Creating a Financial Plan for Startups: The Ultimate Guide
The top reason startups fail is because they run out of money, according to a 2020 survey by Wilbur Labs . And one of the main reasons they run out of money is because their financial planning consists of rosy projections of the best-case scenario, based on bad data — or no financial planning at all.
Creating a financial plan is essential to a startup’s success. For one thing, most investors need to see a startup’s financial plan before they even consider funding it. More importantly, a financial plan allows you to quantify your business assumptions, define specific benchmarks, plan for worst- and best-case scenarios, and measure your company’s success (even before you start making a profit).
The bottom line is: if you have expenses, you should have a financial plan. But you don’t need an accounting degree (or even an accountant) to get started.
What is startup financial planning?
Your startup’s financial plan is the roadmap that lays out the path for your company’s future financial success. In it, you make predictions and plans based on historical performance and industry research. Start with your company’s current financial situation, add in future goals and predictions, and strategize how to get there. Financial plans include details about:
- Fixed/variable expenses
- Gross/operating margins
- Profit potential and durability
- Break-even point
- Cash balance
- Cash flow changes
Don’t have all that information close at hand? That’s okay. The first financial plan you create may not be very detailed. You’ll keep building and tweaking it as your company iterates.
A financial plan is NOT the same as a business plan
A business plan is written in paragraphs. A financial plan is (traditionally) a giant Excel spreadsheet. It’s synonymous with Pro Forma financial, which is the finance industry term for three detailed reports: cash flow statement, profit and loss (P&L) , and balance sheet . Financial planning is part of the due diligence process , which you’ll need to provide to investors prior to signing a Series A term sheet.
Financial planning is made up of several smaller activities:
These activities include:
- Creating 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
Before you start: collect data and tools
You can’t create a financial plan in a vacuum. First, you’ll need to assemble some critical things:
Before you can accurately create a financial plan, identify and assemble all your existing financial data. What financial accounts (bank accounts, credit cards) are you using for your business income and expenses? Where/how are you doing your bookkeeping (e.g., QuickBooks, Xero, NetSuite), and is that information up to date?
You’ll need to import the above information into your financial plan. Updates can be done manually with a spreadsheet or automatically using software (more on that below). Generally, it’s better if updates can be automated so you know you’re looking at the latest data and can be more nimble with decision-making.
Now you need to decide what tools you’ll use to create a financial plan. Options include a spreadsheet, dedicated software, or outsourcing to a CPA.
If you opt for a spreadsheet, you can download an Excel or Google Sheet template from an online resource, or you can create it yourself. If you create it yourself, a finance analyst, HR manager, or office manager can maintain it, and then later, a CFO can run point on the whole process.
The problem with a spreadsheet is that it’s often too fragile for everyone to use collaboratively — it’s not automatically version controlled, and it’s too manual. That’s why you might choose software like Pry, Finmark, Brixx, or Causal. Obviously, we think Pry is the best choice for financial planning. But whatever you choose, the main reason to use software is it will scale as you grow.
Finally, you can hire a CPA to build a financial plan for you. This option can afford you some peace of mind. However, it costs a lot more than a DIY spreadsheet or software approach. Additionally, you’ll understand your business better if you create your financial plan internally.
Steps to create a financial plan
Startup financial planning can seem daunting at first, especially if you’re an early-stage founder and this is your first time. We’ll break it down below.
1. Visualize the end result
At the beginning of the financial planning process, you should sketch out long-term strategies and goals. If you’re pursuing a financing round, ask your investors about what metrics matter the most to them. That way you can bring those details to the forefront instead of burying them in a series of complex tabs.
A good starting point is to determine your company’s KPIs. What are the things you want to track and forecast? Remember that different metrics are important to different business models . For example, SaaS companies should include metrics like MRR (monthly recurring revenue) , as well as bank balance and budget vs. actuals.
Thinking back to your best lever of growth, what will be your key milestones? This could include acquiring a certain number of customers, raising a round of fundraising, or making an acquisition.
This sounds like, “To reach X, we need to hit A, B, C, and D milestones. Here’s how we think we’ll get from A to B, then B to C, then C to D.” – Underscore VC
2. Pick the right template or software
It’s hard to create a generic template for all sorts of businesses, so find a template that matches your business model. Sometimes you can access these templates for free, like the one in this LinkedIn thread . Or you can download a template in exchange for your contact info, like this one for SaaS startups.
