What is Spatial Temporal Analysis: Spatial temporal analysis is a method of analyzing patterns and trends in the geographic distribution of events over time. In the context of civil unrest, this can include the use of social media, police records, and other sources of data to map the locations of protests and other incidents, as well as to identify patterns in their timing and frequency.

Benefits of Using Spatial Temporal Analysis:

1. Real-time Monitoring: One of the key benefits of using spatial temporal analysis is the ability to identify emerging trends in real-time. This allows organizations to quickly respond to potential hotspots of civil unrest.
2. Uncovering Hidden Patterns: Another benefit is the ability to identify patterns and relationships between events that might not be immediately apparent. This information can inform targeted and effective preventative measures.
3. Effective Response: In addition to preventing civil unrest, spatial temporal analysis can also help organizations respond more effectively in the event of a crisis. By providing real-time data and insights, the analysis can inform decision-making and help authorities respond quickly and effectively.

Civil unrest is a complex and challenging issue that requires a multifaceted response. Spatial temporal analysis can be a valuable tool in this effort, providing real-time data and insights into the patterns and trends of events. By using Five23’s spatial temporal analysis, governments and other organizations can better understand the underlying causes of civil unrest and take action to prevent it.

In conclusion, the use of Five23’s spatial temporal analysis is a promising solution for preventing civil unrest. By providing real-time monitoring and uncovering hidden patterns, this tool can help organizations respond more effectively and take preventative measures to avoid civil unrest.

The post How Five23’s Spatial Temporal Analysis Can Help Prevent Civil Unrest first appeared on Five23.

In broad terms, a tech stack is a list of software plus programming languages that operate in the same environment to create websites and mobile apps and maintain their activity via server-side and client-side support. It also includes libraries, frameworks, and databases that will help the teams manage the products at any moment in their lifespan.

When I start working with a new startup, especially in alpha and growth stages, the issue of choosing a good, solid technology that will meet all product objectives will not become obsolete in a couple of years is rising ubiquitously. Over the years, I gathered a brief list of advice that will help entrepreneurs put their money on the right horse.

Talent Pool

With a huge number of these tools available on the market, the stack choice can become quite a debate and should depend on a competent unit in this case. Such a decision should be delegated to an experienced architect and not to the team of developers as the developers may suggest a tech stack that is the most suitable for them instead of the most effective for the project.

But bear in mind that this shouldn’t be taken as the gospel. You should try to find a middle ground based on the time and costs you have — replacing a team member can be costly and time-consuming. Therefore, it’s worth asking team members about which tools they prefer before making the final decision.

Of course, putting a .NET developer into a Java-based stack wouldn’t make sense. But if it were some minor utilities where he/she had no experience, then that won’t be an issue.

The good thing is, dedicated team model allows for adjusting their roster based on your needs and can keep the project relevant at any stage.

The Platform

There are currently 2 major, rival houses: web and mobile. This topic is good for another dozen articles and will probably never be solved; moreover, the first option doesn’t negate the second one as they can coexist within modern-day gadgets.

The only right answer is to know your end-product well. You need to be fully aware of what it stands for and how to make great use of it: does it naturally feel like a neat mobile app that can be used via simple swipes (messengers, authenticators, taxi services, etc.). Or maybe it is a convoluted mess that requires tons of options, data filling, or precise clicks to allow for the best experience (forums, movies platform, torrent tracker, etc.)? If so, then “web” is the clear winner.

Although both of these platforms can coexist, you still get to decide which should be conducted first as it will define which audience will use your product.

As a rule, it’s a safe bet to make a web app first: such solutions are more forgiving towards mistakes thanks to the greater opportunities for the user to avoid a product’s bugs (mouse availability, bigger screen). Furthermore, web-based products aren’t as dependent on the cross-platform availability: they’re usually accessible via numerous browsers. The updates are also much easier to deliver when you have direct access to your app and don’t have to wait for mobile app stores to deploy it for you (at least 2 weeks, as a rule).

Unlike the rivalry between Android and iOS, the web is a safe place for any type of apps to be fully functional. When you opt to go the mobile path, you will have to choose between the native app and its cross-platform option. Although multi-platform apps provide a wider audience grasp and can be tempting, they almost never reach the quality level that native apps bring upon themselves. As a rule, Swift (a common iOS tool) language isn’t the best for Java (a common Android dev tool) developers and vice versa, making backward compatibility a serious challenge.

The choice here is crucial and you should always pick the right path — remember that it’s always cheaper to make the right choice at the very beginning than to modify your product at the later stages when the tech stack has already defined its route.

Type of Project

There are a ton of different tools, and the way your product is supposed to run will be dictated by which tech stack you pick. From a more technological standpoint, there’s a strong dependency towards, for example:

 – Projects that prioritize speed over high traffic loads, which would make the best use of Ruby or Node.js. Both of these technologies grant a sizeable boost thanks to the well-rounded syntax and the overall terse design. Open-source libraries are also what makes it appealing for the developers to choose.

