Business school 101: how to deal with financial planning for a startup - Fuel Finance
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Business school 101: how to deal with financial planning for a startup

Do we even have to talk about the stress level when you need one to build an economically viable business, boost your fundraising process, and constantly inform yourself and your shareholders about the state of your startup? Not really. However, we need to figure out how to create a system that will help you achieve everything mentioned above. And remain sane.

Let’s cover the processes you have to set up first: 

  • Sales projection. Create a spreadsheet with predictions of your sales over three years. You can separate sections for different types of sales and columns for every month for the first year and monthly or quarterly for the second and third years. A tip here, divide your spreadsheet into blocks for unit sales and one for pricing, a third one that will include units multiplied by times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate the cost of sales. You want the cost of sales in a sales forecast, so you can calculate gross margin, which is sales less cost of sales. This number is used for comparing your ratio with the industry ratios. You have to rely on your hunch and make an educated guess if it’s a new product or a new line of business.
  • Expenses budget. Understand how much it will cost you to make the sales you have forecasted. Distinguish between fixed costs, aka rent and payroll, and variable costs, aka advertising or promotional expenses. Make an according to the market estimate. A simple formula to gauge taxes: multiply estimated profits times your best-guess tax percentage rate. And then multiply your evaluated debt’s balance times an estimated interest rate to calculate interest.
  • Get yourself a cash-flow statement. A cash-flow statement is the amount of physical cash moving in and out of business. Queen Pinson said, remember that “Cash flow is king.” Since we are at the beginning of this Monopoly game, it will be based on your sales forecasts, balance sheet items, and other assumptions. If you are dealing with an existing business, dig the data from the historical documents, such as profit and loss statements and balance sheets from the past. When assembling this cash-flow projection, the Queen also says that it’s essential to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days, and so on. Dear founder, don’t want to be surprised that you only collected 80 percent of your invoices in the first 30 days. Some business planning software programs will have these built-in formulas to help you make these projections.
  • Income projections. Operate on the numbers you put in your sales forecast, expense projections, and cash flow statement. The cost of sales is the gross margin. And gross margin, fewer expenses, interest, and taxes, is net profit.
  • Embrace your liabilities. Do it with a projected balance sheet. Not all your assets and liabilities will be in the profits and loss statement. Some of those are apparent and impact you at only the beginning, like startup assets. Others are more complicated. Getting a loan, giving out a loan, and inventory pop up only in assets until it is time to pay for them.

Estimate what you’ll have on hand, month by month for cash, money owed to you, inventory if you have it, and tangible assets like venues or gear. Then count what you owe, aka your liabilities. The bills that you have not paid, or to give you some startup lingo, accounts payable.

  • Breakeven analysis. Your business’s expenses sometimes match your sales or service volume. The before-mentioned three-year income projection will help you to undertake this analysis. When your overall revenue exceeds your general expenses with interest, call up the investors and get more money, you made it! Your business is viable.

Startups fail because they run out of money. And one of the main reasons they run out of money is because the founders are too scared even to project the losses. After all, they find the numbers that support their belief.

What is startup financial planning?

  • Cash balance
  • Cash flow changes
  • Fixed/variable expenses
  • Revenue
  • Gross/operating margins
  • Profit potential and durability
  • Break-even point

A financial plan is NOT the same as a business plan.

A business plan is made of paragraphs; a financial plan is made of a giant Excel spreadsheet and your tears. The financial big three are cash flow statement, profit and loss (P&L), and balance sheet. Financial planning is part of the due diligence process.

Financial planning is divided into actions:

These actions include:

  • Making a hiring plan
  • Making projections about sales, expenses, cash flow, income statement, and balance sheet
  • Analyzing projections
  • Producing profit and loss statements
  • Financial projections and modeling
  • Analyzing internal controls
  • Creating annual growth strategies

Gather data and tools


What financial accounts, bank accounts, and credit cards, are you using for your business income and expenditures? How are you doing your bookkeeping: a spreadsheet, your dad’s accountant, or some software?

Airdrop the above information into your financial plan. Make updates manually with a spreadsheet or automatically. Although it’s less stressful if updates can be automated, this will give you more flexibility in decision-making.


Options vary. You can do a spreadsheet, find dedicated software, or outsource a CPA.

Get an Excel or a Google Sheet template from an online resource, or create it yourself. If you make it yourself, put somebody in charge to maintain it, and then later, a CFO can take it from there.

A bonus point: software tools like Finmark, Brixx, or Causal might be handy. But the essential thing, track your scale.

Breaking down a financial plan

Know your endgame. After sketching out long-term strategies and goals, ask your investors what metrics matter the most to them.

This sentence is a sign to choose your company’s KPIs. Remember, different metrics apply to other business models. For example, if you are a SaaS(y) company, include metrics like MRR (monthly recurring revenue), bank balance, and budget vs. actual.

Let’s talk about milestones like acquiring a certain number of customers, raising a round of fundraising, or making an acquisition.

Find the one! It applies to love and software, honey.

A generic template for all sorts of businesses will give you the idea, but you will have to find someone who knows Excel so that they can customize it according to your business’s needs.

