Why is financial analytics essential for startups?

The reasons you should never skip financial analytics if you own a startup.

Businesses can’t afford to skip financial analytics in a world full of fast-growing ideas and high competition.

Companies use financial analytics to:

• Measure, track and forecast the completion of their projects, budgets, and other finance-related processes.
• Determine trends.
• Help choose a suitable financial policy.
• Build long-term plans.
• Identify the fittest projects or businesses to invest in.

Financial analytics is crucial for startups in ascertaining their financial status — whether it is profitable enough — or determining the right time to accelerate, and more.

Here’s how financial analytics affect business growth:

Key Performance Indicators (KPI)

KPIs are great for doing a health check of your company’s status. To improve and scale in the right direction, it’s crucial that you understand your business goals and monitor your KPIs closely.

The KPIs themselves should not be the main focus. But knowing how to analyze them turns them into actionable metrics. Using the right metrics will help you form data-driven plans and measure progress more accurately.

Read more about setting the right KPIs at Calqulate Academy.

Financial Planning

Startups need to refer to market, inventory, geography, and demand while making revenue projections.

• What is the price of your products/services?
• How much are your providers’ costs?
• Which area and demographic group are you targeting?
• Which marketing methods are you willing to use? How much do they cost?
• How much revenue do you expect to earn during the first year of operating your startup?
• What about the next five years’ revenue?

All the questions mentioned above require a base on reliable financial analytics.

The cashflow statement.

The cashflow statement determines the inflows and outflows to and from external parties your business interacts with. Forecasting cash flow can be a risky resolution for pre-seed or early-stage startups.

To avoid the dice, you first need to be able to make long-term cashflow forecasts and understand your cash runway. More importantly, be frank with yourself.

For example, you realize you may have instances where you expect to run low in cash, you will need to modify expenses to prevent this.

“Your goal is to be cashflow positive from Day 1 onwards. Motivate your customers to sign up for your annual deals instead of waiting 17 months to break even with a higher risk of them leaving you at any time. “ — Niko Laine, Calqulate Academy.

Break-even analysis

There is no wrong time to form good habits, such as doing a breakeven analysis. While it may sound overwhelming, the process of calculating your breakeven point is more straightforward in theory than you may think.

Start by making several assumptions or options to shorten your breakeven period, which is the hardest part of the whole process. But, be cautious because your breakeven point can change significantly if those assumptions are wrong. Lean on your financial analytics to figure out which of these assumptions are best suited for your business.

Want to learn more about break-even analysis? Check this article out.

Be more flexible! Things are changing.

The biggest mistake of some entrepreneurs is that they stick to the old data. They create a forecast and forget to review it after a while. It’s essential, even crucial, that you keep your financial planning up to date.

It is beneficial for every business to regularly update and compare their financial reports with previous ones. Here’s why:

If there are disparities in the statistics, and most likely there will be, then the information should revise the forecast.

There are plenty of tools for financial analytics. Choose which one is right for your business, or if you still have doubts, try to book a demo with Calqulate’s highly experienced specialists.