 – Projects with a high emphasis on machine learning and data science, which will be a fine match for Python powered by SciPy, NumPy, or Pandas libraries. Python can give you an edge when dealing with large data clusters thanks to the blistering processing speed.

 – Java, on the other hand, is a universal soldier among the programming languages and can be utilized by almost any type of project. In fact, it is compatible with numerous side-tools or libraries that make it an obvious choice for the vast majority of top companies, especially when they want to develop an Android-app.

 – C/C++ would probably be the go-to choice when crafting complex IoT solutions or even a graphics engine, let alone a full-blown AAA game.

Frameworks

When talking about the frameworks, this is up for debate, depending on how convenient it is for the developers’ team. Depending on each project, it pursues the same goal of aggregating the practices within the project but can be adjusted by the developers. It also helps unite the different components of large projects yet still grant some flexibility by implementing user extensions and modifying its code to a various degree.

The choice usually depends on the compatibility of each element, such as AngularJS, when the project has opted to go for JavaScript. Also, the choice of Zend, Symfony, or Laravel will be a logical step to enhance the development of PHP-based projects; moreover, asp.net MVC or asp.net web API can come in handy when dealing with the .NET tech stack.

Server

The web-server area used to be a battlefield of ideas but is currently a place for two major competitors: Apache and NGINX.

Not only is Apache free, but it’s also easy-to-grasp with the APR function that helps in creating modules. It also has remarkable compatibility and a large source of data knowledge to support its products. SSL and TLS encryption are also at your service to allow for improved security online.

On the contrary, NGINX is a fine option when the performance is set to become a cornerstone for the project. It also requires much less memory and reduces the load when supporting the clients by utilizing a minimum thread or none at all.

This, however, doesn’t mean that both of these options cannot be used: by simply moving NGINX in front of Apache as a reverse proxy, it will help you get the best of two worlds: NGINX for the static content and Apache for the dynamic content to be further returned to the rendered page.

Trends

Despite a hefty variety on the market, we can still see the tendencies for certain tools to be picked over the others when it comes to full-blown successful projects. Judging by the data, top companies lean towards:

    Programming languages: PHP, Python, Java, Go, JS

    Frameworks: Node.js, Angular.js, Django

    Databases: MySQL, PostgreSQL

    Server: NGINX, Apache

    DevOps: Docker, GitHub

    Utilities: Google Analytics

    Business Tools: Slack, Trello

In Conclusion

These general remarks can only touch a fraction of the possible software combinations when forging a system that will run your product. Whether it is .NET, Java, MySQL, or Slack, you should also take into account the size of a future project; sometimes it’s even more important than the actual perks of each of the aforementioned stacks.

Reliability is also a key factor when picking a tech stack. As a rule, the more mature tools prove to be the most consistent in terms of performance and bring a bigger toolkit to make developers’ lives easier and more time-efficient. If an ecosystem has a wide range of continuous integrations and bug-tracking systems, it will be a large performance boost for your developers when crafting your end-product.

It you like to see how Five23 can help your startup and its technology suite. Feel free to contact us here or by email: contact@five23.io.

The post Leveraging Technologies for Startups (2020 Guide) first appeared on Five23.

But first, what is a business plan? A business plan is a formal document that puts all of your ideas for the business together in a logical sequence. Think of it as a blueprint for the company. It’s the first step of any great business and a necessity if you are to succeed. It’s a realistic and workable plan that outlines various aspects of the business including industry performance, market stats, and the financial summary… among other items.

Many entrepreneurs only write business plans in university or only when they are seeking financing / startup capital. While this may be fruitful for those reasons, a business plan is so much more. It’s something to fall back on when in need and you have lost your way. Additionally, it can establish goals for the company as you grow. Yes, investors and bankers need a business plan to understand what you want to build, but more importantly it can be a guiding light.

While thoughts scribbled on a napkin can work as a business plan. It’s not ideal… not in the least. It’s a start though. To seriously write your business plan, there are several aspects you may need to research. Most of this information can be found online, however, be sure to check your local business chamber, associations, and library.

Things you need to think about may include: Business potential, strengths, weaknesses, opportunities, threats, legal, financial, market, incorporation, taxes, etc. You want to be able to give a complete picture of your business to an outside party. As well as how it will grow in the years to come. A framework if you will.

The following 10 steps can be used as a guideline when creating your business plan:

1. Executive Summary

This is one of the most critical aspects of your business plan. I have seen many companies come through Five23 whose plans were initially rejected by investors because the executive summary was poorly written. An executive summary can range from one paragraph to two pages. It is to include your entire business idea, information about the industry, market competition, management team, risks, financial projections (historical projections if you have them), and, most importantly, your implementation plan for the business. In the perfect scenario, the executive summary should be written last, after the entire business plan has been written. A summary of each section if you will.

