Introduction

Decision makers driving the growth of small to medium corporations are often generalists animated by a strong entrepreneurial spirit. What makes or breaks a start-up during its first few years is not the accuracy and precision of decisions being made, but the very fact that they're made by an entrepreneur who identified a promising market before others and is betting his company's growth on it - sometimes almost instinctively. Successful entrepreneurs are sometimes experts at corporate finance but most are not. And after a few years of rising revenue and costs, the need always arises to start optimizing finances in order to meet key objectives:

1. Managing liquidity risk and avoiding bankruptcy

2. Evaluating performance of key employees and initiatives

3. Understanding key financial metrics about the business which will help guide decision making in a manner which is more grounded into the hard cold reality of business.

All start-ups lucky enough to reach this inflection point start becoming more data-driven and reap immense benefits from this maturity (they become scale-ups) - or they do not survive for long, for they fail to remain competitive at scale without bringing corporate finance into their world.

This guide has been written for CEOs and decision makers at this stage of their entrepreneurial journey. If you are at the helm of a start-up which has grown enough to warrant more data-driven decision making and would like to educate yourself on modern day best practices around financial management of small to medium corporate entities, this guide is for you.

We assume you've got an understanding of basic financial concepts. Revenue, Costs and Profits. And maybe some basic understanding of balance sheets, income statements, double entry accounting and key financial metrics and ratios (ROI, Growth rates, etc.) The guide starts from scratch - from financial "first principles" and concepts as basic/fundamental and straightforward as: "Profit = Revenue - Costs" and slowly builds upon those most basic concepts to progressively shed more and more light on your business operations.

At various stages of the guide, you will be able to apply the learnings to your own business if it is powered by Stripe (and other processors coming soon) and if you are able to export your corporate bank accounts' financial statements to a .csv format (PDF coming soon). Importing this data into CX Cash will help train your corporate finance skills using your own business data rather than fake examples (ACME Corp). We recommend doing so as the insights you'll gather will be incredibly invaluable when you have to make important decisions for your start-up.

Finally - we would like to remind you that this guide is constantly being improved and rewritten. We would greatly appreciate if you could send us your feedback and questions at feedback@cxcash.com so we can keep improving the guide over the weeks and months to come.

That being said, thank you for your interest, and let's get started!

Managing treasury - Part I: Your business' key financial indicators

A. Cash position: your lifeline

Life & death of corporations

Corporations most typical objectives are to increase the wealth of their owners and, increasingly, to have a positive environmental, social and economic impact in the world. They thrive when their income increases, giving them more resources to allocate to initiatives fulfilling their goals and they die when they are starved of those resources.

When a company does not have enough resources to continue operating and/or fulfilling its contractual obligations (commonly: paying back its debt), it files for bankruptcy which starts a process typically ending in the termination of the company's legal existence.

To survive, companies must manage their cash.

From a purely business perspective, bankruptcy is a failure mode and the most important objective of a company's investors and its top management is to prevent this from happening. To do so, they closely monitor and manage what can be described as the lifeline of the company: its cash position.

We will focus most of this chapter on learning the ways operators of a corporation can analyze and monitor the financial situation of a company in practice, using either (from least sophisticated to most): their bank dashboard, an Excel or Google spreadsheet, and CX Cash.

1. What is my cash position? How do I measure it?

Your cash position is one of the simplest and most straightforward financial metrics there is. It is simply the amount of cash you have available. Just like the cash position of your wallet is the amount of bills and coins inside of it, the cash position of your business is the total amount of cash it has "on hand" or available at any given time.

It can be determined in two ways. You can either compute the sum of all the cash positions of all the bank accounts that your business comprises. Or you can compute it historically: your company's cash position will be the sum of all the cash inflows (money coming in your business) minus the sum of all cash outflows (money leaving your business. E.g. invoices paid, salaries paid, dividends distributed, etc.). Of course, these two calculation methods should yield the exact same amount even though in practice discrepancies can appear if invoices go untracked, cash withdrawals are made and not accounted for etc. In general, you want to use your bank statements as basis and potentially adjust it using the cash you physically have on hand - especially if your business is "physical cash intensive".

2. Should I know my cash position?

Long story short: yes, you should. When you are a small company, having a "feel" for it is enough if you know your business is never short on cash and does not risk bankruptcy. You might not know your position down to the cents and for a long time, it is enough if you know that you can always pay your bill and your employees.

But as you grow, it becomes more and more important to keep an eye on your cash position because what cannot be measured cannot be managed effectively. You want to be able to evaluate business opportunities, potential hires, etc. and the first and most basic question you will have about them is: can I afford it? If you've got hundreds of thousands of dollars in the bank, a senior hire is definitely in the real of what's possible for your business. If your cash position never exceeds a few thousand dollars, it might be much riskier.

3. Managing treasury fundamentals n°1: My cash position over time.

Cash position is the most important financial metric because it literally and single-handedly determines a corporation's life or death. Now on its own, it is a poor indicator of the financial performance of a company. It is poor because it is obscure and static. That is why it needs to be studied dynamically - over time - and compared with other business metrics (like revenue, costs, etc.). We will focus on cash over time and various components/dimensions of it in the next section but for now, let's see how to measure it.

We've seen previously that it's very easy to get your cash position from your bank account's dashboard. Click on any of your accounts and write down the cash available number listed for it. Repeat the same procedure for all of your accounts and add how much cash you physically have on hand (in your company's safe and/or in your office's wallets) and sum it all up: this is your consolidated cash position. Do the same every day and there you go! You're tracking your cash position over time.

Now we know what you are probably thinking: this sounds very tedious. And indeed, it is. Sure, you could delegate that chore but who wants to spend half an hour a day doing this? And what about weekends? Holidays? Human error? This is where software can help you level up your financial management game by automating this for you. All financial transactions are recorded by your bank and that means your cash position can be tracked down to the second by software: CX Cash will just sum up your cash inflows, deduct your cash outflows, and chart your financial cash position down to the second automatically for you.

Give it a try here: https://app.cxcash.com/my-cash-position

And look at the curve. Is it trending up? Down? No real trend visible? If your business was operating during covid, do you notice a different trend during the 2020-2021 period?

Your cash position over time is one very simple indicator which aggregates various factors, revenues, costs, profits, which makes it difficult to analyze on its own. We will spend the whole next chapter unpacking your financial position and drill down on each of its components (revenue/inflows, costs/outflows, and their attribution models (projects, cost centers, etc.)) and study them over time. Your cash position was just the tip of the iceberg and is a bit of a black box. Unpacking it will yield insights which will truly add a ton of value to your management and this is why we will spend most of the rest of the guide on those. Analyzing the components of your cash position are the 20% of corporate finance work which will yield 80% of the insights for the years to come. So we encourage you to follow the next section diligently - and we'll show you your business like you've never seen it before.

Click here to get access to part II of the guide: *coming soon - email us for access*

How do you like this guide so far? Please let us know at feedback@cxcash.com !

Thank you.