Of course, you can also choose software that creates this template for you instead of trying to retrofit some random online spreadsheet template. At Pry, we can customize reports and dashboards to your specific business model for $500 with our custom onboarding.
3. Import existing data
Now you’ll need to import your existing information from different financial accounts like QuickBooks or Xero (depending on which you use), bank account(s), and/or credit card(s). This is sometimes referred to as the “ Chart of Accounts .” Your bank data could be a statement, or it could just be today’s balance. Ideally, you should pull as much as possible, so you have the clearest, most detailed picture.
The information you should import can be broken down as follows:
- Assets (e.g., checking, savings, amounts owed to the company from customers, inventory, prepaid expenses)
- Liabilities (e.g., line of credit, credit card payable, 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)
If your financial plan is a spreadsheet, you’ll need to manually export your existing data and then import it into your spreadsheet. This process looks slightly different for each different financial account. QuickBooks and Xero both outline how to do this on their websites.
If you’re using a financial planning tool like Pry, you can connect these accounts so they sync automatically via an API integration .
4. Project expenses
Once you have an accurate picture of current accounts, you should start projecting future expenses. These can be broken into two broad categories: direct expenses (aka, costs of sales) and indirect expenses (aka, selling, general, and administrative expenses). Direct expenses include any raw materials, production equipment depreciation, hosting fees, etc. Everything else (other than product costs and capital purchases) is considered an indirect expense.
Salaries and benefits (an indirect expense) are usually the biggest expense at this point, so we recommend starting with this one. You should add existing employees and forecast future hires to predict the additional cost of roles and salaries over time. Be sure to include benefits and payroll taxes. Also, don’t project people out by dollars spent on them — do it by name/role/salary, then convert salary into a monthly cost. For example, 4 Software Engineers, $100k each, Start Dates: July 2021, September 2021, November 2021, January 2022 .
Build a headcount plan by role for the pro forma period by month. This approach creates a hiring plan based on revenue timing to properly support the business. It also allows for quick adjustments when modeling revenue changes. – Tiffany Hovland, CPA, Journal of Accountancy
- Legal and professional services (e.g., the costs of incorporating a new business, like business license fees)
- IT (e.g., data storage, software, data security)
- Office rent
- Office supplies
As you make projections about future expenses, remember to focus on high-level estimates based on industry standards, location, and company size.A lot of things can change, and you shouldn’t waste time perfecting predictions — they may not come true, anyway.
5. Project revenue
Now you’ll describe how your company will produce income. If your company is pre-revenue, you can start with industry standards. Realistic revenue projections are important to investors, and they influence all other assumptions about profit and loss (P&L) . If revenue projections are drastically wrong, you may over- or understaff your company or make big purchases you can’t afford.
To make accurate projections, define the revenue levers, drivers, and assumptions. 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, as well as 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: monthly subscription revenue
- Revenue driver: marketing spend and conversion rates
- Revenue assumptions: $200 subscription price, 100 initial customers, 25 new signups per month, two churned customers per month
To project MRR using software like Pry, use this formula: MRR = total customers * average subscription price.
6. Build a report
After you have collected all your current financial information and built out some projections, it’s time to present it in an easily digestible format to drive 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 status of the company.
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
If you’re using Excel for your financial plan, you can build these reports as pivot tables. Or, if you find pivot tables too cumbersome, you can create a dashboard easily using software. Here’s what Pry’s dashboard looks like:
7. Test assumptions
The final step of financial planning is often called a what-if analysis or sensitivity analysis. Now that you’ve built some assumptions about the future, try playing with some different ones — some aggressive and some conservative. Change some inputs and review the reports in different scenarios. This will help you see how the assumptions relate and ensure that the end model makes sense.
Another way to test your assumptions is to compare your company’s metrics to those of other companies. Larger companies might check the SEC’s website for public competitors or companies in a similar space with similar net revenue. If you can’t find a good comparison, though, you can check with investors to see which assumptions you should tweak. Then revise accordingly.
