How business owners should approach their numbers

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Money is a tricky topic for a lot of business owners. There’s the matter of how to account for it, how to present it, and of course, how to raise it. Having worked with plenty of startups over the years, I’ve noticed how their approach to their numbers varies. Some don’t prioritise accounting and financial transparency, while others inflate the importance of fundraising to a disproportionate degree.

As finances are an integral aspect of any successful business, we decided to sit down and probe this topic a little further. On episode 4 of Xero On Air, I sat down with host Graham Brown and Sam Gibb, an investor and partner at venture capital firm Endeavour Ventures, to do just that.

You can listen to the full podcast here.

So, in this day and age where accounting has been made a lot easier and financial information more transparent, how should business owners approach their numbers? Here are some things we figured out.

Numbers should tell a story

Proper accounting is more than just compliance. It’s an opportunity to paint a picture of your business—where its strength and opportunities lie, as well as its risks and challenges—which, in turn, can help business owners make better decisions.

But accounting is a technical skill, and not all business owners are necessarily savvy in this field. This is where a good accountant can come in.

Let me explain.

More SMEs are leveraging accounting solutions like Xero to get yesterday’s data. Back in the day, this was an accountant’s job. It would take them up to three days to collect information from the client and the bank before they could present the numbers. But because Xero does all this already, accountants get to take a more strategic role as an advisor, reading and interpreting the numbers into actionable advice.

This is important because business owners don’t always think about this. They see positive numbers and think they’re doing well, so no need to bother checking what’s under the hood, right?

I knew one business in particular that didn’t realise 82 to 83 percent of their revenue was coming from one client. They knew it in their heads, but didn’t have a concrete number for it. When their relationship with that client soured, they had to scramble to get back on their feet.

Had an accountant stepped in to provide advice beforehand, whether that was to take care of that customer or to focus their efforts into acquiring other big clients, the business wouldn’t have had to rely on a single major source of revenue.

Back then, many accountants saw themselves solely as the people who could help business owners pay less tax and comply with the law. But now, thanks to new solutions and emerging technologies, they get to be so much more than that.

Financial transparency is important to investors

When pitching a business to investors, getting the right number—whether it’s net profit, sales, margins—is key. But the kind of data you present depends a lot on the stage of your startup and the kind of investor you’re looking at.

As an investor himself, Sam had this advice to give: “If we’re talking about seed [funding], they’ll be investing more in the team, personality, vision, and market—depending on the stage.”

He goes on to advise SMEs that “annual finances are useless in the beginning because business is changing so frequently. Investors will want to see on a month-on-month basis what’s happening.”

Mature startups appealing to investors who have part-ownership of the business is a different story.

Investors typically want financial transparency to understand the health of the business. Like Sam, they usually ask for a monthly update using consistent growth metrics. But it’s a bonus if the investors are aware of what’s happening in the business’ bank accounts as well.

A business could have sold to a client and earned $200,000, for example, but they might not be receiving the payment another 90 days. This kind of information helps everyone involved make better decisions.

Tools like Xero are extremely useful in this case because it provides real-time insight into a business’ cash flow. Especially since cash flow management is one of the top issues for Singapore SMEs, this sort of transparency is essential to grow and scale.

Fundraising isn’t the end-goal

The last topic we broached was fundraising. Should businesses bootstrap or raise external financing?

There is a time and place for either strategy, but what we’ve noticed is that startups tend to fixate on the latter. Some believe that once they’ve raised enough money, everything’s going to be okay. But while raising capital definitely helps, it shouldn’t be the end goal of a business.

Working with someone else’s cash gives business owners a sense of confidence and accountability. But there are many things bootstrapping can teach founders.

In fact, it’s quite common in Australia for business owners to bootstrap. They have credit card limits of $30,000 to $50,000—enough to run their businesses on personal credit. That’s very risky. But in the process, founders become more disciplined and thoughtful about where they spend their cash.

Graham himself, the host of Xero On Air, has built a business bootstrapping. Even though he’s had some success with it, he still struggles to spend two dollars on a coffee.

At the end of the day, it isn’t just about raising the funds—because a business isn’t about going from fundraising to fundraising. It’s about being able to achieve a goal, such as acquiring new markets or launching proprietary products, with that cash.

Xero empowers businesses

While we aren’t business owners ourselves (with the exception of Graham), we have enough experience to know what SMEs need to grow and scale. Prior to Xero, I worked as an accountant for many years and learned about all the stresses that business owners go through. I felt like I often doubled as a therapist.

That’s how I know that being a startup founder is tough. It can get lonely and mentally fatiguing. And that’s why we developed solutions like Xero—so that business owners can have an easier experience with accounting and make better decisions based on their financial data.

By making accounting easy, we empower business owners to focus on scaling and doing beautiful business.

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