When founders attend my Controlling & KPI Workshop, I ask them in advance what they understand by the term controlling. As a rule, the terms KPIs, business plan, turnover, liquidity, cash flow and, with a wink, of course, the term control come up. These statements are only partially correct. Controlling is neither boring nor is it only concerned with numbers, Excel tables or diagrams that are difficult to understand.
With the help of controlling, start-ups receive valuable information:
- About your liquidity: Your bank account does not show the real picture of your liquid assets. Some things, such as tax payments, supplier liabilities and, depending on the legal form, your income, are paid with a time lag. Accordingly, the money in your bank account is not necessarily fully at your disposal.
- About your sales reporting: With which products do you earn your first money? How high is the turnover and contribution margin per product group? Which services are particularly well received by your customers and which not so well?
- About your cost and revenue reporting: Here, a simple cost type and cost center structure can be set up with the help of your tax advisor's financial statements. With this information you can build up your budget plans, which you ultimately also need for your investors.
- Your customer reporting: With which customers do you earn how much money? Is there a cluster risk, i.e. a high dependency on a few customers? How long do your customer relationships last and are your customers satisfied with your service?
- Investor reporting: Your investors want to know if you are serious before they give you their money. And the best way to prove that is with numbers. With the help of numbers you tell the story your investors want to hear.
Controlling can be divided into different categories or areas. The most common is the division into operational and strategic controlling. These complicated sounding terms are very simple with regards to content. As soon as you start dealing with your business idea, you are already in the middle of strategic controlling.
Without consciously using the term, you are dealing with strategic topics, such as
- product development
- the sales markets in which you want to offer your products
- customer and competitor analysis
- the development of a scalable growth strategy
- the establishment of business processes, etc.
Effective controlling is as exciting as a thriller and may inspire, because it provides many answers to the following strategic questions.
- What does your company stand for, what are your particular strengths?
- What problems does your start-up solve and what can you do better than the competition?
- How big is your market and what market share do you want to achieve by when?
- Why is your team in particular able to successfully position itself in the market and master the challenge?
- Who are your customers and what are they interested in? Are there synergies with other products?
- Which marketing measures will you use for customer acquisition?
- Which KPIs do you want to use to manage your business and which data sources are necessary for this?
- What are the costs for customer acquisition and what should be the price for your service or product in 5 years?
- Which processes have you established in your company? Which ones are running optimally, which ones would you like to improve?
- What general risks, such as the location of the company, employee recruitment or procurement risks will come to the fore in the future?
- Will you use patents to protect your business idea, or how will you deal with infringement of your "intellectual property"?
- What financial projections have you made for the next three years?
- What financing rounds will be necessary in the future and are employee participation options planned?
The answers to these strategic questions are ideally defined in goals that are to be met in operational controlling. Accordingly, strategic controlling shows whether you are doing the right things and operational controlling whether you are doing things right.
Operational controlling has a time horizon of one to three years and fixes the goals for the respective functional areas within the framework of an annual budget. Functional areas are the departments or organisational units in a company.
Start-ups don't talk about functional areas yet, because team members simply take on the tasks they do best or which simply need to get done. As soon as the founding team realizes that it can no longer effectively manage the company via face-to-face meetings or phone calls due to the company's growing size, it becomes clear that clear management mechanisms are needed.
As a rule, new employees are hired, new sales channels are opened and more money is invested in marketing. Real departments are created. Typically, the start is made with engineering and customer service. In the further course, marketing and sales are established. Finances also become increasingly important and the desire arises to allocate costs more appropriately. The founders and investors want to know with which products money is earned and whether new employees can be hired. Budgets are allocated to the respective departments, of which they can freely dispose of.
These activities can no longer be coordinated with Excel alone. Intelligent ERP systems help track organisational issues such as time tracking, file storage and team activities. Accounting activities and payment activities can be automated. Furthermore, such ERP systems include special functions, such as project management and travel expense tracking.
However, start-up coaches and mentors recommend that every start-up begin collecting and documenting information about its processes, customers, competitors, market developments, and potential risks and opportunities at a very early stage.
In the process, the founding team generates valuable knowledge about regularities and interrelationships in their own company. They develop company-specific rules of thumb that confirm their competencies and enable communication at eye level with investors.
If the start-up fails to meet these challenges, chaos can quickly break out. Those who lose sight of the big picture make unnecessary mistakes. Liquidity bottlenecks can occur. In the worst case, employees have to be laid off or the entire young company is on the brink.