We tell all kinds of stories in business. The problems we solve for customers. The experience we provide employees. The change we want our work to have on the world.
As more and more data becomes available to us, those stories are increasingly being driven by numbers. After all, we have stats on everything from the number of qualified leads in our sales pipeline to visitors on our Facebook pages available at our fingertips, in an instant.
Nowhere is data richer than in your financials. However, it’s not enough to simply have access to the numbers, dashboards and scorecards. You need to know how to read them and how to see the story behind them. As Warren Buffett said, “If you can’t read the scoreboard, you don’t know the score. If you don’t know the score, you can’t tell the winners from losers.”
The three stories every startup needs to know
For startups, we recommend getting familiar with at least three major financial stories. And we don’t mean just gathering and reading the numbers – but what to do about them.
Your cash flow looks at the movement of money into and out of your business. Have you ever showed a profit, but your bank account was negative? A cash flow report will tell you why, which makes it one of the most important reports because cash makes or breaks your business.
It answers questions like:
- Will you have enough money on-hand to cover upcoming expenses?
- How fast do you burn through your money?
- What reserves do you have if you have a cash flow gap?
Your profits and losses can help give you a quick sense of how well your company is operating:
- Are you making a profit?
- Are you paying too much to deliver your product or service?
- Will you generate funds to invest back into your business (after your clients pay you and you pay your vendors)?
Finally, your balance sheet can give you important insights into how you’re managing your money at a specific point in time:
- How much is your business actually worth?
- What assets can you access if you need them?
- Are customers paying their bills (and are you paying yours)?
What other stories do your numbers tell?
Financial reports tell one part of the story, but when you combine them with your non-financial data, you’ll find other interesting and powerful insights into your business.
1. The rhythm of your business
Every business has its ups and downs in revenue. You may also see connected cycles in customer satisfaction and employee productivity that respond to external factors like the weather or the current political climate. All of this can affect your bottom line.
2. How you manage your relationships
Think of all the people involved in running your business: your team, the investors who provide funding, the suppliers you depend on. Financial insights into your salaries, investments and transactions combine with your other metrics to determine the terms you set, the expectations you establish and more.
3. How you stack up against your peers
Sometimes it helps to look at the data outside of your company. Benchmarking can show you how you perform against competitors, how you’re likely to perform in the industry in the future, and where there are opportunities to differentiate yourself.
4. Where your processes could be better
Is there one stage in particular where deals seem to churn? Is there one bookkeeping task that dominates your time? Is there one provider that costs way too much but delivers way too little? You might not notice on a daily level, but when you step back to look at the larger data-driven picture, you can see where the inefficiencies are.
5. Whether you’re measuring the right things
That big-fish customer you landed (and bend head-over-heels to keep happy) may not be the money-maker you think they are. So what factors actually translate to the goals you want to reach? Your numbers bypass those gut feelings and tell you where you really need to focus.
How do you turn those spreadsheets and tables into stories like this? How do you find those critical drivers that impact your business the most? That’s where an accounting partner like Element CPA can help, from the financial analysis to the non-financial contributors that come together to impact your bottom line.
We do this in a few ways, like setting up cloud-accounting software that tracks your information in real-time, automation that takes care of inefficiencies for you, integrations that connect your financials to the other apps you use to track your business, AI that identifies trends and alerts you to potential problems, and visual dashboards that make all of this incredibly easy to understand.
Think of us as the guide who knows how the fit all the right pieces of the puzzle together.
Ready to solve your puzzle? We can get started today with a free 30-minute consultation.
About Element CPA
Element CPA is an innovative accounting partner that’s 100% focused on helping Canadian startups and small businesses get their books in order, operate more efficiently and plan for the future. We handle the day-to-day financial operations that make your business run, tell the story behind your numbers and provide advice as you grow.