If you’re shooting for the moon, first make sure you have enough jet fuel.
The numbers might seem shocking, but they’re real: 90% of startups fail.
But why do so many promising businesses, built by smart, passionate, and highly skilled entrepreneurs, struggle to survive?
Even when the team is strong, the market fit is solid, and the product is promising, the biggest reason for failure often comes down to one thing: poor financial management.
Many startups focus on product development, marketing, and growth but overlook the importance of managing their available funds. Without a solid financial plan, even the best ideas can run out of cash before they get off the ground.
The good news? Financial planning is a skill that can be learned. And getting it right from the start can mean the difference between long-term success and becoming another failed statistic.
Let’s break down how to build a financial plan that keeps your startup on track.
Why Financial Planning Is Essential for Your Startup’s Survival
Without financial planning, your startup is flying blind. A financial plan answers critical questions:
- How much money do you need to launch?
- How should you allocate funds to avoid running out too soon?
- How will your revenue grow, and when will you reach profitability?
If you don’t have clear answers to these, your business is at risk. Without a financial roadmap, you could burn through cash without realizing where it went, struggle to gain investor trust, and ultimately be forced to abandon your startup.
Let’s not let it happen.
Steps to Create a Financial Plan
1. Let’s Talk Expenses
Many startups jump in without fully realizing what they will need to spend money on. If you don’t plan for your expenses, they will take control of your business, and not in a good way.
Here are the key expense categories you need to account for:
- Initial Costs: Expenses before your business starts making money, such as product development, branding, initial marketing, office space or website setup, licenses, legal fees, and equipment purchases.
- Operating Expenses: Ongoing costs like employee salaries, rent, utilities, software subscriptions, advertising, and customer support.
- Unexpected Expenses: Emergency costs such as equipment breakdowns, legal fees, or failed marketing campaigns. A good financial plan includes a safety net for these situations.
Every startup has a different financial structure depending on its industry, size, and business model. That’s why a personalized financial plan is key.
If you need help structuring your expenses, contact our business development experts at ODC Ventures. Let’s make sure your startup is financially prepared.
2. Forecast Your Revenue
Now that you understand your expenses, it’s time to figure out if your revenue can keep up. How much money will your business bring in, and how soon?
To forecast revenue, start by answering these key questions:
- How will you make money? Selling products, offering subscriptions, or generating revenue through ads or partnerships?
- How fast will your customer base grow? Will growth be steady, or will there be seasonal spikes?
Example:
- If each customer brings you $300 in net profit, and
- You gain 1,000 customers in your first three months,
- Your total revenue for that period would be $300,000.
But the big question is: Will this cover your expenses?
Revenue forecasting helps determine whether your startup will turn a profit, break even, or need additional funding. If your projected revenue doesn’t cover costs, adjustments to pricing, marketing strategy, or funding sources may be needed.
3. Budget Accurately
Now that you’ve identified your expenses and forecasted your revenue, it’s time to organize everything into a clear and accurate budget. A well-maintained budget helps you track where your money is going, adjust spending when needed, and make informed financial decisions.
Several tools can make financial tracking easier:
- Google Sheets: A simple and free option for tracking expenses, revenue, and cash flow manually.
- QuickBooks: A widely used accounting tool offering automation, financial tracking, and reporting features.
- Wave: Designed for small businesses, simplifying accounting, invoicing, and financial management.
Accurate financial data helps you stay in control of your startup’s future rather than relying on guesswork. The more organized your budget, the easier it will be to make informed decisions and secure investor confidence.
Keep an Eye on Those Numbers
Financial planning isn’t something you do once and forget. It’s an ongoing process that starts on day one and continues as your startup grows. If you don’t stay on top of your numbers, you risk running out of cash before turning a profit.
The more control you have over your finances, the stronger your business will be. Let’s not let numbers bring you down.