ralston blog

Effective financial planning for startups

Kyle Brennan

February 9, 2021

As we enter a second year of the COVID crisis, many founders are struggling to manage their finances amidst falling revenues and enforced redundancies. Whilst the government is offering some support, it’s unclear when or how a recovery will happen and most are finding the current environment highly unpredictable. To help companies get more clarity, Ralston has developed a practical financial plan to help founders get laser-focused, stress less about cash flow and better understand business performance.

Thinking ahead

If this is your first time doing a financial plan, it can be tricky to know exactly where to start and what you should include in your framework. The first step we recommend is to think long term (3 years ahead), pinpointing revenue and customer acquisition targets you’ll require, then work backwards under realistic growth assumptions to understand what to aim for in Year 1. Secondly, clearly define and rank your customer acquisition channels in order to prioritise where to invest your sales and marketing spend. You will need to assess each channel’s effectiveness and how they tie into your overall short and long term growth strategy. Once you’re clear on your channels, it’s important to set up and track top of funnel KPIs e.g. leads generated, website/app sign-ups etc. Have clear expectations on cost of acquisition and conversion to see how much you will need to invest (allowing for some margin of error) to reach your targets. Lastly, it’s crucial to understand the timings of your cash flows and when you should expect actual cash in from new customers vs cash out to pay staff and invest in your growth. Consistent forward planning and tracking of your performance are key to minimising surprises and ensuring you are laser-focused on your targets so you can continuously adjust course.

Common obstacles to overcome

How many times have you put off financial planning because it’s daunting or too time-consuming? There’s no silver bullet, but a great place to start is to get your numbers into one place and set your targets using a straightforward financial model you can understand. We often hear founders say “finance isn’t really my background, I’m not a numbers person”, though we find that most just lack the confidence and time to get going. To start, you can use our ready-made templates, which offers many straightforward ways to model your revenues, key operating metrics and costs. If you don’t feel comfortable doing spreadsheets, you can also use some more simple forecasting tools and it’s never been easier to get outside assistance from an experienced advisor. They can help you build your model or give you a sense check on whether your assumptions are realistic.

Tactics for navigating finances in a post-COVID world

The past year has shown founders the importance of being resilient in the face of adversity and this year will be no different. There are a few things you can do to ensure 2021 starts on the right foot. Make sure you are communicating performance and expectations regularly with your staff, suppliers, customers and investors. You should have consistent messaging about the state of your finances to preempt any anxiety within the business. For example, investors should be assured that their funds are protected, staff should be made aware of changing performance targets and suppliers should be held accountable to their payment terms. 

The next important step is building out your business contingency plan. Identify risks/worse case scenarios such as a 10% decrease in revenue and consider what actions can be put in place to protect against the dip. Generate contingency options by organising them into actions you ‘must do’, ‘should do’ and ‘could do,’ to address the impending scenario. For example, consider cutting back on resources, office space or bonuses. Finally, clearly define what needs to occur for an option to be actioned, who will be the owner of carrying that action forward and the quantifiable impact and timeline.

Once these have all been determined it’s time to put your plans into action. Create tasks for owners and ensure accountability. If you have milestones put in reminders to check in on specific metrics. If you created contingencies for say a 10% drop in revenue, make sure you’re tracking this closely. Remember, you’ve created a contingency plan to ensure you can act quickly should the unexpected arise.

Discover more about effective financial planning at our upcoming webinar and get a head start on your startup finances.

Kyle Brennan

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