You’re reporting cash flow to your investors. Are you tracking the right metrics? (2024)

Both profitability and cash flow are crucial metrics for a company's financial health, but they are often confused. A company can be profitable but run out of cash flow, while another company may have cash flow and liquidity but not enough profit to cover its costs. Cash flow metrics, such as operating cash flow, free cash flow, and working capital ratio, provide insights into a company's financial performance and its ability to meet its obligations.

Progress is measured ; Depending on the priorities in the term sheet!! Cash flow is always a good thing to present cause it shows u are working on it ; but VCs funding seed capital may be worked up on technology/ tech transfer / distribution / product development/ etc etc. Cash may not be a priority. Advise to entrepreneurs. Start with cash flow. End with ROCE. in the longer term stakeholders support ROCE and cash generating machines.

Startups should avoid GAAP accounting and financial statement terms like "profit" or "revenues". Those don't reflect day to day VC reality and corporate survival.What matters is actual cash. What you currently have, what you'll receive from operations and receivables, reduced by expenses you'll pay currently.The critical metric is how long your cash (and cash flow) supports operations. Said differently, how much cash do you have and over what period of time will it be spent?Don't overcomplicate this. "Cash is a proxy for time; and time is a proxy for opportunity". When it's gone, it's gone. When it's gone, you're gone.Hold all VC/board discussions and plan solely on a cash basis.

Sem dinheiro (caixa) a empresa não sobrevive. Dentro dos tres pilares mencionados, o melhor e mais importante é o fluxo de caixa operacional; principalmente quando o dinheiro vem dos clientes. O fluxo financeiro e o de investimento, acontece porque a empresa esta tentando alavancar as operações, ou porque a empresa não possui ainda um fluxo de caixa operacional o suficientemente robusto para cobrir as despesas.

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El Estado de Flujo de Efectivo es una herramienta valiosa para entender el movimiento de los recursos. En común revisar el P&L y ver que la compañía obtuvo grandes ingresos brutos y netos; pero los accionistas o dueños se preguntan ¿en donde quedó la gancia? ¿por qué no se ve reflejado en el estado de cuenta bancaria al final de un periodo? Es importante tener un control permanente del flujo de efectivo, el cual permite entender visualmente y terminos financieros hacia donde se movieron los recursos. Esto permitirá a la gerencia mejor toma de decisiones. En mi experiencia se debe comparar con las previsiones de flujo de efectivos, con la finalidad de hacer correciones a tiempo que permita a la empresa tener una buena salud financiera.

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"The cash flow statement is key to assessing a business's financial health. It categorizes into operational (daily revenue and expenses), investment (long-term asset transactions), and financing (investor and creditor interactions). This report aids in financial management and provides investors with critical insights into the company's stability and growth potential, highlighting trends and operational efficiency."

For VCs, the most important metrics for us are: 1) how much runway (in months) do you have in cash? It is important to keep in mind that you'll need 4-6 months to raise a new round, so don't start too late; 2) check the cash burn vs budget (should be approved once a year in Q4) and that it's not going out of control. 3) FCF is not useful as an extra measure unless you're trying to assess your overall financing strategy on the road to profitability, and you'll know how much more money you will need to raise for this business. 4) Cash flow margin is interesting to compare vs. other businesses in the portfolio, but many other considerations will come into play also, like portfolio balance and diversification of risk.

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In my role as a business consultant, I focus on analysing current cash flow to identify sources of inflow and outflow, pinpointing any potential issues and red flags effecting the profitability on the bottom line therefore affecting cash flow. Detecting these concerns allows for strategic adjustments, whether internally or externally. My expertise generates future cash flow through internal non-core cost optimisation, swiftly enhancing financial liquidity by minimising and reducing expenditure in specific areas not known to the core business. This not only forecasts short-term cash inflows through savings but also enables the reinvestment of freed-up cash, influencing medium to long-term forecasts positively and minimising risk

As a venture capital expert, it's understood that early-stage startups often face unpredictable cash flows. This is a common challenge until they reach a maturity level where forecasting becomes feasible. It's crucial for investors to recognize this and evaluate the potential and innovation of the startup, rather than just its current cash flow stability.

First and foremost, knowing the company's cash situation is a key priority for every founder/entrepreneur. The cash flow reporting to investors comes as second priority. It is required by most investors. And it is a tool to increase transparency and build trust with investors, particularly in situations where cash is tight.

Maximize efficiency by automating systems, especially for financial cash flow statements for investors. Automation ensures accuracy, consistency, and saves time, enhancing investor confidence.

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Cashflow the ultimate metric to evaluate if growth is sustainable. Be aware of the SaaS 40 rule which is a financial metric used to evaluate the health and growth potential of Software as a Service (SaaS) companies. It suggests that a healthy SaaS company's combined growth rate and profit margin should be equal to or greater than 40%. For instance, if a company's annual recurring revenue (ARR) growth rate is 35%, its profit margin should be at least 5% to meet the SaaS 40 rule. This rule helps investors and stakeholders balance growth and profitability, as focusing solely on growth could lead to unsustainable losses, while focusing only on profit might slow down necessary growth.

Cash flow reporting to investors is very easily done since you need the information anyway in the company also. In case of tightening cash situation it is good that your investors have received heads up before additional cash might be needed.