We picked a list of IPO comparables—enterprise-class SaaS companies that had gone public. We look at up to three years of their financial data, and based on our growth rate, revenue, and expenses as a percentage of revenue, we compare ourselves against their metrics. These comparables are a way to validate our progress against our three-year plan. – Jason Purcell, CEO of Salsify
Now it’s your turn (we can help)
The bottom line is that if your startup has expenses, you should also have a financial plan. And now that you know how to create one, it’s time to get started.If the prospect of making pivot tables in Excel intimidates you, try creating a financial plan with an out-of-box tool like Pry. It does everything the expensive firms do but without the hefty price tag.
View Pry’s pricing ->
Keep reading...
Revenue forecasting for founders: how to make projections early.
Revenue forecasting is looking at existing data and predicting how much money your company will bring in from sales in future months, quarters, or years. Even early-stage startups need to track these metrics because accurate and realistic revenue forecasts are the only way you can avoid a big cash flow shortage and complete company meltdown.
- One-page plan
- Executive summary
- Products and services
- Market analysis
- Competition
- Marketing and sales
- Milestones and metrics
- Company and team
- Financial plan
Make a financial plan and starting forecasts
How to Write a Small Business Financial Plan
Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.
Thankfully, you don’t need an accounting degree to successfully put your budget and forecasts together. Here is everything you need to include in your financial plan along with optional performance metrics, specifics for funding, and free templates.
On this page
Key components of a financial plan
A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:
Sales forecast
What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.
Subscription sales forecast
While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.
Expense budget
Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.
How to forecast personnel costs
How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.
Profit and loss forecast
Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.
Cash flow forecast
Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.
Balance sheet
Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.
What to include if you plan to pursue funding
Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.
Highlight any risks and assumptions
Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.
Plan your exit strategy
Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.
Financial ratios and metrics
With all of your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios. While these metrics are entirely optional to include in your plan, having them easily accessible can be valuable for tracking your performance and overall financial situation.
Common business ratios
Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.
Break-even analysis
Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.
How to calculate ROI
How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).
Financial plan templates and tools
Download and use these free financial templates and calculators to easily create your own financial plan.
Sales forecast template
Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.
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Financial plan FAQ
What is a financial plan?
Why is a financial plan important for your business?
What is in a financial plan?
What is the most important part of a financial plan?
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Free Startup Plan, Budget & Cost Templates
By Kate Eby | September 12, 2017
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A business plan describes how a new business will meet its primary objectives over a given period of time. It is both a strategic document that can act as a roadmap and a tool for securing funding and communicating with stakeholders. For a startup business, planning is key to developing a thorough understanding of the target market, competition, market conditions, and financing opportunities.
Included on this page, you'll find a variety of helpful, free startup business planning templates , like a SWOT analysis template , a competitive analysis template , a business startup checklist template , and more.
Startup Business Planning Templates
Competitive analysis template - excel.
Download Competitive Analysis Template
Excel | Smartsheet
Analyze multiple competitors based on the categories you want to compare, and use the results to identify your top rivals. This template contains several sheets to provide a comprehensive look at how your startup stacks up to the competition, the strengths of each company, and potential partnerships or opportunities.
SWOT Analysis Template - Excel
Download SWOT Analysis Template
While researching your business plan, both risks and opportunities are likely to arise. This critical information gives you the chance to plan for how you will take advantage of or address them as needed. A SWOT analysis helps you identify and gain a clear understanding of internal strengths and weaknesses as well as external opportunities and threats. The results of the analysis will inform your business goals and strategies for reaching them. Once completed, you can add this SWOT template to a startup business plan or use it as a planning tool. If this template doesn’t have the details you require, you can find more of our free SWOT Analysis Templates .
Marketing Plan Template - Excel
Download Marketing Plan Template
Easily create a detailed marketing plan for different campaigns, including projected and actual costs. It also doubles as a marketing calendar template, showing a weekly, monthly, and quarterly breakdown of your timeline and initiatives. A marketing plan is typically part of a business plan, but you can use this dedicated template for developing a thorough plan and schedule.
Business Startup Checklist Template - Excel
Download Business Startup Checklist Template
This template offers a simple checklist to help you organize all of the tasks that need to be accomplished, from initial research and planning to establishing professional partnerships and acquiring necessary permits. Edit the list to include relevant actions for a particular business. This is an easy way to ensure that important items are not overlooked and prioritize steps.
