Accounting & Finance

A Financial Checklist for Startup Founders

Written by Emma Miller

Launching your own startup is a dream for many of us. You get to be your own boss, explore a ‘new land’, and most importantly, chase something you actually care about. However, such an adventure requires meticulous planning, as you will need to fulfil multiple roles, including managing finances.

Although finances aren’t the most exciting part of business ownership, they are one of the dominant factors that determine the success or failure of any company. With this in mind, we’ve created this financial checklist for anyone looking to become a startup founder.

Have a three-year financial model for your startup

It’s important to understand the metrics of success your business depends on, to enable you to create an adequate budget for later years. Having this understanding will help to act as both a guide and a milestone marker.

The key is to concentrate on major items, like key metrics (i.e.  number of users), milestones, costs, and revenue, as your startup can be subject to change during its life.

Do the guesswork and document it in detail so that you can continually iterate.

  • Key metrics – other than revenue, such as the number of users, full-time workers or regulatory approval. This is particularly important if you don’t expect to have revenue for a period of time, which is common for fintech and biopharma sectors.
  • Major milestones – Define them and the time of their completion. For instance, they can be your MVP, first hire, first client, etc.
  • Revenue – Appraise revenue by making guesses based on the number of clients, growth rate, and revenue per client.
  • Cash burn rate (costs) – What do you need to pay to keep your company running?

Managing your cash flow

Cash flow management is crucial for startups. Most of them fail for a variety of reasons, but one is far more common than others – not having money to keep everything running. According to statistics, 29% of startups fail because they ran out of cash. Unless you want this to happen to you, you will need to know where the money is coming from and where it goes after.

To understand the true profitability of your business, you will need to look at free cash flow (FCF). It is a more accurate measure of your financial performance than your net income – since it shows what cash your company has left over to expand the business or return to shareholders, after paying dividends or paying off debt. The formula goes like this:

Free cash flow = operating cash flow – capital expenditures – dividends

Your credit rating

Starting your own business can be an exciting adventure in this mundane world. However, such a fresh start is often obstructed by your previous financial hardships that have left your credit score battered and bruised.

Getting startup funds when you need them the most can be difficult when banks are avoiding you. Moreover, carefully monitoring your credit score is important before making any big financial decisions, thinking about expansion, or trying to take advantage of a new opportunity.

To check your credit score free, you have multiple available options. For instance, WisrCredit is the only free online credit score service in Australia that enables you to compare information from multiple credit reporting bureaus in one place. Also, Equifax is a national credit reporting body that gives one free credit report per year. Any other credit reports are subject to their payment plans.

Concentrate on customer acquisition

What is a business without its customers? The sooner you understand how to acquire customers and scale, the bigger the chances of your startup making it. Once you identify and analyse different acquisition channels, work on optimisation to lower your expenses.

As it is quite difficult to test every single acquisition channel at first, both in terms of time needed and cost, so concentrate on the most lucrative opportunities. Once those are successfully scaled, you’ll have the financial capability to explore other channels.

Take budgeting seriously

Budgeting sounds boring, however, doing it right ensures that you make rational decisions from the first day and won’t let your biases cloud your execution.

When you plan out your entire first year, you ensure that you are getting into a venture that has merit and that, if you do require financing, you find the optimal amount. The cost items on this initial list should include:

  • Accounting – $ for a solo accountant on a one-year retainer.
  • Company registration and incorporation
  • Legal – having a good lawyer is priceless, as famously shown from the experience of Facebook co-founder Eduardo Saverin. Never sign anything with an investor before your lawyer takes a look
  • First employees– only take them when absolutely needed, use contractors in the interim.
  • Other – travel costs, inventory, equipment, office space, overhead costs
  • Your own living expenses – never forget this. Including this is important if you’re working full-time and not drawing a salary.

Like death and taxes, these financial considerations are unavoidable. Dealing with them up front will empower you to concentrate on actually creating a great company, from “lean startup” product development to acquiring clients.

“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."

About the author

Emma Miller

Emma is a digital marketer and blogger from Sydney. After getting a marketing degree she started working with Australian startups on business and marketing development. Emma writes for many relevant, industry related online publications and does a job of an Executive Editor at Bizzmark blog and a guest lecturer at Melbourne University. Interested in marketing, startups and latest business trends.

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