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.