2. Business / Company Overview

The first section of your business plan, this should start with an introduction and a brief business overview. It should include details on the history of the business (how you came up with the idea), the type of entity you are, your vision statement, objectives, capitalization schedule, objectives, and an outline of your financial proposal / funding requirements.

3. Products / Services

Section 3 explains to the reader of your business plan the products / services you are proposing to sell. Here you need to give detailed information about the product / service. The more detail the better. You need to define the features, benefits, value proposition (margin), competitive strategies (what makes you different), how and where your product / service will be produced / rendered.

4. Industry Overview

The industry overview section of the business plan demonstrates the viability of your business idea by discussing the size and growth of the industry. Five23 recommends our clients use the ‘funnel approach’ when writing this section of the business plan. Under the funnel approach, the industry overview follows a macro to micro direction. Starting first with the international industry, followed by country, region, city, then neighborhood. If there are any industry permissions or regulations, you can list them in this section. You may also discuss some of the numbers in this section such as total market size, client size, etc.

5. Marketing Strategy

The marketing section of the business plan is one of the most important sections of the business plan. Even if you have the best product / service in your industry, you need a plan on how to reach customers and where to find them. In this section you should describe your target market segment, competitors, and the key value proposition. You should also include what the pricing for your product / service will be and how it appeals to customers. You might also mention key factors such as recent industry trends, social media metrics, as well as upcoming conferences and events. Additionally, you need to define you tactics and how these items will affect sales and company growth. As with every section, the more information the better.

6. Operation Plan

An effective management team is the key to driving any business. From the initial concept to an exit, the team is the driving force. In this section you need to define who your team is, what they studied and what experience they have that can make the company a success. Here you can also define day-to-day operations to a five year plan. How the company will grow and in what direction. The human resource strategy and hiring plan should also be in this section.

7. Financial Plan

While this may be the least favorite part for the majority of entrepreneurs. It is by far the most vital to the company and business plan. This is the part venture capitalist and bankers will jump to first. It is also the number one reason these parties back out. If this section is not bulletproof, investors will walk away. The rest of the business plan may be perfect but if this section is 100% there will be no investment. Five23 cannot emphasize this enough.

This section should include any historical financial data you may have in terms of profit / loss, EBITDA, net assets and liabilities, etc. Here you also need to put your financial projections and any justification you may have for them. Projected cash flow and balance sheets are ideal on, at the least, a quarterly and yearly basis from present day to three years out (five years ideal).

If you need help with the ‘Financial Plan’ of your business plan, please contact Five23 here or via email at: contact@five23.io. We help companies from around the world create financial and business plans that entice investors and promote understanding.

8. Risk Analysis

While many business plans do not have this section, Five23 has determined it can lead to greater startup success in the first few years. The ‘Risk Analysis’ section will discuss the key risks the business is exposed to and how these risks can be mitigated. For example, if you are creating a business plan for a coffee shot and you assume you will have 100 customers a day, this section will determine the viability of that assumption and what to do if you exceed / fail to meet that goal. Let’s say only 85 customers come, will you make enough money to remain open? How long can you sustain at that 85 customer mark? What if you have 140 customers, do you have enough employees to handle that quantity? If not, how will you deal with the situation. Though it is not common, many investors / loan officers will appreciate this section and it may be a determining factor in receiving an investment / loan.

9. Implementation

A bit more common than the last section, the implementation of the business is often overlooked. Once the reader has read your entire business plan, the standard first question is, “How are you going to do this?”. This section defines that. Here you should discuss the company’s first milestones and how you are going to achieve them. Additionally, who is in charge of each milestone from your team and what skills do they have to see them accomplished. You should lay out at least five milestones here with clear paths to achieve them.

10. Third Party Analysis

A third party analysis of your business will help in the eyes of potential investors and bankers. Additionally, it gives you an opportunity to vet your business idea without the risk. Third party business reports can find faults in your ideas and identify golden opportunities. It can make sure your idea is worth pursuing and to what degree. Moreover, you may learn much more about the market, opportunity, and competitors than you might have thought possible. Here at Five23, we have helped companies from around the world talk with some of the largest investors and close funding rounds. From initial concept, to full-fledged Series E, we can help strengthen your argument from an unbiased position. Click here to learn more about what we offer startups. If you have any questions about our services, please feel free to contact us here or via email at: contact@five23.io.

On behalf of all of us here at Five23, we wish you the best in creating your business plan and your venture!

The post 10 Key Steps to Creating a Kickass Business Plan (2019 Guide) first appeared on Five23.

