Everything You Need to Know About Creating Your First Startup Financial Plan

creating first startup financial plan startups funding

Did you know 50 percent of new startups won’t be in operation after five years?

If you’re in the process of building a startup, there’s no doubt the well-publicized failure stats are enough to give you sleepless nights. But you’re an entrepreneur. You don’t give up simply because other entrepreneurs have failed.

The good news is there are steps you can take to give your startup a good shot at success. One of the most important steps is to create a solid startup financial plan.

Do you know how to create this plan?

In this article, we’re sharing what you need to know about creating a financial plan that will help your startup succeeds.

Know Your Startup’s Goals and Objectives

The first step to creating a sound financial plan for your startup is to know your goals and objectives. In many ways, these have a direct link to your company’s finances.

For instance, if your goal is to rapidly expand and have physical locations across the country, you’ll need a lot more money than a startup that has no such immediate plans.

How many employees do you need to hire? If your business needs several employees right from the start, you obviously need a bigger budget.

Does your startup need to invest heavily in research and development? If yes, you’ll need to raise a lot of capital. Check out this page to see just how a research and development department can be labor and cost-intensive.

Start by listing down your short-term goals and objectives, then medium-term, and lastly, long-term. Next, estimate the amount of money you need to finance those goals and objectives.

Develop a Funding Strategy

82 percent of the businesses that fail do so because of cash flow problems.

Your startup needs to start off with an adequate amount of working capital in the bank. Even if you’ll be self-funding the startup, don’t assume that you’ll be injecting the cash on an as-needed basis. It’s important to put the capital in a separate account; otherwise, you risk spending it elsewhere.

What if you need to rely on external sources for funding?

Identify a method that’s ideal for your startup. You could choose between debt and equity financing, or a blend of both.

As a startup, though, equity financing is the most preferable since debt financing can put your company in financial pressure when it’s unable to meet its repayment obligations.

Financial Projections Are a Key Part of a Solid Startup Financial Plan

Listen to any startup owner speaking about their business and you won’t fail to hear them mentioning their financial projections, and for good reason. Financial projections are an indicator of profitability.

Your financial plan needs to include both near-term and long-term projections. How much money do you expect the startup to pull in within a year, for instance? What about your expenses during the same period?

Financial projections are especially important if you want to attract investors. They need to know how the startup will be fairing one, two, or five years from now.

A Sound Startup Financial Plan Is the Key to Success

You’ve probably heard that money is the lifeblood of a business. That’s true, and something you will be reminded of daily when running a startup.

However, money alone won’t do the trick. You need a good startup financial plan to boot. With this guide, you’re now in a better position to develop a sound startup funding plan.

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