Huge frustration investors have with founders is the inability to communicate effectively around their numbers. And for founders, who are usually doing this unknowingly, it can, worst case, become a roadblock when they need support or more funds. And the best case it means they are not getting the most out of the relationship.
So how should you be talking communicating your financials? Here are a few starters
1) Understand your key business metrics and talk to them consistently.
The key metrics will be different from business to business but typical metrics could cover
- Topline revenue, split by geography or product if relevant
- Gross margin
- Net margin
- Number of customers
- Average revenue or spend per customer
- New customers or clients
- Customer churn (lost customers)
- Net new customers or clients (Gross new less lost customers)
- Customer acquisition cost
The important thing here is not to just understand what the key metrics are driving the business but maintaining consistency in the calculation (unless there is a clear reason, clearly communicated for the change) and show trending over time so investors can understand what is happening in the business
2) Communicate your financials regularly
“Regularly” means different things to different people so understanding the frequency that is expected is helpful but ultimately whatever the timeframe (eg. monthly or quarterly) delivering on the agreed commitment does a couple of things.
- Positions you as someone who can be trusted to do what they say they are going to do and that trust has a halo effect around the rest of the business
- Keeps you top of mind for your investors when they receive that regular report. Great investors not only have funds but also a useful network that you can tap into. You want your business to be one they are constantly thinking about, not one they only hear from when there is trouble
3) Balance detail with business effort
Particularly in a business with fast growth and lean resources the financials you report shouldn’t be onerously time-consuming. Putting the management systems in place to easily extract the information is really important. It’s not the best use of your time as a founder to be spending significant amounts of time report collating. If information is not yet easily accessible be up front with your investors and let them know, whilst in the background working on an automated fix. Accessing these key metrics easily should be a priority, not for reporting to your investors, but because they are key to understanding your own business performance.