Key Financial Indicators

All three indicators are important, but emphasis shifts depending on stage:

Cash (Early Stage: Pre-Product/Market Fit)

Run Rate (Growth Stage: Post- Product/Market Fit)

Annual Revenue (getting ready to IPO)

Cash

In the beginning, cash is all that matters because it is the lifeblood of the company. It pays the team, rents the apartment you work out of, gets super-fast Internet access and a lot of snacks from Costco. It’s the printout from the ATM that has two commas in it, and you dance around for a few minutes before reality sets in: the timer has started.

Managing the cash balance of the company as the most significant high-level financial indicator makes sense in the early days. You take the total bank balance you have, and divide it by how much you spent this month, and that tells you roughly how many months you have left before you run out of money. Maybe you take it one step further and make a simple forecast showing estimated hires and an estimated monthly rent when you move into a real office, but it’s still very simple.

Cash: Net Burn Rate

As long as revenues are growing, burning $400K a month becomes less and less risky over time. Which brings us to our next phase of money: Run Rate.

Run Rate (ARR vs. ARR)

When we started out we were focused on cash because we didn’t have revenue, but as soon as we had revenue growing it was all that mattered. As a newly minted SaaS CEO I diligently studied SaaS metrics, and I was surprised to discover that run rate has different meanings depending on who you’re talking to, and your business model:

Annualized Run Rate (ARR) — This metric extrapolates future performance of the company based on the latest results. Using this metric, a true statement about your company would be: “our Q1 2015 quarter puts us at $1.57 Million run rate”. How did I get that number? I took the $392K of revenue earned in Q1 and multiplied it by 4 to get an annualized number.

Annually Recurring Revenue (ARR) — With the rise of SaaS, recurring revenue has become more common. Recurring means there’s a subscription in place and the customer is charged on an ongoing basis, rather than a one-time purchase. E-commerce companies rarely have recurring revenue (exceptions: Amazon Prime and Le Tote) though they may be able to model the rate and value of return purchasers. In this case, a true statement about your company would be: “at the end of Q1, our annually recurring revenue was $1.81 Million”. How did you get that number? By taking the annual contract value of all existing subscriptions at a certain date.

So far, these two numbers aren’t that different. Annual recurring revenue is 15% higher than annual run rate, based on Q1 performance. Here’s the problem though: You’ve been giving your investors guidance with a goal to achieve $4.5 Million in annual recurring revenue by the end of the year. You’ve told them you are only slightly (-3.2%) behind target.

So your company is going to generate $4.5M in revenue by the end of the year? No.

Based on your forecast, your company will generate $2.6 Million in revenue for the year, if you hit your goals.

The reason for the difference is important: you need to collect revenue for the entire annual contract up front for about 50% of your customers, but if you make a change and switch to accrual accounting. You can now recognize revenue as it is earned, rather than when it is paid to the company.

That means if you sign up a customer for an annual contract and collect $12,000 from them on December 1st, this year only $1,000 of that money is attributed to that year’s revenue. The rest is unearned for for that year, and will be spread out over the next 11 months into the next year.

To illustrate the point again about why this can get confusing, consider the Annualized Run Rate metric above. Let’s say your forecast calls for $962K of revenue in Q4 of 2018, which would give you an annualized run rate of $3.85 Million ($962K x 4). All these statements are true, but which ones are right? Which ones should be communicated from founders to investors? Which should be used in fundraising to set valuations (i.e. multiplied by public market multiple for your specific sector)?

Revenue

A few years agao, the Wall Street Journal published “Tech Startups Woo Investors With Unconventional Financial Metrics — but Do Numbers Add Up?”, using statements from Hortonworks’ CEO to set the stage in the opening paragraph.

Chief Executive Rob Bearden forecast in March 2014 that the software firm would have a “strong $100 million run rate” by year-end. But the number looked a lot smaller after Hortonworks went public and then reported financial results: just $46 million in revenue last year.

Can you see how this confusion might have happened? As we’ve explored, run rate is not the same thing as revenue.

Deferred Revenue

Earlier in this post we explained your company’s year-end run rate will be $4.5M but your revenues for calendar this year will be $2.6M. Revenue for calendar year will be only 58% of your year-end annual recurring revenue, and that’s great — because it means you are growing! As the previous article goes on to explain:

It turns out that Mr. Bearden wasn’t talking about revenue, though he didn’t say so at the time. The Santa Clara, Calif., company now says the $100 million target was for “billings,” a gauge of future business that isn’t part of generally accepted accounting principles.

Right now maybe you have ~$500K of revenue whose recognition is deferred between next month and next six months. Deferred revenue is great, because it’s cash you can use now. It’s non-dilutive financing for operations. It’s great for startups. But it can be difficult to communicate, as the Hortonworks CEO found out.

