The Art of Startup Finance: Financial Monitoring – Your Performance Metrics


Kauffman Founders School, Bill Reichert, The
Art of Startup Finance, Financial Monitoring: Your Performance Metrics>>So now we’re moving to the top of the startup
finance pyramid, monitoring your performance. That includes your monthly financial reports
as well as your management dashboard. So first let’s talk about your monthly financials.
I want to encourage you to get out ahead of your board of directors and your investors
and get into the habit of producing good monthly financial reports every single month. I’ll
tell you, that differentiates you from almost every other entrepreneur. Typically what happens
is the entrepreneur is resisting, as much as possible. The entrepreneur is resisting
all of this reporting that the board requires. Entrepreneurs hate doing these monthly financial
reports because for the most part, we treat them the wrong way. Entrepreneurs, directors,
investors, they tend to treat the monthly financial reports as a score card. It’s a
grade, it’s all about how are you doing. Are you living up to your promise? You should
really be thinking about your monthly reports as a learning opportunity. As a way to identify
what did we think was going to happen, what actually happened, and why was there a difference.
We can learn by paying attention to those differences rather than taking the monthly
financial report as an opportunity to either praise an entrepreneur who beat his numbers,
or punish the entrepreneur who missed his numbers. What you’re going to discover is
your monthly financials are not good enough. Because it doesn’t really capture everything
you really care about when you’re building your company. So in addition to your monthly
financial reports, you also need to build a management dashboard. A management dashboard
is a set of metrics, sometimes they are referred to as key performance indicators, that you
want to monitor on a regular basis. So for example, cash, cash is almost always one of
your key performance indicators. Where is your cash? And equally important, is it above
or below where you thought it was supposed to be? I would generally recommend you to
try to keep your management dashboard to 12 to 15 key performance indicators. That’s two
or three for each part of your company that you report on as a group every month. So you
know, for product development you’ll have two or three. For marketing, for sales, for
operations, for finance. Sometimes you’re going to be monitoring these on a daily basis.
Sometimes on a weekly basis. And always on a monthly basis. Your management dashboard
is generally on one piece of paper or on one screen. It shows each of the key performance
indicators that you want to monitor on a regular basis. Now there are a whole bunch of different
ways to do it. Start simple. You can do it in a power point slide. You can do it on an
Excel spreadsheet, whatever is the easiest way to report these key performance indicators.
If you can from early days identify one of those critical metrics that we really want
to follow and then you show them to investors that, hey, we already have this management
dashboard, investors are going to be really impressed. So I encourage you, get out ahead
of the curve. Put together an effective management dashboard. Monitoring the key performance
indicators for your company. If you have a disciplined financial management approach
to your company, you will separate yourself from almost all the other startup entrepreneurs
that are out there.

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