How to keep track of your business' finances
Leave a Comment / Bootstrap, Consulting, Finance / By Rob te Braake
Case Study: Website Agency
Many business owners are great at starting and growing their eCommerce, agency or online consulting businesses. But once the business reaches a certain size, the numbers get away from them. A dashboard can give you back control. It provides the right insights to empower decision-making.
" We were running well, the business should be a cash cow, but we couldn't figure out why every month we were strapped for cash "
Darren knew his website agency business was profitable but he didn't know by how much. Cash flow was also becoming a problem. He got regular updates from his bookkeeper but he did not fully understand them. They were also too late to be relevant. He didn't feel in control of his business. And his dream of delegating operations to a manager and starting his second business seemed out of reach.
That's when Darren reached out to Insight Matters. Insight Matters zeroed-in on exactly what KPIs would give Darren back control of his business. These KPIs were then put into a bespoke and easy-to-follow dashboard. Darren now feels in control of his business. He has made the changes to improve cash flow and his business is in much better shape. He finally feels that he can "fire himself" from his first business.
Darren's business dream
Darren had come up with his business idea while building websites. Every city has public services that need its own website, whether it be libraries, town halls, or even waste collection. While the front-end needs to be tailored for each individual city and service, the back-end is largely identical. It is also where the value lies. From payment processing to customer service, public services need to provide a range of services online that is beyond the average website builder.
If Darren could build a killer back-end and create a repeatable process for designing custom front-ends, the TAM (Total Assessable Market) would be huge.
Darren's hunch was right. He built his MVP and the business took off. Money started to roll in.
Darren was then struck by an even better business idea. Now he just needed to find a manager to keep the money rolling in for his first business so he could bootstrap his new business. He wanted to be able to "fire himself".
Where is the cash flow?
But then the numbers started to get away from him. He looked at the business' bank account and instead of $100,000 he only saw $50,000. Sales were still rolling in but the cash flow had stopped.
"I wanted to focus on building out the SaaS, but I couldn't focus on it, as I didn't have a grip on the cash flow of the main business "
He knew the money was stuck in accounts receivable but he didn't know the best way to get it unstuck. He wasn't even sure if this was a temporary problem or if the problem had been there for a while but had been masked by brisk growth.
Of course, accounts payable had no such problem. While cash was trickling in, Darren still had to pay out his monthly expenses.
With his first business struggling, Darren's roadmap to his second business now looked rocky.
Darren turned to his bookkeeper and accountant for help. They gave him nice spreadsheets with pretty charts that illustrated his problems but it wasn't actionable.
He didn't understand the data. There was no context and no color. He could not draw any insights to make changes.
He knew accounts receivable was one of his key problems but there was no easy way to break down the different behaviour of clients. Was the problem a small number of incorrigible clients or was the problem more systemic?
Updated financial statements from his bookkeeper were helpful but what he really needed was a set of KPIs that tied directly to his key problems and future goals for the business.
He also found that by the time he got the data, his business had already moved on, and his decisions were no longer relevant.
Darren needed something more timely for his decision-making. A fortnight's delay was two weeks too slow.
Darren was also struggling with areas that his bookkeeper and accountant could not help him with.
He knew it would be a good idea to track his time. But early on when there was so much work to do, it wasn't a priority. Now after a couple of years, Darren knew he was spending too much time on immediate problems that generated little or no revenue while other activities that did help generate revenue, like marketing, were being neglected.
He had tried several time-tracking apps but could not tie the hours back to his revenue and cash flow. He needed a big picture approach not a series of separate snapshots from separate apps.
Insight Matters
It was then that Darren heard about Insight Matters from a friend. Insight Matters had built a custom dashboard for his friend's business that had helped them overcome some financial difficulties.
Darren contacted Insight Matters and the team responded immediately to set up a chat.
Darren sat down and shared his problems: accounts receivables and where to best allocate his time.
He also shared his dream: bringing in a manager to run a thriving business while he monitored it and was free to pursue his new business idea.
After listening to Darren and determining what he needed, the team at Insights Matter came up with a roadmap.
They had helped many clients in similar situations to Darren and were confident that their approach would help Darren too.
The first step was to determine the right KPIs for Darren. He needed the right insights to diagnose problems and to set and achieve goals that would grow his business faster.
Insight Matters translated the financial data into a format Darren could understand and use.
The second step was to then put these KPIs in a "real-time" dashboard where Darren could see them all in one place. Curating and presenting the right indicators together provides a richer context than any loose list of KPIs. They also had to be presented in a way that made them easy to track.
Colours and charts help but it is truly understanding a client's problems, goals, and preferences that makes the difference. A client needs a sense of ownership over their dashboard, otherwise, it becomes just a wall of numbers and colours.
Insight Matters walked Darren through his dashboard and made iterative changes until Darren had the tool and insights he needed. Darren loved his new dashboard.
" The monthly walk through videos are incredibly helpful to get the maximum value from our bookkeeping and financial reports – they freed me up to finally bring in the General Manager"
Insight Matters also provides a service where they can walk-through the dashboard every month or quarter and provide strategic advice.
Insight Matters also helped Darren improve his bookkeeping process. Darren now gets his monthly data within the first six days of the next month instead of two weeks or later.
The Key KPIs
One key KPI was accounts receivables by age. Insight Matters broke down accounts receivable by time and presented it as a pie chart.
Using the pie chart, Darren was able to see that around 50 percent of accounts receivable was over 60 days. He could then target the problem payers and track their performance. Account receivable over 60 days is now down to 16 percent.
Another KPI was the monthly operating surplus/deficit. Here, Darren could easily see what was happening to his cash flow as it was happening.
In addition to improving the timeliness of accounts receivable, the team at Insight Matter suggested that Darren use an interest-free credit card to pay his bills so that he could slow down accounts payable. By better matching the speed of money going out with money going in, this would also improve cash flow.
Revenue and cost by business activity was another set of key KPIs. Using this, Darren quickly saw that he could increase profitability by focusing on hosting rather than just building the websites. The gross margin of hosting was well over 60 percent while the gross margin for building the website was actually negative. Darren now knew where to focus his time.
Through ROI by investment categories, Darren was also able to see that marketing had a high ROI and could be ramped up. It was an easy win.
On his way
Darren has finally "fired himself". He has hired a manager and is in the process of starting his second business. The dashboard and KPIs have given him the confidence to step away. He can keep an eye on his first business and can quickly step in if he sees any problems or opportunities developing. Darren now has a way to understand the numbers from his business and as a result the business is in great shape. Darren feels in control.
He is also planning to use KPIs and a dashboard for his new business. Once you discover the wheel, why would you return to walking?