Some things you need to watch out for in this article was the suggestion that you’re doing something shady in reporting these numbers and providing this kind of guidance. If anything “billings”, future contract revenue, annual recurring revenue or whatever you want to call it is a valuable aspect of SaaS businesses that should be shared with investors as it helps create a more complete picture for why a company commands the price it does in the public market. These aren’t wishes and hopes, they’re numbers derived from real contracts signed with real customers.

Annual Recurring Revenue of a growing company will always be greater than annual revenue of the current calendar year, and investors who think this is misleading fundamentally do not understand how SaaS revenue works.

Revenue Multiples

Going back to our previous analysis, we had several different numbers we could use to offer guidance for your company revenue this year: $1.57 Million annualized run rate based on Q1 performance, $1.81 Million based on annual recurring revenue at the end of Q1, $4.5 Million projected annual recurring revenue at the end of 2015, $2.6 Million forecasted revenue earned in calendar 2015, $3.85 Million annualized run rate based on forecasted Q4 2015 performance. All true statements, but which are the right metrics.

Choosing the Best Option

How do you figure out what your company is worth at the end of this year? Let’s assume that Brad had a solid valuation model going into our Series A round. Your company was valued at $18.5 Million pre-money at $1.5M annual recurring revenue. That’s 12.3x annual recurring revenue, which lines up with the higher end of the range for SaaS company ARR multiples on exit.

If we assume 12.3x annual recurring revenue multiple holds steady, at the end of 2015 we would multiply $4.5M annually recurring revenue x 12.3 = $55.5M, which is 3x the original valuation on the round… a nice markup for your investor, and a healthy position for the company. However, you need to be careful. In many cases things have changed overtime. If you really want to get the most accurate valuation from an outside source. Take a look here how Five23 can help you find the correct value of your company.

Of course growing slower and other exogenous factors (markets, multiples etc.) could change everything in this projection of the future, but it at least gives you an idea of where you stand.

What About Profit?

You might be wondering why we didn’t include profitability as one of the phases. It is important, and can happen anywhere along the way depending on choices the company makes about how much to spend and when to pursue break even. As companies grow and mature, the distance from negative to cash flow break-even becomes a smaller percentage of revenue, increasing the company’s flexibility to decide to be profitable.

Profitability (or lack thereof) is a choice in many cases. Burn is one of the few things entirely within the company’s control.

Generally, we think controlling expenses is a lot easier than figuring out how to make more money. So when you do find a way to make money, you should leverage it like it’s an unfair advantage that could end at any time. In a market where capital is available to support rapid growth to claim a market, startups are operating a breakneck speed to claim it.

When the Bear Market Comes

A question we see all of the time is: “Right now we are in a bull market. What happens when things reverse / we go into a bear market?”

Our answer: Report on every minute of it with data. Longer contracts. Avoid selling to startups or SMBs, or businesses whose customers are startups or SMBs. Sell a huge library of one-off research reports to customers who can’t get budget for an analyst and/or tools. Cut expenses, hunker down and become profitable so you can control when/how you fund the company and choose your rate of growth into the future.

Being on top of these items will give you the step up as markets change and your company grows. If you have further questions, or would like to know how Five23 can help you. Please feel free to contact us here.

The post 3 Phases of Financial Indicators first appeared on Five23.

Get Finances in Order

The first step in planning is to look back at your business’ financial performance for the year. If you have an accounting system already set up and have been keeping it up to date throughout the year, then you’re in good shape. If you haven’t been keeping your accounting system up to date or don’t have one in place, now’s a great time for you to put that infrastructure in place. Start by taking some time to go through your computer and physical files to gather documents related to your business income and expenses over the year. Check for files in your spreadsheets, bank and credit card statements, and receipts. Organize this data and enter it into an accounting system. If you need to, hire a bookkeeper or an accountant to help you get this done. When all your data is in the accounting system, you can run reports to look at your monthly financial statements and drill down into specific areas of your income and expenses.

Review Operating Data

In addition to your financial statements, you have a variety of other data in your business. Think about the processes and systems you use in your day-to-day operations. Through these processes and systems, you collect data that shows how potential customers become aware of your business, how well you are converting potential customers into paying customers, the costs of delivering your products and services, the efficiency and quality of your product and service delivery, your customers’ level of satisfaction, and your ability to retain and build loyalty with your customers. Gathering and reviewing this data will help you understand the performance of your operations and identify ways to optimize them for financial sustainability and positive community impact.

Assess the Business’ Position

The next step is to use the financial and operating data and other information you have about your business to assess your business’ current position. In our case, we use our traditional business analysis packages. On top of this, it is always a good idea for entrepreneurs to do their own SWOT Analysis. A SWOT Analysis is a four-quadrant matrix that allows you to look at your business’ Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal to the business and relate to the organization, resources, systems, processes, and leadership involved in the business’ operations. Opportunities and threats are related to external factors in the economy, politics, regulation, technology, industry, market landscape, and customer demand that are either affecting the business now or have the potential to affect the business in the future. This is a great exercise if you are working as part of a team, as you can engage other team members in providing input on the strategy.