Business Planning Schedule - Excel
Download Business Planning Schedule
This template allows you to create a schedule for tasks with a visual calendar for planning. This layout can help you organize your planning process and provide a timeline for reaching certain milestones. The template is structured around planning stages, allowing you to separate tasks hierarchically. To use this template for another planning process, simply edit the tasks included and add your dates to the schedule.
Target Market Comparison Template - Excel
Download Target Market Comparison Template - Excel
Utilize this worksheet to compare target markets in order to understand which are ideal for your product or service. Understanding your customers is vital not only for developing effective strategies, but also for showing investors that you’ve done the necessary research and understand how to reach potential customers.
Startup Business Plan Template - Word
Download Startup Business Plan Template
Word | Smartsheet
This template offers a traditional outline for creating a business plan document. You’ll find sections for an executive summary, company description, marketing plan, product and operational information, financial data, and room for appendices. You can refine the plan to suit different industries and business types. For example, if you want to create a technology startup business plan template, you will want to show how the startup will deal with rapidly changing markets, and provide product and market research that shows how your business will be on the cutting edge. You may also need to provide longer-term financial projections since high-tech startups often operate for an extended time without profits.
For additional resources, visit " Free Startup Business Plan Templates and Examples ."
One-page Business Plan Template - Word
Download One-page Business Plan Template
Excel | Word | PDF | Smartsheet
Create a streamlined business plan document on a single page with this Word template. A simplified plan can be helpful for summarizing information into a brief report. This format gives readers a quick overview of your startup business plan while emphasizing key points.
For additional resources, visit " One-Page Business Plan Templates with a Quick How-To Guide ."
Startup Financial Templates
Small-business budget template - excel.
Download Small-Business Budget Template
This basic budget is ideal for small businesses that want an easy, blank template to customize. To create a business budget, include both fixed and variable expenses along with revenue and funding sources. Use this template to track expenditures and revenue, maintain a balanced budget, and to help grow your business.
Sales Forecast Template - Excel
Download Sales Forecast Template
With this template, you get a 12-month sales forecast as well as sales data from prior years. You can organize the spreadsheet based on product names, target customers, or other categories, and then enter forecasted monthly sales, including adjustments for seasonal changes or other factors that might impact sales. The template also calculates monthly and yearly totals.
Business Startup Costs Template - Excel
Download Business Startup Costs Template
Startup costs begin to accrue before operations begin, so it’s important to determine expenses early on to avoid being underfunded or overspending. This startup costs template shows a summary of both funding and expenses at the top, with itemized details below. You can use this worksheet to outline expenses, create a tentative budget, and compare actual costs as they accrue. Similar to a start up budget template, this version helps you focus on expenditures.
Startup Budget Template - Excel
Download Startup Budget Template
A startup budget is an important tool for identifying what financial resources are available, determining how much revenue is needed to meet business goals, and pinpointing areas where you can save money. A budget works as a planning tool as well as a method for tracking actual expenditures. As part of a business plan, it supports the process of pitching to investors and completing loan applications. This budget template is geared toward startup companies and includes a section for projected monthly costs.
Startup Financial Projections Template - Excel
Download Startup Financial Projections Template
Similar to a pro forma template for startups, this version includes a 12-month profit and loss projection, a balance sheet, and a cash flow statement. Use the template to analyze the current financial standing and run a future forecast for a business. The spreadsheet includes pre-populated fields with expenses and income sources, which you can easily edit to accommodate your business.
Personal Financial Statement - Excel
Download Personal Financial Statement
Some lenders may require a personal financial statement in addition to relevant business data. This template lists assets and liabilities in order to calculate net worth. You’ll also find space for adding a signature so you can certify that the information is correct.
Balance Sheet Template - Excel
Download Balance Sheet Template
This template can be modified to either show an opening day balance for a startup or to create a projected balance sheet. Choose a given time period, enter your numbers for assets, liabilities, and equity, and the template will provide automatic calculations.
First-Year Budget Calculator - Excel
Download First-Year Budget Calculator
Combining business and personal budget information into a single template can be useful for small business owners who are just getting started. This template focuses on first-year budget calculations including startup costs, operating expenses, estimated income, personal expenses, and more. You can identify fixed and recurring costs for a full view of expenses for the first year.
