When you envisioned running a startup, you probably didn't imagine spending hours in spreadsheets, juggling multiple platforms, and tax forms.
Talk about overwhelming! Especially with pressure from leadership and investors to understand your business and its financial health at any time.
Disparate accounting programs, lack of interdepartmental communication, and limited financial expertise only exasperate the problem.
But getting control over your finance operations (FinOps) and finding the right tools to help you do this early on will improve financial visibility and set you up for potential growth.
This article will explore the importance of real-time data, its benefits, practical tips on utilizing real-time financial visibility tools, and strategies for gaining clarity within your FinOps.
What Is Financial Visibility?
Financial visibility refers to the ability to see your financial status at any given time.
Imagine lightning-speed financial visibility, where you could present last quarter's profits, today's cash balance, and next year's projections in minutes. Access real-time data to quickly understand, analyze, and use it strategically in decision-making.
Fortunately, there are tools to help and many reasons to act on it sooner rather than later.
Why Visibility Into Your Finances Matters
When deciding on financial platforms and applications, less is more. To achieve optimal financial visibility, we recommend having your data in a single source with a clear picture of your KPIs – such as on a KPI dashboard.
But easy access to your KPIs isn’t the only benefit of financial visibility. Check out seven more reasons below.
1. So You Don’t Run Out Of Money
Startups (especially early-stage) need to closely monitor their accounts to ensure they have runway. With clear financial visibility and daily updates to your burn rate, you can anticipate if there is any risk of running out of money well in advance and evaluate where to cut or increase spending. Look for a finance dashboard that helps you see cash burn, runway, and operating expenses in a single view.
2. Understand Short And Long-Term Financial Status
Understanding your near and future financial status and how it can affect your goals is critical for setting realistic objectives, addressing current issues, and maintaining financial health.
Check out how financial visibility helps with understanding your financial status:
Short-term – Access to day-to-day cash flow and the ability to track your budget in daily, monthly, and quarterly metrics.
Long-term – Examine your big-picture financial operations, including total revenue and cash flow. Also, have the ability to build strong financial models that help you reach goals like fundraising or publicizing your company.
3. For More Accurate Projections & Financial Models
Financial forecasting can’t predict the exact future, but its accuracy depends on the quality of the data you provide. Transparency is key.
Using common budget forecasting practices can help you obtain the best data. This may involve segmenting a business year into periods, establishing key performance indicators or financial metrics that indicate a specific target goal, and using variance analysis to see how your spending compares to your budget plan for that time frame.
Once you know past performance, you can make more accurate projections and financial plans. This way, you prepare for upcoming costs and execute investments immediately. You could lose money or even run out of savings with inaccurate data and projections.
4. To Improve Strategic Decision-Making
Decision-making based on strong financial visibility results in better strategic moves thanks to clear and accurate data. This can assist you in prioritizing projects, allocating resources, and making critical investments in your business.
For example, when contemplating launching a new product update, your first step should be to collect strategic data. Employ a bird's-eye approach to your financial operations to review recent sales of similar products, budget forecasts, and available cash flow.
By clearly viewing your financial status, you can make a more informed strategic decision about moving forward with that initiative.
5. To Be Proactive vs. Reactive
Strong financial visibility enables you to be proactive rather than reactive – monitor financial metrics regularly and detect potential issues before they become significant problems.
For instance, if you forecast a cash flow shortfall in the next quarter, you can take steps to address the issue before it becomes a crisis. You may cut expenses, increase sales to address the shortfall, or seek additional financing to help bridge the gap.
Being proactive in your financial management can better position your business for success and minimize the risks associated with unforeseen financial challenges.
6. To Better Manage Cash Flow
Cash flow management can help you maximize your available funds.
To do this, you need to track each dollar in and out using your cash flow statement. You can gain the best financial visibility by breaking down a cash flow statement into your main cash movements, such as operating, investing, and financing activities.
7. Improve Investor Relations
Investors want to see that you understand your financials clearly and make sound decisions for your business.
With financial visibility, you can provide investors with accurate and timely financial reports showing their investments' performance.
When pulling together your next board meeting deck or investor update, you should include the following:
- Potential return on investment – Investors need to know the benefits of investing.
- Current revenue – As a SaaS startup, you may rely on monthly recurring revenue (MRR) to inform your investors of monthly earnings.
- Run rate – You can estimate this using your MRR or quarterly numbers.
- Customer growth and churn – Investors need to know how many new customers your company is turning over annually.
Real-Time Financial Visibility
Traditional bookkeeping software and spreadsheet-building programs disperse your financial information across multiple sources. Instead, consider choosing fully-integrated financial platforms that offer you real-time accounting and finances.
It is worth considering a platform that includes cash flow, budgeting, forecasting, invoicing, and insights into cash burn rate all in one view. You can enjoy a concierge-like service that manages the financial details while you focus on running your business.
Gaining Clarity Into Your Financial Operations
Financial visibility doesn’t have to wait for your startup. Disparate accounting software and metrics programs can complicate matters. With the right tools and team to monitor your financial data, you can manage your cash, be proactive, and make better decisions.
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