The nature of the tech industry means your business’s landscape is often changing. You move fast. Hire more, build more, sell more, grow more. All of your decisions have to be informed, razor-sharp and hit the target dead on.
Here’s why it pays to give your financial data the same timely attention as the rest of your business.
Quick growth requires quick action
When we say “managing your tech start up’s finances”, we mean everything from bookkeeping to cash flow to KPIs. It’s all incredibly pertinent, insightful information and it’s the data that savvy entrepreneurs will monitor as early as possible.
For better or worse, things move quickly in the tech industry (it’s one of the reasons we love what we do). One way to harness that energy is to be on the ball with your numbers. The more you know, the more agile you are; you’ll be able to pivot on challenges and capitalise on opportunities.
Make sure you track the right KPIs
That said, there’s no point in tracking numbers just because you think you should be. What you’re measuring has to be relevant to your business, including where it currently is, and the strategy you have for scaling.
Ultimately, you’ll only reap the rewards of tracking KPIs if you’re monitoring the right ones.
Example KPIs
- Cash Burn Rate
- Monthly Recurring Revenue (MRR)
- The cost of acquiring new customers vs their lifetime value
- Churn Rate by different characteristics, to understand why they are leaving
- Daily/weekly cash
- Subscription costs (a sneaky one that can soon add up and won’t always deliver value)
The more often you track and measure the right numbers the quicker you’ll feed valuable information into your decision making process. The quicker your decision process, the quicker the growth.
Example of using a KPI in your decision making
- You identify a KPI for Customer Churn Rate alongside a recent promotion
- You track it weekly
- You notice 80% of customers churn after 3 months
- You establish a return on investment (ROI) for this promotion
- You decide to change the promotion next time (to test the impact this has on churn)
- The result is an increased ROI on your next offer, leading to sustained growth in MRR
KPIs are powerfully informative. That’s why it’s good to have the support of an expert who’s experienced in your industry. They’ll know which ones are the most insightful and need to be measured.
You can take action and meet targets within the same month
If you only check in on your targets quarterly (or even every six months), you’re missing out on targets you could have met if you’d taken educated action at the time.
Weekly check-ins inform you and your team of how close you are to reaching targets in real-time. If you’re close, you can strategically pivot and apply localised focus to those areas.
If you’re not close, that informs you too. Now you can dig into why and look at the context behind the drop in performance. More importantly, you’ll determine if that target is just way off. There’s no point in having targets if they can’t be met; you need a foundation to facilitate your goals.
If you always wait until month-end or every quarter to check these numbers, you’re choosing to look retrospectively at your performance. And, in an industry that’s all about innovation, you’re putting your business at an unnecessary disadvantage.
The more regularly you hit your targets, the quicker the growth (yes, there’s a pattern here!).
You’ll avoid month-end invoicing drama
Well-oiled machine or not, things go wrong in every business. From unexpected costs, glitches in software to drops in wifi: it will happen. How soon you notice and what you do about it can make or break your tech business.
Example
- You invoice your customers monthly. This month your software failed to issue them
- You didn’t notice until towards month end
- You have to send the invoices out late
- Your customers have a 30 days payment term
- You also have customers who settle payments beyond that term
- You’ll have to send next month’s invoices out shortly too (thus unsettling customers)
- Result: you have a cash flow issue and a retention issue
When you consistently and frequently monitor your finances, you’re much more likely to spot a problem when it happens. If you catch it quickly you can side-step major operational challenges.
You’ll catch cost changes in real-time
Cost changes often fly under the radar. Unless there’s an obvious hike in price, an increase can go unnoticed for quite some time.
One small change may seem like little impact but collectively or alone they’ll invariably have an effect. Unnoticed cost increases could mean discovering cash leaks that appear inexplicable in nature. They’ll take time to source and rectify.
We’ll always recommend you become very familiar with each cost your business sustains and monitor them scrupulously. That way, when a price does increase, you’re quickly able to implement a strategy to counter it.
Monitoring lag metrics is only half the story
Now, most business owners track lag metrics. They’re areas that can give insight but they only focus on the past (for example last month’s sales) and there’s nothing you can do to change what’s already happened.
Tracking lead metrics will give an indication of what will happen next. They’re also within your direct control. If you look at the number of contact points for each lead, for example, you can choose how many leads you contact. If you focus on improving this KPI, it will flow through to increased sales.
Up-to-date lead and lag metrics can shape your decision making. Ultimately, you’re using data to learn from the past and change the future (another reason why we love what we do).
A confident entrepreneur is a force to be reckoned with
Timely accounting is way more than just accurate data. It gives you powerful information to build a solid strategy going forward. And when you have that, you have confidence, and when you’re a tech entrepreneur there’s really no stopping you at that point.
Now, tech startups are our MO. If you want an expert team to do everything we’ve laid out in this blog, start by filling out our form.