12-Month Cash Flow Forecast - Excel
Download 12-Month Cash Flow Forecast
This template shows all 12 months of the year for a monthly and annual cash flow forecast. In addition to creating a forecast, you can compare actual cash flow totals for each month. The template is divided into categories for cash on-hand, cash receipts, and cash paid-out, with an alternating color scheme for easy viewing.
Annual Business Budget Template - Excel
Download Annual Business Budget Template
As a startup becomes established, this template can be used to create a budget showing totals on a monthly, quarterly, and annual basis. You can create a projected 12-month budget as well as compare financial data to the previous year’s performance. The template provides detailed income and expense categories for thorough planning and tracking.
Financial Dashboard Template - Excel
Download Financial Dashboard Template - Excel
Create a visual financial report with this dashboard template, which tracks statistics over time using graphs and charts. Compare sales rep performance, product revenue, regional data, or other financial KPIs. A graphical report provides a quick overview of financial information in a format that is easy to understand and share with stakeholders.
Marketing Budget Plan - Excel
Download Marketing Budget Plan
Create a dedicated marketing budget with results displayed in both a spreadsheet format and pie chart. Calculate costs for various marketing campaigns in order to view fund allocation. The template includes space for comments and notes to aid in strategic business planning.
Website Budget Template - Excel
Download Website Budget Template
This startup website template provides sections for calculating initial development costs as well as creating a projected budget over three years. View a list of costs and benefits to see how the website will impact the business over time. This template can help you determine the value of your website investment and track actual annual performance.
Loan Amortization Schedule - Excel
Download Loan Amortization Schedule
Keep track of a loan balance, payments made, upcoming amounts due, and interest paid with this loan amortization template. Enter lender information and loan terms at the top of the template, and then use the schedule to track payment details. Startups owners will appreciate how easy it is to manage business loans and create repayment plans.
Why Write a Startup Business Plan?
The benefits of writing a startup business plan range from clarifying initial ideas to attracting potential investors. The process of business planning can help uncover weaknesses as well as opportunities you may have overlooked. Planning encourages entrepreneurs to examine each step required to start a business in order to avoid mistakes in the long run. Collecting data through market analysis can allow you to confidently make informed decisions and provide a dose of reality to your business idea by affirming or challenging initial assumptions about your product, business model, or strategies for achieving success. Once you clarify your startup vision, analyze financial and market data, and define goals, you can create a strategic action plan to use as a guide for reaching objectives and addressing potential challenges.
After establishing a startup, continue business planning to identify ways to grow and improve the business as well as to plan for resource use and development. If you treat your business plan as a living document that you regularly review and update, you can also use it to measure progress over time. An effective plan communicates a company’s vision to team members and all stakeholders, and provides both a foundation and an adaptable model that can grow and change along with the business.
One key reason for startups to develop sound business plans is to convince investors and lenders to finance the endeavor. Most banks and investors will want to see detailed financial projections and a statement of your current personal and business financial standing. Investors may want to see market data and other proof that your plan has a high chance for success. Without adequate financing, no startup can succeed, so it’s essential to create an ironclad pitch for funders.
What to Include in a Business Plan
Business plans are tailored to fit a specific type of business and to serve a particular purpose, whether it’s to seek funding, influence a particular audience, or develop strategy for internal use. While you’ll need to continually revise plans need to fulfill a certain function, there are similar elements in all business plans. Here are some of the common sections included in a startup business plan:
- Summary and Objectives: This first section can provide background information, a detailed company description, general industry information, goals that you want to achieve, and long-term objectives. Depending on the size and type of business, this information may be divided into multiple sections or summarized in one pitch.
- Marketing Plan: Providing market data and an outline for how you will market and sell products and services allows you to show a deep understanding of your target audience and your plans for branding and distribution. Be sure to conduct thorough research that you can use to back up your plans with supporting numbers and statistics. You may also include separate, detailed sections on competition, customer characteristics, product features, sales forecasts, and marketing strategy.