Set Priorities

Entrepreneurs need to create goals. The best form of doing this is with Objectives & Key Results, or OKRs. When used properly, this framework supports the development of organization-wide priorities and outcomes and how they scaffold down to the individual worker level, creating greater alignment between individual actions and the common goals. Again, if you are working as part of a team, this is another opportunity to collaborate on the direction of the business. Start with defining no more than three objectives for the year. Looking at the business’ SWOT analysis, ask the question, “What will further the business’ purpose while leveraging its strengths and improving upon its weaknesses over the next year?” These objectives should be aspirational and meaningful, and be aligned with the business’ mission, vision, and values. Within each objective, set no more than three key results. Ask the questions, “How will we accomplish this objective? How will we measure progress toward this objective?” The key results break down the objective into smaller goals, making it easier to track progress. The most effective key results are those that are specific, measurable, attainable, realistic, and time-bound.

Prepare Project Plans

For each of your OKRs, start preparing high-level project plans that map out the major milestones, timeline, and resources needed to achieve each of the key results. Remember that time is our most valuable resource. When we start executing on our OKRs without project plans, we run the risk of wasting our precious time doing, undoing, and redoing activities. By putting a little thought into project planning, we can typically reduce overall time and increase effectiveness in executing the project. With high-level project plans for each OKR, you can see where the project timelines and resources overlap, identify any contingencies, and determine how to integrate work on the projects into your day-to-day operations.

Create a Budget

The last step is to turn the annual goals and project plans into a budget for the year. This is the monthly forecast of your business’ income, expenses, and cash flow for the upcoming year. Your budget should be based on historical financial performance as well as projected growth, and should reflect the goals and initiatives in your annual strategic plan. For example, if one of your goals is to increase revenue by a certain percentage, then your revenue projection in the budget should increase by that percentage. In addition, your expense projections should reflect the additional marketing and sales activities and costs to deliver the products and services to meet that percentage increase in revenue. Your budget should also include the costs associated with any non-revenue generating initiatives in your strategic plan. For instance, if you are planning on developing a new product or service, you should include the costs associated with that project over its timeline.

Once you have your annual strategic plan and budget for next year, you can measure progress against it on a monthly basis and make adjustments as needed. As you become consistent in implementing an annual strategic planning process and monthly reviews, you’re likely to gain greater precision in your goal setting and projections and increased confidence in your ability to achieve them.

The post Create an Annual Strategic Business Plan first appeared on Five23.

There are two types of burn rate, depending on how you calculate it:

Gross Burn Rate: is the average monthly cost regardless the revenue.

Net Burn Rate: this represents the monthly loss, the costs that remain uncovered by the revenue.

It is important to state that burn rate is more relevant for companies that are not yet generating any revenue and are relying on the initial cash reserves (investment). In this case we talk about the gross cash burn rate. It is a common situation for funded startups and may prove to be a reason of concern for the investors.

So how do we calculate this cash burn rate?

To get the numbers you need, look at your cash flow. Take into account all the cash flow types: operating, investing, financing. Decide over the period of time at which you are going to relate to; it may be the past 12, 9, 6 or 3 months.

To obtain the gross burn rate, take into account expenses only. Calculate the difference between the starting cash and the ending cash amount of your chosen period, taking into account cash payments only (regardless the revenue). You divide the result by the number of months in this period and you have the gross cash burn rate.

For the net burn rate, the operation is similar. This time you extract the ending cash balance from the starting one of the selected period. Cash revenues are taken into account.

For many startups, which haven’t generated any revenue in the time frame for which they calculate their cash burn rate, the gross and the net value will be the same. Also, startups should consider a prospective burn rate, based on forecasted costs. It can be calculated similarly to the retrospective burn rate, with the difference that this time one starts with the initial funds and extracts the estimated costs (as accurate as possible) for the following 3 to 12 months; then divide to the number of months in the forecasting time frame. This estimated burn rate will give startup owners a good view on how fast they need to start generating revenue and how much, in order to stay in business and develop further.

In numbers

Let’s calculate the burn rate for a quarter. Let’s say that at the start of the last quarter you had a cash reserve of 100K in US Dollars. At the end of the quarter you only had 40K. Let’s assume that you haven’t had any revenue. This means that you spent 60K over 3 months. We divide 60K by 3 and we obtain a burning rate of 20K per month. If we assume that you also had some cash revenue of, say 30K, your loss will be of only 30K. Divided by 3 (months), you will obtain a cash net burning rate of 10K per month.

However, because cash revenue is a rather unpredictable value, especially for young companies, it is better to look at the cash gross burning rate as a measure of how well things are being handled.

