The financial startup basics are the fundamentals that startups must have a firm grasp of to ensure their financial health and secure the funds needed for growth. Nine out of ten failures in startups are the result of insufficient knowledge of these vital elements. The reason is straightforward – cash flow. Startups that do not know how to track and forecast cash flow will not be able to control its budget, or invest in growth.
The most important accounting records for startups like income statements (revenue and expenses) and financial projections are vital to demonstrate the viability of your business plan to investors. These models must be meticulously designed to accurately portray the true economics of your company, including easy to overlook costs like taxes, shipping, insurance, payment processing charges, and utility costs.
If traditional lenders aren’t a viable option, family and friends can lend money to startups in the early stages. However, in this situation, it’s important to put the terms of any loan in writing so that there aren’t any conflicts over repayment obligations or expectations for future performance.
Startups may also seek venture capital from a private investor or even crowdfunding platforms like Kickstarter. However, these types of financing typically require an approved business plan that includes a comprehensive financial model. The creation of a model will allow you to understand your company’s finances, allowing you to make informed choices about the amount of capital you need and what strategic goals you’d like to meet by next year.
