Imagine that you are living in the arctic and have stored a limited amount of food for the winter. You would be scrupulous about how much food was consumed and how much food was being gathered because, if you ran out of food, it would literally mean you and your family's lives were at stake. 

Or, imagine you're a pilot. It's up to you to safely steer your passengers through their journey. Luckily, you have a dashboard in front of you that is constantly beeping and murmuring, communicating the state of every piece of your aircraft. You wouldn't take off if any of those signals was showing anything less than good health.

Recently I was listening to the podcast StartUp by Gimlet Media (which I would highly recommend) and one of the founders on there mentioned that he was surprised to hear from his accountant how much money they had burned that month...

All I could think was, what!? He didn't know how much money they were burning during the month?! As an arctic explorer, your primary job is to think ahead and ration for survival. As an airline pilot your primary job is to know that dashboard like the back of your hand and make calls accordingly. And as CEO, you are the one ultimately in charge of money.

After this I did some digging and found out that this phenomenon is actually fairly common among startups. Accounting in general can be seen as a waste of time or something difficult to learn and, because it is relatively cheap to outsource, startups rely on third parties to keep their books. It makes sense: part of startup methodology is to hire the best people you can possibly find to lend their expertise as you build your company.

There's another side to this, though. Another, complimentary, school of thought says that you need to bootstrap and learn how to do those tough things yourself in the early days. As a founder that started a company right out of undergrad with minimal knowledge of accounting, bookkeeping was the first and one of the most crucial skills I learned. My recommendation would be to absolutely keep your own books (or at least your own set of books) whether you're at day one, or three years into your venture.

The tools are plentiful. A lot of people tell me that they use Quickbooks, which is great. I 100% recommend using Quickbooks (I even use it for my own personal finances). But it's misleading to believe that the act of bookkeeping is just about crunching numbers.

What makes understanding financials important is being able to see each part of your business through the lens of month-to-month cash flow. How much money did you spend on sales expenses last month? How many sales did that translate into? How has adding a new marketing hire helped in customer acquisition? 

Not to mention that, for a startup, the most important thing is that you can forecast your runway. By keeping an excel sheet with your past month-to-month financials handy, you can easily understand how much money you have left and how long you will stay afloat. Using this method you can even see what cogs you need to toggle in order to get to cash flow positive. 

I look at my financial spreadsheet nearly every single day. It's the dashboard that lets me see the health of my company. If you don't already keep something like this, go out and start now. 

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