Imagine piloting an airplane: you taxi to the runway, prepare for takeoff, and as you’re rapidly speeding up to get airborne you notice a construction crew frantically working to build out the rest of the runway.
This just about sums up the financial stress of being an entrepreneur. While a certain amount of discomfort is just part of the lifestyle, being able to answer these key questions should help you sleep soundly at night.
(We’ll be using LivePlan to display these metrics. LivePlan’s cloud-based Scoreboard feature enables you to track your finances on the go. You can take LivePlan for a spin here.)
Are we hitting our targets?
Begin with the sales and expenses first: are you ahead or behind on your monthly goal? Compare your Month-to-Date sales and expenses to your End-of-Month goals to see if you’re on track.
Can we pay our bills this month?
Look at your cash balance and Accounts Payable. Just because you’re profitable doesn’t mean you don’t have to worry. Profitable companies run out of cash too. Keep an eye on both your monthly burn rate and any major payables to make sure you’re financially viable in the immediate future.
How much runway do we have?
If you are running a monthly net loss, you need to closely monitor how much of your expenses aren’t being funded from revenues. Looking at your burn rate again (monthly ongoing expenses), project forward to see how much runway you have until you run out of cash. Comparing last month’s actuals to the projections in your business plan will generate valuable discussion for your executive team.
Do we have enough cash to get to break-even?
Financial break-even is a major milestone that you should monitor and adjust constantly as your situation changes. Closely track net profit vs. your business plan projections, taking a 12-month view to get a better picture of the trend. Keep in mind your runway projection – if you don’t have enough cash to get to your breakeven date, your runway will end before you get off the ground. Start plans to raise money and look at ways to cut your expenses.
There’s a saying: “An entrepreneur has to learn to be comfortable feeling uncomfortable much of the time.” Finances are usually the largest source of that anxiety, but you can keep it to a minimum by spending a few minutes a day checking your financial health.