.”
3. Forecasts
A rolling financial forecast allows you to maximize great economic and industry situations as well as navigate tougher times. Although, you only get these benefits if you’re actively using what’s in the report.
Use Forecasts as a Growth Lever
- Include a detailed expense budget: The last section was all about using an accurate budget to spend smarter, but it bears repeating. Expenses aren’t the same every month. Hiring pushes, big equipment, and other purchases make some months much more expensive. Predicting what’s coming in (revenue/cash flow) makes determining the safest point to make these purchases clear.
- Incorporate marketing and sales data: If your goal is to grow 10% per quarter, what’s it going to take to get there? How many ad dollars, sales reps, and customer service team members? This breaks down your goal into actionable, trackable metrics—improving your chances to hit those goals.
- Create multiple scenarios: Sometimes growth is delayed by outside factors. But companies who plan for those contingencies often position themselves for success post-crisis. To begin, use at least three scenarios: Good (e.g. 10% growth rate), Neutral (stays the same), and a reasonable Downturn percentage.
4. Stock Incentive Utilization or Adoption
Startups often have a need to hire rapidly. And in such an odd labor environment, attracting and retaining talent is difficult. Many companies choose to offer stock options as an incentive to maintain and build their workforce. But it takes more than the offer to use this financial lever to grow.
Use Incentives as a Growth Lever
- Get better buy-in and adoption: Really drive home the offer to current employees and potential recruits. The better adoption and utilization of incentives, the better the results.
- Provide resources for employees: Consider providing materials to help employees fully realize the potential of their stock and save on taxes. For example, a resource explaining the 83b election)
- Consider using non-qualified stock options (NSOs): Two common types of stock options are incentive stock options (ISOs) and non-qualified stock options (NSOs). NSOs are considered a bit easier from the viewpoint of organizations that offer them.
Leverage Your Financials with a Solid Partner
Regardless of the company, there are likely ways to better use, or even get, accounting data. If your company doesn’t get regular cash flow reports or doesn’t have a detailed budget, it’s a good place to start. Others get those reports, but don’t mine them for value or put together a forecast.
Pasquesi Partners offers accounting solutions for fast-growing startups of all stages to quickly leverage their financials. Our services include bookkeeping to tax prep and virtual CFO partnerships. Schedule a call with one of our experts to discuss your financial planning needs.