David Sacks
“In an up market or a boom market the three things that matter are growth, growth and growth. In a down market, the three things that matter are growth, burn, and margins”
Managing EBITDA, Profitability, Unit Economics is a new reality for startups. Now, every CEO should also be a CFO.
I am a CFO turned entrepreneur and CEO at Fuelfinance. I always wear both hats. And at Fuel we build the product that helps founders/CEOs get a CFO superpower ⚡ without sleepless nights and expensive mistakes 💰
So we decided to share tips on the increasing runway and managing finance during the downturn. At Fuel, we have analyzed financial management in more than 300 businesses. My personal CEO experience is also based on two crises in 3 years of Fuel existence (Covid and the war in Ukraine). And despite everything, we are profitable and growing.
*These 4️⃣ steps can be used by revenue-stage startups by founders and CEOs. The same best practices are implemented in Fuel’s cloud finance system and are used by dozens of our customers.
Step 1. Make a good financial plan in several scenarios
Yes, that financial plan you usually prepare for investors during fundraising but rarely use after that.
Also, don’t make it optimistic, as if you want VC’s to believe in fantastic prospects and in you. On the opposite – make it pessimistic, so that you know you will be able to survive even if things go worse than they’ve been going over the last months.
The secret to success is simply using this plan. Don’t forget to make a plan/actual analysis every month. That’s can be very painful. And yes, you should be depressed looking at this deviation from your fantastic plans 🤯
Learn your lessons and update your plan for the next month based on your plan/actual analysis for the previous months. Take your baseline plan as 5-10% worse than the average of the last few months.
As a CEO know the budgets of all your departments. All executives should also use the same financial plan to achieve monthly goals 🚀 Don’t be afraid to be transparent with your team. This will make your team stronger, not weaker, and everyone has to face reality to avoid stupid decisions.
Good news:
- After 4-5 months, you will get less than a 5% deviation from your plan and much more insights about your capital efficiency.
- You will get the one system of KPIs and expectations in your team. As a result, much easier and more efficient one-on-one and board meetings. Because only the system brings real freedom.
Step 2. Have a detailed model of your revenue
If you get only a plan of your revenue but without all other business metrics, you will not achieve it. Get as many details as possible: number of leads, conversion rates, number of new customers, churn rates. And control plan/actual analysis of these metrics. In that way, you will have a clear understanding of how you should grow your revenue. And who is responsible for what part of revenue growth.
Step 3. Cash is the King
Make a detailed monthly burn model until “cash-out” 💸 If you don’t yet understand the difference between P&L and Cash Flow – educate yourself – it’s easy.
Track cash flow every week: plan/actual analysis. Make your monthly cash budgets by different functions in your business. Understand the efficiency of these budgets based on Step 1. And know in advance if you will have overspending.
All payments should be in line with the budget. All not budgeted expenses should be doubled-checked if they are really important before payment.
Step 4. Cutting costs earlier than later
“Cutting all costs to survive without the ability to make progress is not really surviving”🚨
What costs are crucial for growth and product development? What costs are operational and not essential? During the Covid, I saw how companies became profitable because of efficient cost-cutting. For many of them, it was a surprise that some expenses are unnecessary.
I learned one very important rule after two crises: it’s always better to cut costs earlier than later. And that’s how you can win the time and have 3-9-12 additional months to rebuild the business and keep growing. The more time you spend on this decision, the less money you have.
You can be already bored and feel not so enthusiastic. But I still have good news. In the end, you can get a super achievement – more financial freedom and even profitability 🎯
Fuel streamlines all of these processes and handles them for you, delivering the insights and recommendations.
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