At The Startup CFO, we are passionate about transmitting good startup practices to help entrepreneurs on their journey to thrive and succeed. We specialise in providing CFO services for startups and we are going to share some tips on how to ensure you have the best quality reportings in your startup.
Let’s get started!
Integrate reporting into your startup culture
Make your decisions based on evidence that is backed up by real figures. Reporting provides you with those figures and gives you hard facts to make the right decisions for your business. It goes without saying that passion is fundamental and is often what makes the world of startups such an exciting place to be. However, hard data is fundamental.
It’s important to remember that day-to-day business tasks can cause neglect of reporting. Therefore, this activity should be constant and at the forefront, which is why hiring a CFO is sometimes a wise decision.
It’s absolutely invaluable to have a fully detailed monthly report considered from the first month of your business operations. The Startup CFO specialises in a range of monthly reporting solutions to enhance and streamline the running of your business.
Reporting should include clear KPI metrics: put numbers first
It’s important that your reporting is KPI oriented for you to keep an eye on the exact health of your business. If we had to break down 4 key KPIs that every startup should be tracking from Day One, we would strongly recommend:
Revenue Run Rate
Broadly speaking, the revenue run rate is the essential metric to determine the financial performance of a company and some might even argue that it’s the most important. This metric is an excellent test for rapidly growing companies that rely on fast, up-to-date information that may expire in a surprisingly short period of time. The formula is as follows:
Run Rate = Revenue in Period / Number of Days in Period x 365
This metric is an ideal tool for allowing a company to learn and grow as it rapidly expands. Isn’t that the ultimate goal of every single startup founder and entrepreneur?
Customer acquisition cost (CAC)
Customer acquisition cost is of vital importance to any startup, particularly in the SaaS world. For this metric to really work, you need to factor in all the related expenses to the acquisition of each unit (subscriber or user), and that should include staffing, outsourced costs, day-to-day utilities and marketing.
Customer lifetime revenue (CLR)
This is a simpler variant of the Customer Lifetime Value (LTV) metric, given it does not consider gross margin, rather estimates the top line revenue contribution for a customer. In the case of SaaS environments, it’s essential that you take average customer subscription length into account when calculating this metric. Let’s say that your average customer subscribes for 16 months, and this is the period of time they are using your service. If this is the case, those 16 months would be an ideal indicator of CLR.
CLR is not just essential from a financial standpoint. It’s also vital to understand the quality of the product you’re offering, your customer service and how well your USP is reaching your target audience.
This is the bottom line for everything you do as a startup. It’s the metric that is going to guide hiring and is going to tell you if the business is where investors had hoped it would be at any given moment. Remember that while your margin can be calculated in different ways, you should bear in mind that the revenue of your business must not exceed the cost of goods you’ve sold and your day-to-day utilities and operating expenses like rent, fixed costs and technological systems. If it does, you would not be in a position to hire new talent. Remember that the profit & loss of your startup is a set of figures that every investor will want to see in detail.
Clearly demonstrate unit economics and prioritise investors
As we’ve mentioned in previous posts, unit economics are absolutely essential to understanding the current situation of any startup and are particularly helpful for early-stage businesses. Unit economics help us understand your startup’s current health and whether a company is reaching its target audience in the first months of trading. The two key metrics here are CAC (Customer Acquisition Cost) and LTV (Lifetime Value).
When reporting these figures, it’s important that you do so professionally and keep your investors firmly in mind. After all, these individuals will want to know how the day-to-day health of your startup looks as well as month-on-month growth. Ensure that if the business has different types of units, you clearly separate them.
Be clear about income and outgoings
Your reporting should include clear information about expenses that coincide clearly with your banking statements and are easily deciphered. This type of reporting means that income and outgoings can be fully reported and justified which inspires confidence from investors and gives a clear picture of what’s happening month-to-month. In this sense, it should be standard practice to report on loan repayment, bills, general outgoings and how much money you’ve received as ingoing cash as a result of funding.
It can be tempting to ignore reporting. However, we need to bear in mind that it’s absolutely fundamental for any startup. At The Startup CFO , we specialise in providing consultation and financial services for early-stage startups and reporting is at the core of our expertise. Get in touch with us for a detailed conversation about your financial needs and how we can help you boost your reporting.
You can also join The Startup CFO Academy and learn all about finance in startups in our 12 week course.