A Startup’s Most Important Financial Metric
Here’s a list of very important financial metrics, so look at these and tell me which one is the most important:
Revenue. Net Income. EBITDA. Cashflow From Operations. Monthly Recurring Revenue. Churn Rate. Lifetime Value of a Customer. Customer Acquisition Cost. Average Revenue Per Customer. Burn Rate. # of Months to Break Even. Gross Margin. Profit Per Unit. # of Months of Runway. Cash In The Bank. Return On Investment.
So which one did you choose? If I were tell you that your starup’s most important financial metric isn’t one of the above, what would you say (besides something foul because I tricked you)?
Ok, so here’s a startup’s most important financial metric: The Ability To Produce Financials On An Accurate And Timely Basis. This is known as TATPFOAAATB. Yeah, I made that up…but I’m working on the trademark. And the metric can only be measured in terms of “Yes” or “No”. The bottom line is that if you don’t actually have an accounting system that you keep current, then you’re not serious about your startup.
When you’re a startup, there are very few financial metrics that are going to be meaningful to an investor. An investor isn’t funding you based on your historic revenues or EBITDA. You probably don’t even have revenues. They’re funding you because they believe in what the business is going to become and they have faith that you, as the founder, will do the right things…..like be a good steward of their investment. You go a long way in building that financial confidence by having the “Yes” box checked for TATPFOAAATB.
If you’re a startup, check out an old video post I did that will give a few easy steps to make sure that have have that most important financial metric taken care of.