The value of data and oversight for startups
The upheaval of the past year has shown small businesses just how important it is to be agile.
When the COVID-19 pandemic hit the UK in 2020, it was the businesses that could quickly recognise the impacts and take decisive action that were best able to withstand those changes and recover.
In fact, according to research by insights firm McKinsey from June last year, 93% of organisations said their agile business units had outperformed their non-agile units when it came to both customer satisfaction and operational performance.
There are various factors that go towards making a business agile, including your systems, structures, culture and technology, but at the heart of it all is data.
After all, the information you collect is the basis for decisions based on evidence, not assumptions.
The more information you collect about your business, the better you can understand its position, adapt, and improve over time.
And having data readily available, through efficient systems and the right technology, makes that whole process much easier, turning it into a natural part of your company culture.
It’s good for investor confidence, too, providing reassurance that whatever risks lie ahead, your business has the resilience and agility to handle them.
Underlying cashflow problems, for example, are a serious threat to many startups. That’s partly because they can be hard to spot when everything else seems to be going well.
Monitoring your burn rate – the rate at which you’re spending on overhead before you can generate positive cashflow from your operations – will help to show from an early stage whether what you’re doing really is profitable, especially when a recent injection of cash might otherwise have masked any problems.
Over time, monitoring your cashflow more generally will help you to identify patterns and trends. Whether those are seasonal changes or periods of low cashflow, knowing what to expect makes it easier to prevent or prepare for those risky periods.
All this is easier to do with the right technology. Cloud accounting software like Xero is great for collecting accurate data with minimal effort, by pulling through information from bank feeds and any other platforms you integrate it with.
Taking that data, you can use Xero to generate cashflow reports, or forecasts that look at what your financial position might be months or years down the line.
That’s hugely valuable from a strategic planning point of view, giving you foresight on how your finances might look in the future, as well as helping to inform your decision-making process.
Let’s say you’re planning to expand your team, or move to new premises – or maybe, after moving to remote working in 2020 and 2021, you’re thinking about reducing your office usage instead.
By building a forecast based on your current setup, then creating a new one that factors in the changes you want to make, you can see the difference in outcomes between the two.
There are still plenty of things you won’t be able to predict, particularly in the early days of running a startup.
But looking ahead based on what you know now, and having the weight of the numbers behind you, should give you the confidence to make those quick decisions when they’re needed.