How do you use the cash burn rate?

This metric is not of great relevance by itself. It needs to be related to other values such as cash reserves, revenue and profit. Another useful indicator that can be calculated with the help of cash burn rate is the ”cash runway”. This value will show for how long the company can last without any revenue, at the current burn rate. It is the result of dividing the remaining cash reserve to the burn rate that you obtained. In our example, it will be 40K/10K, meaning the company can continue its activity for another 4 months before running out of cash.

Both young and mature companies should pay attention to the cash burn rate (and cash runway implicitly). It’s true that these metrics are more relevant for startups (and investors all the same) as a sign of their potential to manage their activity, survive and ultimately start growing sustainably. However, mature companies shouldn’t ignore it, despite their stable revenue stream. A burn rate check once in awhile may prevent unwanted trouble.

Small or big? How high should the burning rate be?

For a company to be sure it can go on undisturbed, a lower cash burn rate is preferred. A net negative one is even better, because it shows that the company is generating more cash than it spends, building up its cash reserves (a safety net for times of struggle). Still, a great amount of cash reserves is not a good thing, either. It may seem as a paradox, but having money that stagnate and are not working to generate growth and more revenue is not a good sign for a business. It’s always about balance.

So when you start building cash reserves, plan ahead and see for how long you need it at the current burn rate so your company stays safe and comfortable. The rest ;  invest it, use it to grow, make it work for the business.

In summary, cash burning rate points out clearly how long you can continue your activity with the current expenses and revenue stream. It will tell you how soon you need to take serious action, reduce costs and start generating revenue. And, very important, it relies on your cash flow recordings. So don’t put off your cash flow management any more. It will prove of great help. And if you have any questions about this topic and how to manage it, feel free to reach out. We’d love to help you get on the right path when it comes to burn rates.

The post Managing Cash Flow and Burn Rate first appeared on Five23.

Five23 can help you close your investment round, no matter what stage.

Built for Startups

Since our launch in early 2016, our focus has been you: The Startup. The goal of Five23 is to allow Startups and investors to have a better understanding of the company as a whole, and raise capital faster. We do this by looking at your company from both a macro and micro level. Everything from projected financials to the stress levels of the team members are evaluated. Once we have a clear understanding of the Startup, we create an in depth business report highlighting the strengths and weaknesses. This report can then be sent to investors, giving them a non-biased third party view of your venture.

What Investors Want to See

Five23 was born out of the investment world. We know what investors want to see in your company, and our reports focus on these items. You want to show investors who you are and what you can do. Five23’s reports specifically target these items from both a human and financial side of the business, ensuring your venture receives the attention it deserves. Our business reports are trusted by investors and accelerators around the world. From Dubai to San Francisco, investors use our reports daily.

Simple. Thorough. Precise. Personalized.

We understand, as an entrepreneur time is precious. That’s why we keep our reporting process as simple as possible. It consist of four easy steps, which only two require input from your entrepreneurial team. While a great deal of the analyzation process is done via machine learning artificial intelligence, the overall approach by our team is on a personal level. We look at the “ins and outs” of each company we examine on an individual basis. We want to know what makes the team tick, as well as what will make you the next Uber or Facebook. This personalized and in depth approach is what ensures Five23’s reputable quality. So whether you are a first-timer or a serial entrepreneur, you can be sure Five23’s reports will be of the highest quality for your venture.

Close Your Round Today

Armed with Five23, you will be sure you are giving your startup the best opportunity possible to raise capital. So what are you waiting for? Check out our packages or contact us today to get started today.

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Are you committed to the business?

Is this a thing you can’t, not do? If you aren’t inspired by your business idea and vision, it’s difficult to convince others to be a part of it; let alone use it. Not to mention, it doesn’t feel good to enter into obligations with investors if you are unsure you want to spend your time and effort on developing the business.

Do you understand your market?

At the core of your business, you are providing a product or service designed to solve a specific problem for at least a semi-particular audience. If you don’t deeply understand your audience, it’s difficult to create a sustainable business selling your product or service. Market research can help greatly in this area and is a must for the company to receive funding.

Have you validated your business model?

Having some sales shows there is demand for your solution. If your solution requires more capital to build and go to market, such as a physical product or technology platform, you can validate your business model through pre-orders or letters of intent to purchase the product when it becomes available. Nowadays, it is becoming rarer and rarer to raise funding without an M.V.P. (Minimal Viable Product).

Do you have a plan for growing the business?

Whether it’s in a traditional business plan format or pitch deck, you will need to demonstrate to investors that you have a clear plan for how the business will operate and become financially sustainable. This shows that you have thought the business idea through, and have established goals and measurements of success. These growth metrics are key to any business; even more so if this business is to raise capital.

Do you know what you need the money for?

