5 KPIs that determine if your startup lives or dies:
Yet over 90% of Founders I've spoken to, couldn't provide these KPIs when asked on the spot.
Let's fix that.
The 5 KPIs are:
β’ Burn
β’ Runway
β’ Growth Rate
β’ Cash Requirement
β’ Time to Profitability
Let's fix that.
The 5 KPIs are:
β’ Burn
β’ Runway
β’ Growth Rate
β’ Cash Requirement
β’ Time to Profitability
β’ What You Need To Calculate
These metrics are incredibly simple to calculate.
You only need 3 simple data points that you can easily get from your online banking (no CFOs required).
1. Incoming Cashflow (IC)
2. Outgoing Cashflow (OC)
3. Cash Balance
Thatβs it.
These metrics are incredibly simple to calculate.
You only need 3 simple data points that you can easily get from your online banking (no CFOs required).
1. Incoming Cashflow (IC)
2. Outgoing Cashflow (OC)
3. Cash Balance
Thatβs it.
β’ Burn Rate
Burn Rate = OC - IC
How much of your cash balance is the business consuming (burning) to stay operational.
Burn Rate = OC - IC
How much of your cash balance is the business consuming (burning) to stay operational.
β’ Runway
Runway = Cash Balance / Burn Rate
How much time do you have before you run out of money.
Runway = Cash Balance / Burn Rate
How much time do you have before you run out of money.
β’ Growth Rate
Growth Rate = (This Month IC - Previous Month IC) / Previous Month IC
How much is your revenue growing.
Growth Rate = (This Month IC - Previous Month IC) / Previous Month IC
How much is your revenue growing.
β’ Time to Profitability
OC - [IC x (1+Growth Rate) ^ Time To Profitability]
How long will it take your startup to achieve profitability.
OC - [IC x (1+Growth Rate) ^ Time To Profitability]
How long will it take your startup to achieve profitability.
β’ Cash Requirement
Cash Requirement = Cash Balance + Total IC To Profitability - Total OC To Profitability.
The amount of cash required to sustain your business till profitability.
Cash Requirement = Cash Balance + Total IC To Profitability - Total OC To Profitability.
The amount of cash required to sustain your business till profitability.
Example:
This Month:
β’ Incoming Cashflow = $1,100
β’ Outgoing Cashflow = $10,100
β’ Ending Cash Balance = $300,000
Previous Month:
β’ Incoming Cashflow = $1,000
β’ Outgoing Cashflow = $10,100
This Month:
β’ Incoming Cashflow = $1,100
β’ Outgoing Cashflow = $10,100
β’ Ending Cash Balance = $300,000
Previous Month:
β’ Incoming Cashflow = $1,000
β’ Outgoing Cashflow = $10,100
Burn = $10,100 - $1,100 = $9,000 per month
Runway = $300,000 / $9,000 = 33 months = 2.8 years
Growth Rate = ($1,100 - $1,000)/$1,000 = 10% per month
Runway = $300,000 / $9,000 = 33 months = 2.8 years
Growth Rate = ($1,100 - $1,000)/$1,000 = 10% per month
Results:
βοΈ You will achieve Profitability in about 1.9 years (less than your runway)
βοΈYou require $140k in capital (you have $300k of cash)
This means you have all the cash resources you need to achieve be able to be self-sustaining.
No capital raise required.
βοΈ You will achieve Profitability in about 1.9 years (less than your runway)
βοΈYou require $140k in capital (you have $300k of cash)
This means you have all the cash resources you need to achieve be able to be self-sustaining.
No capital raise required.
βοΈGood:
Runway > Time to Profitability
Cash Balance > Cash Requirement
β Not Good:
Runway < Time to Profitability
Cash Balance < Cash Requirement
(if this occurs, you need to inject more cash into the business)
Runway > Time to Profitability
Cash Balance > Cash Requirement
β Not Good:
Runway < Time to Profitability
Cash Balance < Cash Requirement
(if this occurs, you need to inject more cash into the business)
TL;DR
5 KPIs that determine if your startup lives or dies:
β’ Burn
β’ Runway
β’ Growth Rate
β’ Cash Requirement
β’ Time to Profitability
5 KPIs that determine if your startup lives or dies:
β’ Burn
β’ Runway
β’ Growth Rate
β’ Cash Requirement
β’ Time to Profitability
That's a wrap!
If you enjoyed this thread:
1. Follow me @itsnivt to learn how to scale your business fast and get funded.
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If you enjoyed this thread:
1. Follow me @itsnivt to learn how to scale your business fast and get funded.
2. RT the tweet below to share this thread with your audience
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