Funding or not, a financially savvy startup founder is better equipped for the long haul. Nearly a third of all failed startups cite running out of cash as the primary reason for the failure. For early stage companies, with investor funding, the cash runway is a bit of a ticking clock. At the end of the funds, you’re either profitable — or seeking more investment capital.
Financial savviness is a universally useful business skill set. And for startups, there are particular things that allow you to improve performance.
7 Elements of a Financially Savvy Startup
1. Have Active Budgeting
Creating a budget is something most businesses do, to one degree or another. But for most, it’s just an estimate. A report that you put together and set aside. With advancements in tech, a budget is a rolling document, usable year-round.
As your accounting service reconciles your books, you and your leadership team can take a look at what you actually spent vs. the predicted budget. If something’s off, you’ll quickly see where things went off the rails and make decisions to get back on track.
The two keys to active budgeting? Make time and automate reporting.
- Make time: Take time each month/quarter to review the reports. This is a good tip for all reports (cash flow, budget/expenses, KPIs and others).
- Automate reporting: Use tech to your advantage. Most automation and AI tools focus on accounting. It’s also a great idea to outsource your accounting, to have actionable reports delivered regularly — without having to do the day-to-day maintenance.
2. Strive for Positive Cash Flow
At times, the immediate focus of a startup isn’t profitability. That’s the eventual goal, but in today’s venture-backed environment, it’s not always as pressing. However, it’s a good idea to reach a positive cash flow point — even with ample funding.
Positive cash flow stacks on top of a rolling budget. Each quarter you have overhead, expenses and development costs. There is also revenue (unless you’re in the very early stage of a SaaS development project).
Strive to increase revenue to a point where your company meets all of its obligations for the same period of time (e.g. quarterly).
This isn’t a resource for marketing, but a few ways include:
- Focusing on free-to-paid/trial-to-paid conversions (for software)
- Deep dive into your marketing funnel to improve return-on-ad-spend
- Consider your pricing to improve margin (by increasing prices) or open up to a broader market (by lowering them)
3. Put Together a Fintech Stack
If you’re in the world of tech startups, you understand the term “stack” better than most. A fintech stack is a compilation of tools you use to manage both financial and operational data in your business.
A typical stack includes things like:
- Accounting software (Quickbooks, Xero, etc.)
- Payroll (Gusto, Rippling, Quickbooks payroll)
- Invoicing/Payment process tools (Chargbee, etc.)
- Expense tools (Bill.com, Divvy)
- Dashboarding to put it all together (Spotlight Reporting, Float)
4. Track the Right Financial Metrics
Your business has an overall goal. That goal is likely broken down into larger objectives, tied to specific results expected. There is a system of developing and tracking these goals, called Objectives and Key Results (OKRs).
Broken down one layer further, and you have key metrics that really drive those results your company aims to achieve. These are often called key performance indicators (KPIs). Finance also has KPIs to track, some of which we’ve mentioned.
Of course, there are dozens (even hundreds) of potential metrics. But you can’t keep track of everything. Some metrics almost always included in a dashboard are:
- Cash flow statements
- Forecasts
- Hiring/payroll data
Everything you need to understand how you’re doing and to make good, fast financial decisions — just not every stat and figure.
5. Track the Right Operational Data
Operations lead to finances (either incoming or outgoing). Your sales marketing and sales processes have expenses (i.e. PPC ads, content creation, sales commissions). Server space is another expense, for software-as-a-service (SaaS) companies.
This is operational data that contributes to your topline growth, or eats into your profit margin (or both). Much like financial metrics,so many things can be tracked. But that doesn’t mean all should be.
- For example: Site traffic is exciting (especially when your site is beginning to rank in search results). But it’s not directly related to a common objective (something like achieving 20% growth over the next quarter). But conversion rates (from that site traffic) really move the revenue needle, if increased.
6. Get Proper Reporting
Once you know the right metrics (the ones that drive success), get a dashboard/reporting solution that allows you to see everything “at a glance.”
One way, mentioned earlier, is to use a dashboard (At Pasquesi, we prefer Spotlight Reporting). Then, it’s a matter of hooking up the rest of your Fintech stack, usually via direct integration.
Another way is through your accounting service. Each month, a startup-focused accounting solution can provide you with key reports. This allows you to see everything quickly and make the decisions to move your business forward.
7. Use An Accounting Service Geared Toward Startups
Fast growing startups need a service that understands the difference between a startup vs. traditional business. At Pasquesi Partners, we have services tailored to fast-moving, high-growth businesses. Whether you need someone to do bookkeeping, set up your dashboard to report key metrics, handle tax planning or even act as your virtual CFO — we can help.