Over the past decade, or more, founders have become experts at securing funding. Yet, many startups are unsuccessful. Studies show that nearly 90% of startups (even those funded to some extent in the beginning) fail. It’s a huge problem, and it opens the door to plenty of questions about what founders should be doing to see success. One of the primary questions: how much should a founder know about startup accounting?
While understanding each and every detail of your finances is not necessary, there are a few areas you can direct your focus to ensure your startup is successful from an accounting perspective:
Once you understand each of these aspects, your overall view of your financial system will become much more clear, setting you up to make sound and informed business decisions backed by a strong financial foundation.
As previously mentioned, for many founders, securing funding is not the problem. They often have the funding but then fall subject to a negative or poor cash flow. To solve this problem, accurately tracking and comprehending cash flow is vital.
Proper cash flow reporting helps you understand:
You can find the numbers behind each of these through basic reporting. You will get all of the information you need through reports like:
The comprehensive information you mine from each of these will give you a quick view of what is going on within your accounting.
Founders have a knack for looking ahead in terms of their products/services. They can usually see where they want their business to go from a product standpoint, but tying financial performance to those aspirations adds an extra layer of difficulty. Howeveryou can analyze your target market(s) to see how they respond to new features or offerings with proper tracking.
As a founder, to help guide your new ideas forward with the help of financial performance, you should heavily rely on forecasts.
These are great tools for predicting future revenue, and the more details you include, the better. You’ll want to ensure that you accurately track your company’s performance, considering those figures will be used to create your forecasts.
Each of your forecasts should be complete with:
With multiple forecasts, you’ll be able to predict where your money will be coming in and going out.
With all the tracking you’ll be doing to create forecasts, you’ll notice you are collecting plenty of data. However, it shouldn’t just be used for forecasting; it’s also beneficial for making real-time adjustments to improve your finances.
When collecting your data, take a step back and ask yourself what your marketing/sales data is telling you. Is there an area you can reduce spending? Or a sales channel that is doing well and deserves more attention?
Answering these questions will get you closer to providing your customers with your products in the best way possible.
By diving deep into your data, you’ll also be able to take a closer look at your expense reports and can ask yourself questions to improve (or justify) your spending:
Your data can play a massive role in driving and directing your startup. However, you need to know what data is important and how you can get the most value out of the data you are collecting.
The easiest way to do this is to work with a startup-focused accounting partner.
They can provide you with the reports and guidance you need, empowering you (the founder) to make better decisions and really drive growth.
Having a successful startup goes beyond simply getting funding. It takes a basic understanding of the three layers of your finances:
Once you’ve gained a basic understanding of each of these layers of your business, you can take it one step further by working with a growth-minded accounting partner, like Founder’s CPA.Founder’s CPA provides all of the reporting and guidance necessary to empower founders to reach their business goals. Contact us today to learn more!