Financial startup basics are essentials that startups need to be aware of to ensure their financial health and secure the funds needed to grow. Nine out of ten startup failures are due to an absence of these basic elements. Cash flow is one of the reasons. Without an understanding of how to track and project cash flow, startups will be unable to manage its budget or invest in growth.
The most important accounting records for startups like income statements (revenue and expenses) and financial projections are vital for demonstrating the viability of your business model to investors. These models must be carefully constructed to accurately reflect your company’s true economics and include easily overlooked costs like shipping, taxes, insurance, payment processing charges, and utility costs.
In the beginning startups may seek out financing from friends and family members if traditional lenders aren’t an option. In this instance however, it’s crucial to have any terms of the loan written down to ensure there are no conflicting repayment obligations or future performance expectations.
Startups can also look for venture capital from private investors or crowdfunding platforms like Kickstarter. These kinds of financing typically require a business plan that includes a comprehensive financial forecast. A model can help you to understand your company’s finances, allowing you to make educated decisions regarding the amount of capital you’ll need and what strategic goals you’d like to achieve by the end of next year.