Accounting figures for startups stage-by-stage
When your tech startup is just getting going, you’re likely only looking at two numbers: the ones at the bottom of your bank and credit card statements. But, seriously, what numbers and metrics do you need to have your eyes on each and every month to ensure your startup is going in the right direction?
Depending on what stage your startup is in – pre-customers, pre-revenue and beyond – this answer will expand over time as your goals change and your startup operations become increasingly complex. No matter where you are in the startup process, it’s imperative to practice good financial habits. This includes a holistic understanding of your startup’s financial health. Here are some important financial metrics that startups at different stages can use to stay on track with their numbers.
Early Stage Startups
Fledgling startups (should) watch every transaction that occurs with their new business. Even if your startup is pre-revenue and pre-customers, you’ll find the following metrics the most useful:
Cash on hand: Cash on hand is the money at the bottom of your balance sheet after all other expenses have been paid. Startups need to calculate cash on hand as part of their monthly numbers so that they understand the amount of money they actually have (often confused with gross revenue).
Sales pipeline: A sales pipeline allows a startup to see all prospective clients and the stage they are at in the sales process, with applied values for each. Figures from your sales pipeline allow you to forecast sales.
Later Stage Startups
Startups with some experience behind them should focus on financial sustainability through accountability. With success and growth comes complexity, meaning that to get the bigger picture you should track financial metrics from various departments in your company. Make sure you’ve got the full financial picture by tracking the following financial metrics for your startup:
A/R balance: Your startup’s A/R balance is the sum of outstanding invoices owed to the company.
Days sales outstanding (DSO): Days sales outstanding (DSO) is the period of time between invoicing and payment, a metric that indicates how well managed your accounts receivable process is.
Monthly recurring revenue (MRR): Monthly recurring revenue (MRR) is the amount of money your startup receives each month from regularly subscribed customers (applicable to a subscription model service).
Cost per acquisition: Cost per acquisition refers to the total amount of money spent to acquire a product, client or other asset. More specifically, many startups will use customer acquisition cost (CAC) to determine the dollar figure associated with each customer acquired, comparing this to the sales value of the converted client.
Go-live pipeline: Your go-live pipeline is a metric that calculates the process it takes for your product to go-live, which includes time for development, testing and implementation.
Implementation throughput: Implementation throughput measures performance and productivity for a startup. Throughput is a broad term that signifies the rate of production. Startups should measure throughput to improve implementation – and the time to start realizing MRR.
Customer churn: Customer churn is calculated by dividing the number of customers lost by the total number of customers. This tallies customer retention and should be measured at least monthly by a startup.
Performance-based budget: Performance-based budgeting is the process of creating a budget based on available metrics. The focus of this budgeting method is to measure results, not money spent. It is the derivative of resources that are input and services or products that are output.
Startup founders can quickly track these financial metrics in an Excel or Google spreadsheet. Once you’ve got these numbers, make sure your CFO reviews them with you to fully comprehend what they say about the well-being of your startup.
Do you have a good handle on what your startup’s numbers are telling you? Learn more about Growthwright’s finance and CFO services.
Michael Cerino is the CEO of Growthwright. Growthwright helps emerging technology companies with necessary business operations so they can focus on company growth without the distractions of critical financial, technical, human resources, sales and marketing tasks.