KPI FOR FINANCE DEPARTMENT IN A STARTUP
If you’re an entrepreneur or a founder in a startup and wondering what are the main KPIs for strategic management, here is the definitive Finance KPI cheat sheet that will be very impactful especially if you’re managing a services-based company like a consulting firm, a agency, outsourcing, managed services, or advisory practice:
Finance KPI General Terminology:
Recognized Revenue – Revenue that is “recognized” under GAAP/ASC606 principles, hitting the Financial Statements as work is performed.
Recognized Revenue by Project Type (as it stands):
T&M – Recognized as time is approved/as work is delivered, with any write-ups or write-downs occurring at the end of the project, upon delivery. Cashflow is determined on cadence of work delivered.
Fixed-Fee – Recognized like T&M with advantage of improving cash flows via due upon signing fees. Write-ups are still recognized upon delivery of the project.
Managed Service – Recognized on a straight-line basis so long as the work continues to be delivered/the client has full access to contracted resources. Revenue cannot be recognized if the client pauses the project for a substantial period or if the work must be re-done.
Cost of Goods Sold / SG&A – Expenses associated with delivering work. For example, a consultants’ salary is considered COGS (Cost of Goods Sold) for a Consulting firm. Non-billable resources (administrative, executive, etc.) are considered SG&A (Selling, General and Administrative expenses), as well as firmwide software, insurance, and other expenses required to run the business.
Gross Income – Revenue less Cost of Goods Sold
Net Income – Gross Income less SG&A Expenses
Financial Statements – The 3 reports that provide a full picture of a company’s financial position: Profit and Loss (Income Statement), Balance Sheet, and Cash Flow statement.
Profit and Loss/Income Statement – The profit and loss statement provides a by-period view of all revenue less all expenses (COGS + SG&A), as well as taxes, interest, and other related expenses. This statement provides Gross and Net Income by period. Net Income flows from the P&L to the Cash Flow statement.
Cash Flow Statement – The Net Income from the P&L less changes in assets and liabilities providing a Net change in cash position. The period end cash balance flows from the Cash Flow statement to the Asset portion of the Balance Sheet.
Balance Sheet – The current assets, liabilities (debts/expected expenses), as well as shareholder equity (retained earnings/profits).
Finance KPI Weekly Performance Summary:
Service Revenue – Revenue recognized in that week based on project type (T&M, etc)
Revenue Achievement – (Revenue / Revenue Target for week)
Utilization – (Billable Hours / Available Hours). Available hours are assumed as 40 for full-time associates and 20 for interns/part-time.
Rate Realization – (Service Revenue / 3.5x cost). Percentage of 3.5x cost to achieve expected profitability; proxy for firm profitability.
Utilization Allowance – (Utilization x Rate Realization). Single metric to provide insight into overall efficiency in providing work, whether through utilization or rate realization. Accounts for negative relationship between utilization and rate realization (generally high utilization results in lower realization)
Average Rate – (Service Revenue / Total Billable hours). Provides the true billable rate after write-ups. Low rate can point towards project slippage, high rate implies client delivery efficiencies.
Net Bookings – (Backlog Period 0 – Backlog Period 1 + Revenue Period 0). Drives Book to Bill ratio, indicates whether current period work was replaced with new work for future work.
Book-to-Bill ratio – (Net Bookings) / Revenue Period 1. Book To Bill indicates how quickly the backlog is changing. Below 1 represents shrinking backlog, between 1 and 2 represents growing backlog, above 2 represents extreme growth (twice as much being added to backlog than is being consumed during delivery).
Backlog – Amount of work in dollars available to be delivered upon.
Weeks in Backlog – Number of weeks it would take to consume all backlog at average revenue pace of last 6 weeks.
Accounts Receivable – Amount of work that has been invoiced for but not received in cash.
Weeks in AR – Number of weeks’ worth of work that is currently within AR and is “financed” by the firm (gap between delivery and payment).
Pipeline Value – Aggregate value of all pipeline between Submitted Proposal and Closed Won stages (pipeline available to close in near future).
Weighted Pipeline – Aggregate pipeline with historical win rate by deal stage applied. Expected amount of additional work sold in near future.
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