With talk of an economic downturn and a slowdown in venture funding, startups are having to figure out how to get to profitability quicker, and extend their resources without raising additional money.One of the best ways startups can go about this is to extend their financial runway.
A number of Square Mile’s startup clients have exceeded their financial goals and succeeded in leaps and bounds. Seven Coaching is a high-growth company, now ranked by Google as the UK’s best. Insurtech Gateway is an early-stage insurtech investor, with its own FCA authorised incubator. We have worked closely with both companies, and both have benefited from forecasting insights. A financial forecast is important because it informs hiring, budgeting, predicting revenue, and scenario planning.
It is usually recommended by founders like these that startups plan for at least two years of runway,
until the market recovers, and cut back wherever possible to avoid having to make tough decisions such as laying off staff.
Another Square Mile tech startup client who went to Stage A funding,recommends looking beyond the calendar. Rather than months, it’s better to view your runway as a series of necessary milestones that available cash on hand can fund.
“Instead of saying, ‘I think I have 12 months of runway left. you can say, For milestones A, B, and C, I have enough resources in terms of cash and hours”. Remember that potential investors will want to know the figure in terms of time increments as well.Ways to extend your startup’s runway
Rethink your expansion plans
The costs of expanding into a new market or region can add up quickly. For one of our clients, a creative agency in London, expansion means a new office, buying cars, and growing the team. Reduce burn rate by abandoning new markets, slowing growth in recently-launched markets, and focusing on areas you are already in. Our client postponed their digital agency launch in Italy, which is an expensive country to set up in, and slowed down their expansion into Spain.
Aim for retention: higher spend, not new customers
Provide a wider range of products, better service, and deals on multi-purchases to encourage your B2C customers to buy more. Each delivery will be more profitable if the average transaction value is higher. Small purchases with low margins and rising delivery costs just don’t work.
From our Client
“During the COVID crisis Square Mile have been a shining light in the darkness. They have advised us through VAT and Furlough issues given us tremendous support in terms of modelling our cashflow through this crisis and made our applications for CBILS solid. I cannot recommend them highly enough”
– James Dawson, the Humble Grape
Make scenario planning a priority
Scenario planning is the process of making assumptions about the future and predicting how your business will be affected. You will be better able to react and respond to obstacles if you prepare for what may happen. This process gives startups the power to go from reactive to proactive in their strategic planning initiatives.
Reforecast for success
Reforecasting allows tartups to course-correct as needed. By taking a more strategic approach to financial forecasting, founders can identify challenges, seek out opportunities, and create a clear roadmap moving forward. Startups should focus on the following key KPIs and metrics when implementing a financial reforecasting plan:
- Customer acquisition cost
- Cash conversion cycle
- Net revenue retention
- Revenue expansion
- Cash runway
- Net burn
Evaluate your finance App ecosytem
It can be difficult for companies to plan for the long term when the market is so unpredictable. Many startups use an Excel spreadsheet to manage their financial data. However, this manual process can be lengthy, prone to human error, and difficult to build for multiple scenarios. In order to save you valuable time for more strategic analysis initiatives, these processes can be automated by implementing a smart technology stack. At Square Mile, we set up all the systems and processes for startups from the get-go. Even though startups may want to cut costs, they must prioritise the right tech platforms to support growth. Not only does the right tech stack help improve data quality, but it also allows the startup to stay agile. Square Mile is a Xero Gold Champion.
Let your Virtual FD do the hard work
Your startup could save money by shifting power to a virtual Finance Director.
The virtual FD is your own qualified accountant who will work on your business as much as you need, offering flexibility, reliability, and trust. A virtual FD can provide financial advice for a fraction of the cost of hiring a full-time CFO, and you can use their expertise whenever you need it. For a startup, the virtual Finance Director can help you implement a range of practical measures to increase your financial success such as improved turnover and profitability, identification of new trends and financial patterns, strategic planning and cash forecasting.
“The Square Mile team feel like an extension of our team, their support is invaluable helping us get into what is now a very slick system, that runs like clockwork. Thanks Square Mile, hopefully here’s to another 5 great years!” Seven Career Coaching delivers cutting edge tailored coaching programmes to help professionals develop their careers and leadership skills, increase confidence and successfully navigate change.
Evelyn Cotter, Founder and CEO of Seven Career Coaching
“Square Mile Accounting have helped us implement our EMI scheme and stay on the right side of EIS applications and compliance. In these matters it is not about what you have considered it’s about what you haven’t – that’s what can cause problems. David has walked me through how everything works and I’ve now got confidence for my employees and shareholders that these matters are being handled properly and true to purpose. I would recommend this service.”
Jack Hobday, Co-founder of Anspach & Hobday
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