Imagine you could run a 200-employee business with millions of dollars of revenue with one simple spreadsheet. If you’re like many small business owners, that probably sounds great.

While booking sales and revenue can be fun, logging expenses, calculating depreciation, creating reports, preparing for tax season — that all seems tedious at best. And, if you’re like me, it’s easy to put off those tasks until another day. In part, that’s because bookkeeping and accounting functions tend to focus on the past. Profit-and-loss reports, balance sheets and so on record what has already happened.

While understanding the past is undoubtedly important, when you’re running a business, you need tools that allow you to make smart decisions about the future.

That’s why Pini Yakuel and Shachar Cohen used one spreadsheet to launch — and for six years, manage — their startup Optimove, an artificial intelligence-driven relationship management platform. Their business now has over 200 employees and serves customers like Sephora, Family Dollar and Dollar Shave Club.

 

FOUR NUMBERS

Early on, Yakuel and Cohen kept their day jobs while taking consulting gigs on the side and investing revenue back into the business. “We had a plan in place for making money,” Yakuel says, “[but] our business was growing and changing rapidly. Creating an annual forecast or measuring estimated versus actual spending wouldn’t have told us much about our business.”

Instead, they set up a spreadsheet to track four key numbers:

• Costs by month: Rent, supplies, salaries — every cost

• Revenue by month: Services, products sold, subscriptions, etc.

• Revenue gap: The difference, positive or negative, between costs and revenues

• Cash buffer: Money in the bank

While that might sound like basic accounting, the next point is vital: The company logged expenses and revenue not just after they occurred, but before.

If a contract were signed that would start generating revenue next month, that figure gets logged into the spreadsheet. If a freelancer was hired to work on a project next month, that figure was logged into the spreadsheet.

Unlike cash basis accounting, where expenses are only logged when a bill is actually paid, and accrual accounting, which recognizes costs when billed, the spreadsheet resulted in a hybrid method of financial planning.

By always knowing — in real time — the amount of cash on hand and what would be spent and earned in the coming months, Optimove could use that snapshot to make smart decisions about where to invest the company’s money. Yakuel explains:

 

SPEND WHERE NEEDED

“For instance, we would add a new hire’s salary to our calculation of monthly costs, even if their start date wasn’t for another 90 days. Similarly, we added new client revenue as soon as the contract was signed.

“We could always see the amount we had available to invest back into the business. When this gap became substantial enough — for instance, after signing a new client — we would invest in the most immediate bottleneck, whether it was engineering talent, a bigger marketing budget or customer support resources.”

That approach allowed the co-founders to bootstrap their business, using the revenue to fuel growth. Instead of borrowing money or taking on investors to fund initiatives, they waited until their cash buffer allowed them to expand service and product offerings, to hire employees, to build out infrastructure and more.

It worked so well that six years later, Optimove took a $20 million investment that valued the company at approximately $100 million. The spreadsheet also worked so well that the co-founders didn’t need to spend time evaluating estimated sales versus actual sales. They didn’t create sales forecasts. They didn’t develop sales projections. Yakuel and Cohen focused solely on the snapshot of the “present.”

In time, when their software had undergone six iterations and Optimove served hundreds of clients, the company’s finances had expanded dramatically. Revenues and expenses were up considerably. And so was the company’s cash buffer. When the founders eventually decided to take a $20 million growth investment, their cash buffer stood at $3 million.

“The fact that this financial model served us through years of growth attests to how well it embodied our [operating principle]: Iterate quickly and invest every dollar back into the business,” Yakuel says.

 

MAKE IT WORK FOR YOU

For a business like my media company, the one spreadsheet tool is simple to use. Unlike, say, a retail business, I have relatively few customers. Day-to-day fluctuations in sales and revenue don’t really exist.

But what if you run a firearms shop? Sure, history can give you a sense of future sales, but you never really know how a day will go until the end of that day. In that case, spend a few minutes every day updating your spreadsheet in real time. Log daily revenue. Log any daily expenses that are outside expectations or “business as usual.”

Keeping the spreadsheet up to date will allow you to keep making smart decisions about the future. If sales double expectations today, great. That larger revenue gap and additional cash buffer might enable you to pull the trigger on a new project.

If sales are significantly down today, that’s not so great. But knowing your business’s financial health in real time can help you decide where and when to cut spending proactively.

For example, say you want to hire a new employee to expand your sales staff, but you hesitate to do so until you have a six-month salary buffer to bridge the revenue gap while you attract new customers. Your spreadsheet will cut through the accounting clutter and tell you when to pull the hiring trigger. 

 

ANOTHER TOOL

While you won’t be able to predict the future, you will know exactly where you stand — and what you can afford to prioritize so you can keep your business moving forward.

The key is to see your spreadsheet as an additional tool, not a replacement for traditional bookkeeping and accounting. You’ll still need to track inventory, manage payables and receivables, track sales and costs, manage payroll — all the financial nuts and bolts of operating a business.

So in that sense, yes, keeping a simple spreadsheet is extra work. But that’s OK because your spreadsheet will be a dashboard that lets you see, in real time, exactly where you stand in terms of revenue gap. You’ll know ahead of time whether you need to cut costs, or if you can afford to invest in efforts that will help you grow your business.

But you’ll have to stay disciplined. If you agree to a service contract that won’t start for 60 days, still log it now. If you sign a contract to service a new client on a monthly basis, but you won’t start receiving revenue for 60 days, still log it now. That way, you can make decisions in real time, not after the fact.

After all, the best decisions are proactive. And when you’re building a business, that’s precisely what you need to be.

 

Jeff Haden is a contributing editor for Inc.com and a LinkedIn Influencer.