Investors want to know how the money is going to be used ; research and development, marketing, hiring, legal fees, creating infrastructure, or something else. They are looking at whether these expenses are likely to grow the business; if that’s enough or too much funding at this stage of the business; and if more funding is needed in the future to meet business goals. These items and many more are looked at closely to see how profitable the business will be for the investors; as well as how accurate the team is at making financial and growth predictions.

Are you ready to put your plan into action?

Investors want to see that you have the skills, motivation, and accountability to execute your plan. At the same time, they want to know that you are self-aware enough to see when you need additional support and are open to asking for and receiving feedback and assistance. To this point, don’t be afraid to ask for help. Humility is important as a new entrepreneur. While many investors will not invest their capital, many of them will be happy to invest their time; all you have to do is ask for it.

So, before you rush out to raise money for your new venture, take a second to see if you are up for it. You must understand your market, test your idea, and put in place a plan for success. Five23 is innovating through services that assist the process of organization and raising money. These services can be the first step you take toward success. If you wish to learn more about our services, please contact us via email: contact@five23.io or reach out on social media. We would be happy to answer any questions you may have.

The post Ready to Raise Capital for Your Business? Think Again first appeared on Five23.

Customer Acquisition Cost (CAC)

“is the cost associated in convincing a customer to buy a product/service.”

Using CAC as a health and growth metric has its advantages for both the company and investors. It can show a myriad of items including such as:

• How effective funds are being spent on marketing
• The value of each customer
• A & B testing results of cost expenditure in relation to marketing
• Profitability of the company overtime
• Corrective actions towards profitability

For example, imagine you are selling lemonade at a lemonade stand. Upon first glance, the business is booming. On average you are selling nearly 1,000 cups of lemonade a day for $2.00 each. The cost to make the lemonade is $1.00 per cup: in theory giving the lemonade stand a net profit of $1.00 per cup or $1,000 a day on average. Yet the stand is losing money. Why is this? Upon viewing the business in depthly, you quickly realize that the lemonade stand is spending nearly $1,500 a day on advertising. This equates to Customer Acquisition Cost of $1.50 per cup sold. When this is combined with the cost of making the cup of lemonade, the total cost per cup rises to $2.50. This means there is a net loss for the stand of $0.50 per cup, or $500 a day.

Using the CAC metric in the above example, it clearly shows how the company is spending their capital on marketing. On top of this, it gives the company and investors insight into possible solutions to their unprofitability.

Firstly, the company needs to determine how effective their marketing efforts are in comparison to the amount of customers they have. In essence, is their marketing driving sales? If the answer is an unequivocal “Yes”. Then the lemonade stand will have to raise the sale price of their product or reduce cost. If the answer is “No”, or even “Partially”. Then the capital spent on marketing needs to be cut back. By lowering the marketing cost, the CAC will also decrease; thus increasing the profitability of each cup sold and the overall profitability of the company.

Calculating the Customer Acquisition Cost for your company is straightforward and quite simple. You will need three items:

• A Time Period (Monthly, Quarterly, Yearly)
• Total Spend per Acquisition
• Total Number of Customers Acquired

When those items are defined follow the calculation below:

As one can see, the Customer Acquisition Cost metric is robust enough to show how effective the marketing expenditures of a company are─ as well as shining light on areas which could use improvement.

It’s simple to calculate and has far reaching value. Keep it in mind as your startup grows. If you would like to learn more about Customer Acquisition Cost and how it effects your business, feel free to contact us today.

The post Knowing Your Customer Acquisition Cost (CAC) first appeared on Five23.

For the majority of service-based startups, this revenue comes from a subscription based model. When customers are paying for a service on a monthly basis, the revenue received by the company can be classified as Monthly Recurring Revenue (MRR).

MRR is used in a myriad of ways for analysis, but it is generally used to give an investor insight into the overall health of the startup. This level of health is determined by combining a few factors MRR accurate predicts. Such as:

Revenue Momentum
Customer Lifetime Value
User Growth
Churn Rate
Average Selling Price Trends

When each one of these items is calculated against the MRR of the company, one can have a clear view of the company and its projected revenue growth over time. This insight of the company proves invaluable for many investors, and may be the difference in receiving an investment or not.

To better secure the MRR of a company, the startup must take actions to create reasonable insurance the revenue will occur at the set monthly interval. This can be done in a few ways, but generally, is handled by automated payments and/or a binding legal contract. Having a contract ensures the payment will be made until a specific date or an indefinite amount of time. While there is always a certain percent of churn (users canceling their subscription to the service), the overwhelming majority of users will not break their contract.

When weighed in the balance, the amount of MRR the startup receives is invaluable to their success as a subscription based company. While this metric doesn’t fall into typical accounting practices, it is important to know this metric when dealing with investors and raising venture capital.

The post The Importance of MRR (Monthly Recurring Revenue) first appeared on Five23.