Fuelfinance people can do it for you if you are scared of spreadsheets. Remember, you are not supposed to be perfect at everything. However, we are. At least at making spreadsheets.

Get your dat*a* together.

You’ll need to import your existing information from different financial accounts like QuickBooks, bank accounts, and/or credit cards. For example, your bank data could be a statement, or it could literally be today’s balance.

Here’s a checklist to help:

  • Assets (e.g., checking, savings, amounts owed to the company from customers, inventory, prepaid expenses)
  • Liabilities (e.g., line of credit, credit card payments, the amount owed to vendors, payroll taxes payable)
  • Equity (assets minus liabilities)
  • Income (e.g., product sales, interest)
  • Expenses (e.g., cost of goods sold, marketing, travel, rent, office supplies)

There is an old saying in Tennessee, if your financial plan is a spreadsheet, you love manual work. And it also means that you have to export your existing data and then import it into your spreadsheet.

Project expenses: direct and indirect

Sales costs (direct) include raw materials, production gear depreciation, hosting fees, etc. Everything else is indirect expenses. Among them, salaries and benefits are usually the biggest flex at this point. You might forget that in these expenses, you must include existing employees and forecast future hires to anticipate the extra cost of roles and salaries over time. Thus, the additional cost of bonuses they will expect. Be sure to include benefits and payroll taxes. Here is an example, three financial analysts, $70k each, start dates: June 2022, July 2021, and September 2019.

*Build a headcount plan by role for the pro forma period by month.

  • Legal and professional services (include business license fees)
  • IT (iCloud fees, software, data security)
  • Insurance
  • Office rent
  • Office supplies

Here it would be best if you focused on high-level estimations based on industry standards, location, and company size. Things change; don’t waste time perfecting predictions — they may not come true.

Project revenue

Basically, how will you make money? If your company is pre-revenue, you can begin with industry standards. Realistic income projections influence all other assumptions about profit and loss (P&L). If you mess these up, you may over-or understaff your company or make big purchases you can’t afford.

Define the revenue levers, drivers, and assumptions. For example, revenue levers could be products and/or services, software maintenance agreements, or channel partner sales. You also need to identify which activities increase or decrease revenue and pricing and activity assumptions.

One important revenue projection for SaaS businesses is MRR. Here’s an example of this type of revenue projection:

  • Revenue lever: subscription revenue per month
  • Revenue driver: marketing budget (don’t be stingy here) and conversion rates
  • Revenue assumptions: $300 subscription price, 200 initial buyers, 15 new registrations per month, two churned customers per month

To project MRR using software, use this formula: MRR = total customers * average subscription price.

The report is due!

Convert the data into a digestible format to enable fast decision-making. A dashboard is a visual way to summarize and report on the data. It makes it easy for business owners, board members, and investors to look at and know the company’s status.

Now that the estimates are complete, it is time to transform the work into a collection of facts that potential investors and business owners can use to drive decisions. The initial information and discussions should focus on high-level assumptions and give confidence that the business can scale and grow as the example outlines. – Tiffany Hovland, CPA, Journal of Accountancy

Using Excel for your financial plan, you can build these reports as pivot tables.

Test assumptions: what if

You need a sensitivity analysis. Now that you’ve made some hypotheses about the future, try playing with some different ones — some aggressive and some conservative. Alter some inputs and examine the reports in various scenarios. This will help you see how the assumptions relate and ensure that the end model makes sense.

Another way to test your beliefs is to correspond your company’s metrics to those of other companies. For example, big players might check the SEC’s website for public competitors or companies in a comparable space with matching net revenue. If you can’t find a good comparison, you can check with investors to see which assumptions you should tweak. Then revise accordingly.

Do not be scared to test your financial model to make sure you dodge common traps in the financial models of startups. For example, you can find ten common errors below:

  1. Your financial model puzzle does not fit your business plan: a financial model should echo the overall business strategy.
  2. Glass is too full or too empty: check out section ‘Revenues’ on how to forecast sales
  3. A funding need that cannot explain: make sure you include a breakdown of costs
  4. Underlying premises that are not clearly defined: you should be able to provide clarification or proof of the numbers
  5. You are lacking men on the battlefield: do not underestimate the number (and costs) of employees you need to build a fast-growing company
  6. Revenue projections that are not aligned with the market size: by definition, revenues cannot be larger than the size of the market.
  7. You left out the Adobe subscription for your designer: make sure expenses are aligned to your strategy.
  8. Operational expenses which are misaligned with the forecasted revenues: make sure fees resonate with incomes.
  9. No realistic view of the gross, EBITDA, and net margins: when talking with investors, always be prepared to answer questions on your recent and expected margins
  10. Ignoring the significance of working capital: do not underestimate the effect of payment terms on your funding need.

Just relax if you are still bargaining with yourself about whether you need to get a CFO or master Excel before you get on track with your business. We can do it for you. Let us create a financial plan for you. Then, we do the numbers, and you have more time to think about the strategy and growth. The last time we checked, this is what founders are for.

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