Knowledge is still power. As the women founder of a mission-driven business, you’ve identified external knowledge — a need that you can fulfill, a community to help, or an injustice to address. You’ve put a lot of time and effort into this goal to turn your business into a force for good.
But it’s vital to have internal knowledge too. How well do you know if you have a sustainable business for years to come? It’s critical to understand your financial numbers through and through because your finances are the lifeblood of your company. Let’s face reality: you need profit to keep the lights on, pay your people, and invest to the planet.
That’s why we’ll cover four overarching categories of financial metrics every women founder should track to create long-term profitability. The world would benefit from more ethical and sustainable companies finding success.
What Are Financial Metrics?
Financial metrics are a way to measure the finances of your business. Something important to understand is that they’re not purely about money — financial metrics also measure your progress in building asset other than cash. Tracking them helps you strategize how to use your assets, whether liquid cash or otherwise.
As a mission-driven business, you will have many things to track. You’ll be concerned by more than just profitability. However, you must maintain a high long-term profit to pursue your mission.
Key metrics such as cash flow, growth rate, profitability, return on investment, and market share can provide valuable insight into the success of a business. Unfortunately, far often than not, profitability metrics is often sacrificed over growth in revenue.
Revenue indicates many things, but profitability metrics are essential for growing and scaling. Many startups are under pressure to show revenue and revenue growth, but those are short-term and means nothing if your goal is building a sustainable business for the long-run.
Profitability metrics on the other hand, is crucial to understanding your company’s overall success and provide the data you need to know for critical strategic decisions. Without profit, forget about scaling your impact.
Profit vs Revenue
In general, revenue indicates the income your company receives from operating. It includes the money you make from sales or services rendered but doesn’t take into account your expenses. In a sense, revenue is the “top line” in your finances — all the money you’ve made. Conversely, profit is one of your “bottom lines” — after you deduct your expenses, such as operating costs, supply costs, and others, profit is what you have left over.
Profit Margins is key.
Profit margins indicate the money you have remaining after specific costs. The three primary profit margins are:
- Gross Profit Margin — Total revenue minus the price of goods
- Operating Profit Margin — Total revenue minus the cost of goods and operating expenses
- Net Profit Margin — The bottom line: all the money remaining after deducting all expenses, including financing costs.
Your profit margins can tell you how much it costs to run your business. If you have high revenue but low or negative profit, your company makes very little from the products it sells or its services.This could mean, your pricing is off or your business model isn’t sustainable.
Liquidity measures how easily a company can turn its non-cash assets into cash: the liquid asset.
The primary metric your company should track is cash flow. Cash flow is the rate at which money enters and exits the company.
High profitability or revenue might initially seem like it creates liquid assets, but a company can encounter cash flow problems even if it’s highly profitable. For example, the company might have a customer with high order volume but has yet to pay. In this case, your company is technically profitable because of the high value of sales it creates, but it doesn’t have the cash on hand yet.
Starting or growing your business requires capital – either internal or external capital.
If you choose to look from external sources, first and foremost, you must be clear on your vision and your reason for obtaining capital. External capital, especially equity financing, isn’t the solution to your cash flow problem.
Three fundraising metrics to track are:
- Pre-money valuation — the value of a company before external investments
- Post-money valuation — pre-money valuation plus the amount of money raised after investments
- Share dilution — the decrease of ownership percentages as the company offers more stocks
These metrics can impact your ability to raise capital and retain control of your company; critically, they help women founders stay aligned with the company’s initial vision. By tracking these metrics regularly, women founders can make informed decisions about their fundraising strategies and ensure their values are not compromised.
Benefits of Measuring Financial Metrics
As a business as a force for good, maximizing your earnings isn’t your sole objective, you have an additional duty — amplifying your impact.
Tracking these financial metrics gives you the data and knowledge to devise a financial strategy supporting the impact you want to create. Creating impacts require resources, without visibility to your financial metrics, then you can’t make a good business decision.
A Virtual CFO to Support Your Business
As a women founder, you’ll typically have more things to think about, especially when profit isn’t your only bottom line. You’re already handling a lot, and if your business grows, it’s typically better to delegate some of the work to an expert. But you don’t want just anyone — you want someone who understands the unique difficulties of being the women founder of a sustainable business. Just as you want investors aligned with your values, it would be best if your team had the same vision.
Profit Reimagined is a certified B Corp.. We’re committed to maximizing not just profit, but the triple bottom line: people, planet, and profit. Our virtual fractional CFOs will work with you to understand your mission. What do you need to succeed? What’s the best way to grow your company so that you can do more good?
Let’s create a better future together.