If startups focus too much on the financials, they may miss out on the right business model and company culture
There is no question that in order to be successful, startups need to have a good financial strategy in place. But a financial strategy is just one piece of the overall business puzzle, and nailing the overall business model is vital.
Deloitte Private director Duncan Stevenson says a startup’s focus should always remain on the development and refinement of its business model.
“The commercial outcomes of the business model need to support long-term sustainability and through extension, this will also drive your financial strategy,” says Stevenson. “Setting your financial strategy is based on understanding the financial needs of your business model to provide the cash you require, to achieve your goals in the short, medium and long term. Once this is understood, you can consider the likely sources of cash.”
He advises that you need to understand where your growth will come from and have some comfort that the growth is supported by market dynamics.
“For example, a business planning for unrealistic growth can get out of balance if they over-invest to support sales that do not eventuate, resulting in non-commercial outcomes,” says Stevenson.
The Practice senior manager of business advisory Graeme Anstey encourages startups to take the ‘Balanced Scorecard’ approach – that is, focusing on the four pillars of every business.
“I know this sounds controversial coming from an accountant, but business owners should first focus on the other three pillars of business: your people, your processes and your customers. These three pillars drive the final pillar, your financials,” Anstey says.
“The reason you should develop your financial strategy last is because the success of your financial strategy depends on your ability to fully understand your business, your industry, your competitors and your target market. Without a clear understanding of these, your financial strategy will be a guesstimate.”
Pitcher Partners executive director of business advisory David Knowles says prior performance is always a good starting point for a business to build a financial strategy.
“If no prior data is available, then begin with short term budgets with estimated revenue and expenses that are monitored. Using other benchmarking information can also assist,” Knowles says.
Anstey says that once you develop your financial strategy, you then need to monitor your performance regularly to ensure you’re on track. He recommends startups set key performance indicators (KPIs) to quickly see how they’re tracking against critical measures.
“The best way to do this is tapping into the benefits of cloud-based accounting software to build a business dashboard so you can see at a glance how you’re tracking to your KPIs, no matter where you are in the world,” Anstey says.
When it comes to communicating your goals to your team, Stevenson says a balance of both culture and strategy is the key to success.
“Does culture beat strategy, is an often debated question, but the answer is most likely in the balance. Your team drives your culture, and your culture needs to support success,” Stevenson says.
It’s important to remember that a financial strategy is only one piece of the puzzle. Startups need to have a firm understanding of their business model, including their team, their customers and their processes. Through this understanding, coupled with realistic goals and planning, startups can better avoid financial hiccups in both the short and long term.
Written by: Nicola Trotman
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