When your startup growth is data-driven, you take complete control of scale.
Even startups and small businesses now have massive amounts of it at their fingertips, in various financial and SaaS tools.
As a founder, you already know the importance of tracking and synthesizing data, both for financial and non-financial KPIs. But it’s tempting to look at those KPIs and metrics as merely a reflection of the past.
- How were sales last month?
- Did we break even last quarter?
- Are expenses on track?
- How much runway do we have left?
But that’s only half of the picture.
Indeed, KPIs tell you where you’ve been. But they can also be used to steer where you’re going.
With the right tools and partners in place, you can leverage the information found in your financial reports and KPI dashboards. To do that, you’ll need to stop using the data as an indicator of what happened, and start using it to really drive your startup’s growth.
Data-Driven Cash Management
The state of your cash flow is an indication of how things are going in the business. Because cash flow is the result of all your business decisions, if you’re not digging deeper into the figures you’re missing out on critical information.
Cash flow can give you valuable insight
Which things are working and where should you be reinvesting your cash? If you have marketing campaigns with great conversion rates and a positive ROI, direct more cash into those activities. On the other hand, if you have marketing channels or products that aren’t panning out, shift spending to more profitable areas.
Cash flow reporting can also show where you have leaks, areas where you are losing cash. Leaks come in the form of unnecessary spending, or from poorly managed accounts receivable. Anything you do to reasonably reduce expenses and get paid faster brings you closer to cash flow positive.
Furthermore, knowledge and control over your cash flow and the things that drive it make you more attractive to investors. People like to invest in businesses that have their operations under control, solid roadmaps for achieving their goals, and a positive business outlook for the future.
A good forecast is an underrated hidden gem. Often, the forecast is created by simply carrying forward the current trend.
Forecasting as a decision-making tool
A carefully thought out forecast with documented assumptions considering industry trends and the economic environment can give a lot of insight regarding what’s around the corner. And, because it’s for future periods, you’ll have time to make decisions that can improve the company’s position before you’re in crisis mode.
Data from your sales pipeline can be used to check the plausibility of your assumptions. If your target is to grow sales by 20% in the next 6 months, how do you plan to accomplish that?
When you work backward from your revenue target to the top of your funnel, are you on track? If not, you’ll know where the team needs to drive more effort. Maybe you need to generate more leads, or maybe your conversion rates could be improved.
Unfortunately, our businesses are often affected by things beyond our control. Market factors and pandemics can make it impossible to achieve our current goals.
But that doesn’t mean it’s impossible to be prepared. Contingency planning can help keep the focus on what’s best to drive your business’s growth. What happens if there’s a downturn (i.e. 20% drop in revenue)? What if things stay the same? Or what happens if you do hit that 20% growth target? Is your team equipped to deliver that many customers?
Advance planning lets you look into the future to make decisions with a cool head.
A Data-driven Approach to Budgets and Expenses
In rapid growth situations where you have limited resources and unexpected expenses, planning ahead can save many resources and headaches. Thinking ahead gives you better control by allowing you to decide in advance where you’re going to put your efforts.
Budgeting helps keep control of expenses
Knowing what you’re going to spend and why you’re spending it makes decisions easier. It’s not uncommon for a deliberately planned budget to improve cash flow.
But be precise in your planning, avoid the temptation of throwing all expenses into the miscellaneous pile. This impedes transparency and makes it easy to lose track.
An annual budget is critical, but you don’t have to start from zero each year. On the other hand, simply copying the budget from the previous year isn’t a good alternative. Use it as a basis, but compare the budgeted figures to your actual figures and consider the current situation. Use that data to determine how you’ll drive growth. Then decide where you’re going to allocate your resources.
Modern financial tools put a lot of information at our fingertips. However, many companies aren’t using this data to its full potential. If you aren’t already planning an annual budget or getting monthly cash flow reports, why not start there?
Founder’s CPA startup experts understand how to help you leverage the data you already have and give you systems to generate necessary information.
Set up a free consultation with us about getting the most out of your data. This way, you can put your resources to work where they can make a difference.