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:

• Burn
• Runway
• Growth Rate
• Cash Requirement
• Time to Profitability

• 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

That’s it.

• Burn Rate

Burn Rate = OC – IC

How much of your cash balance is the business consuming (burning) to stay operational.

• Runway

Runway = Cash Balance / Burn Rate

How much time do you have before you run out of money.

• Growth Rate

Growth Rate = (This Month IC – Previous Month IC) / Previous Month IC

How much is your revenue growing.

• Time to Profitability

OC – [IC x (1+Growth Rate) ^ Time To Profitability]

How long will it take your startup to achieve profitability.

• 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.

Example:

This Month:
• Incoming Cashflow = $1,100
• Outgoing Cashflow = $10,100
• Ending Cash Balance = $300,000

Previous Month:

• Incoming Cashflow = $1,000
• 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

Then we enter the numbers into this calculator:
https://growth.tlb.org/

And you get this fancy chart.

Results:

You will achieve Profitability in about 1.9 years (less than your runway)

You 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.

Good:
Runway > Time to Profitability
Cash Balance > Cash Requirement

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:

• Burn
• Runway
• Growth Rate
• Cash Requirement
• Time to Profitability

That’s a wrap!

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@GhoztTrades Third – Will it perfectly predict the future. No. And that wasn’t the point. The point is to have an informed view of the future.

@GhoztTrades Fourth – should you track other metrics? absolutely. Would i track depreciation and inventory before these 5? No. When i run out inventory, I’ll just get more. When i run out of cash my business dies.

Fifth – if you’re tracking a thousand other metrics, maybe that’s too much?