By Vaclav Muchna, Owner/CEO Y Soft – Young CEOs have a lot going on when starting a new company: developing the product, trying to get market traction and hiring the right people. Yet there’s another thing you need to add to your list: loving your numbers.
I often say, that finance is like rear view mirrors in a car… even without them you can drive pretty fast, however taking over can be quite dangerous.
What does it mean? It means really understanding the financial operational side of the business at any point in time. Profit and loss statements, balance sheets, burn rates – and not just finance, but the processes within the business. Your business is too young at this point for a CFO, so you have to take ownership.
Here’s why it matters:
- Growth brings demand on capital. Whether you are operating on self-funding or a small bit of VC funding, it may sound strange, but growth can be your biggest enemy. This is especially true if your product requires a long sales cycle or if you sell indirect or in B2B because you are having to outlay expenses now (payroll, rent etc.) and the payoff may not come for a long time. Customers might want a free trial or proof of concept and you cannot invoice until an installation/delivery is made (and then wait for payment); this can take months.
- If you can’t build a model that tracks this kind information, you could quite possibly run out of money sooner than you think. If you are not looking at your bank account at least three times a week, you are doing it wrong. If you are not looking at your accounts receivable and aging at least two times a week, you are doing it wrong. If you don’t know what accounts receivable aging is, you are really in trouble. How accurate is your monthly burn rate?
