Come on. Money business is boring. But what’s more boring? Going out of business because you didn’t plan your finances. Trust me on this one.
I’ve seen too many brilliant founders self-destruct because they thought financial planning was something they’d do “later.” Spoiler alert: later usually means too late.
The Budget That Won’t Make You Drowsy
Do you remember the time you tried to read an accounting book and woke up three hours later with drool on page 17? Yeah, me too. Financial planning doesn’t have to be like that.
Split this into something you can get through without a coma. A sound financial plan is like a sound sandwich – the right stuff, in the right amount, and for goodness’ sake, don’t omit the sauce.
Cash Is King (And Queen, And The Whole Royal Family)
You may have the next great idea since sliced bread. It doesn’t matter if you are broke.
Cash flow comes first. EVERYTHING. I just can’t stress it enough. Without cash, your cool startup is nothing but an amazingly expensive hobby.
Begin by determining how much money you require to get by every month. Not only your business expenditures – your personal expenditures as well. Rent, eating out, that membership to that meditation app you never use. Be realistic.
Next, multiply that by 18. For real. Whatever you estimate you will need, you will most likely need more. Startups are similar to house remodeling projects – they always end up taking longer and costing more than you anticipated.
Crystal Ball-Free Forecasting
We have no idea what the future holds. But that don’t mean you can’t make an effort.
Create three scenarios:
- The “everything goes according to plan” scenario
- The “things are taking longer than expected” scenario
- The “oh crap, everything is on fire” scenario
The third one isn’t a fun one to think about, but it’s the most important one. Creating a plan for when things do go wrong isn’t negative thinking – it’s sound business.
Remember: hope for the best, but plan for a complete disaster.
The Runway Reality Check
Your runway is not a number. Your runway is your lifeline.
I once knew a founder who thought he had 12 months of runway. He never adjusted for taxes. He had 8 months. Oops.
Figure out your runway by your cash over your monthly burn rate. Then reduce it by 30% for the inevitable delays and costs. Trust me – delays will occur.
If your runway is less than 12 months, you must:
- Raise additional capital
- Cut spending
- Figure out how to make money faster
Too often, it’s all three. Fun times!
Investors: The Necessary Evil
Let’s be serious. Investors are like that pesky uncle who lends you money and then bombards you with questions about when you’re going to get married. They’re helpful but a nuisance.
But you probably need them.
When presenting to investors, commit these numbers to memory:
- Your monthly burn rate currently
- Your break-even point estimate
- Your customer acquisition cost
- Your lifetime value of a customer
If you stumble over any of these, investors know blood is in the water. And not the good kind.
The Funding Gap (AKA The Valley of Death)
There’s this magical kingdom between your seed round and your Series A where startups go to die. It’s dark and scary and spreadsheets galore.
To avoid getting trapped there, you require milestones. Real, measurable goals that mark progress. “To have 1,000 paying customers by Q3” is a milestone. “We’ll be killing it” is not.
Milestones must get you closer to profitability or your next fundraising round. Otherwise, it’s a vanity metric.
Budgeting Without Wanting to Pierce Your Eyes
No one enjoys budgets. They’re the monetary equivalent of eating your veggies.
But here’s the catch. A startup without a budget is akin to dieting without tracking calories. You might get lucky, but unlikely not.
Begin with the fundamentals:
- Payroll (taxes and benefits)
- Office space (even if it’s your kitchen table)
- Software and tools
- Legal and accounting
- Marketing
And then include a 20% buffer. Because something will come up. It always does.
The “Nice to Have” Trap
You don’t need those Herman Miller chairs. You don’t need that fancy coffee machine. You don’t need to sponsor that industry conference.
Not yet, anyway.
Every dollar you spend on “nice to haves” is a dollar you’re not stretching your runway. Be frugal. Be cheap. Be embarrassingly cheap.
My first company’s office was my garage. The Wi-Fi just barely cut it. It was hot during the summer and cold during the winter. We created a multi-million dollar company there. Your startup doesn’t need a ping pong table.
Making Revenue Projections That Won’t Make Investors Laugh
Revenue projections are hard. Like, really hard. Because you’re basically making smart guesses.
Little secret: take your best-case projection and cut it in half. Then delay it by six months. That’s probably closer to true.
And for the love of all that is holy, don’t just show a hockey stick graph with no note.
Unpick your revenue assumptions:
- How many customers can you realistically bring on board per month?
- What are they going to pay?
- How long is it going to take to close the deal?
- How many churns are you going to have?
If you can’t give those answers, your revenue projections are fantasy. Delightful fantasy, but fantasy nonetheless.
The “Getting to Break-Even” Plan
Breaking even is like reaching the summit of a mountain. It’s hard, it takes longer than you think, and the view from the top is. well, just the beginning of another climb.
Your break-even strategy must be specific and tangible. “We’re going to go viral” is not a strategy. “We’re going to acquire 100 customers per month at $50 per customer with a 5% churn rate” is a strategy.
The more accurate your break-even trajectory, the more investors will believe you. And belief is currency.
Emergency Fund: The Money Fire Extinguisher
Every startup needs an emergency fund. Something separate from your operating funds. Something you should only touch in desperation, when everything has gone catastrophically wrong.
This isn’t just smart business – it’s healthy for your psyche. Knowing you have a safety net gives the high-wire act of business so much less terror.
Target at least two months of absolute necessities. This is your “oh crap” fund. It may be the difference between pivoting and failure.
Financial Plans Are Living Documents
Your budget is not something you make one time and put on a shelf. It’s something you check every month. Sometimes every week.
As you learn more, your plan will change. Hold onto your values, but be adaptable with your strategies.
Keep in mind, the point is not to forecast the future perfectly. The point is to be prepared for whatever the future might be.
There you have it. A bulletproof budget will not make you a champion, but it will get you in the game. And sometimes that’s all you need.
Now go make some spreadsheets. They’re not glamorous, but neither is bankruptcy.