- Operational Plan: This section is concerned with the equipment, processes, and people involved in daily operations. You may want to include details on location requirements, production methods, legal issues (such as licenses or insurance requirements), staffing information, vendor needs, and other operational elements.
- Management and Organization: A description of management positions and professional advisors provides an organized look at key roles, the experience individuals bring to the business, and important consultants or mentors. You can also include resumes for key employees and startup owners if the business plan is supporting a loan application or investor pitch.
- Startup Expenses and Financial Plan: Estimate expenses as accurately as possible and include contingencies for unforeseen costs. Creating estimates requires thorough research, and expenses should include even small items - while they are easy to overlook, they may add up to significant costs. A comprehensive financial plan can include profit and loss projections and other budget forecasts in order to provide a clear picture of a startup’s financial standing and future outlook.
A business plan will, of course, look different for a restaurant, web-based business, technology service provider, or product manufacturer. Before getting started, consider what you want to accomplish with your business plan, and customize it accordingly.
Business Plan Tips
Taking the time for thorough research and planning can help you make informed decisions, avoid potential pitfalls, and craft an effective plan. Here are a few tips to consider as you create a business plan:
- Get Creative: Business plans can follow a simple outline, but turning your plan into a creative presentation can make a statement and grab investors’ attention.
- Use Data Wisely: No matter what format or approach you take, a startup business plan should be concise and include compelling evidence and hard data to back up your claims.
- Refine Your Plan: Consider your audience and review your plan to ensure the information presented is appropriate, sufficient, and clear.
- Focus on Objectives: Connect every strategy to core objectives so that there is a clear path for attaining success.
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14 Financial Planning Tips for Startups
If you fail to plan, you plan to fail.
That old adage really rings true when it comes to financial planning for startups.
One of the biggest mistakes you can make as a founder is trying to “wing it” with your finances. Taking the time to create a financial plan will:
- Make you think more strategically about growth
- Help you prepare for all the ups and downs of running a startup
- Make it easier to fundraise
- Give you more confidence about the day-to-day decisions you make
Trust us, the value you’ll get from financial planning is well worth the time you put into it. But it’s only as valuable as you make it.
In this guide we’re going to show you how to take your startup’s financial plan from being a boring static document and turn it into your new favorite growth tool.
What is Financial Planning?
A financial plan is like a financial game plan for your startup. It outlines your company’s current financial state, your goals for the future, the actions you’ll take to reach those goals, and how much it’s going to cost.
Financial planning is the process of putting your “game plan” together and documenting it. Using data, you make assumptions about revenue, expenses, and other financial parts of your business to forecast the financial trajectory of your business.
A lot of startups document their plan in a spreadsheet , but we prefer software 😉. We’ll dive into why and how in a little bit.
Why is Financial Planning Important for Startups?
It costs money to grow a business, and most people don’t have unlimited resources. If you don’t plan for how you’re going to grow and how much it’s going to cost, you can easily waste your two most precious resources—time and money.
On top of that, if you plan on pitching investors, they’re going to expect to see a financial plan. They need to know that once they give you hundreds of thousands or millions of dollars to grow your startup, you have a plan for exactly how you’re going to use the money.
Essentially, financial planning forces you to think strategically about how to best use your resources and what your expected results are. Throughout the process, you’ll have to answer questions like:
- How much revenue will we generate?
- What will our churn rate look like?
- How many months of runway will we have?
- How much do we have to spend on sales and marketing?
- How many people can we afford to hire?
By answering these types of questions with data and numbers and turning it into a financial plan, you’ll have a clearer picture of what growth looks like, how much it’ll cost, and how to measure success.
If you want to build your financial plan quicker, (and with more accuracy), I highly recommend giving Finmark a try . It’s much easier than using a spreadsheet, especially for founders.
Now that you know what financial planning is and why startups need to do it, let’s take a look at some tips to make sure you’re creating the best financial plan possible.
1. Choose The Right Financial Planning Tool
If you’re like most startups, your financial plan probably starts in a spreadsheet. While spreadsheets can be an ok solution for building your financial plan, there are better options out there— like ours .
When it comes to choosing the right financial planning software for startups, here are our tips:
- Scalable: Is it going to be easy to manage your financial plan as you grow? Or will it require you to change the entire framework of your financial plan as you scale?
- Easy-to-use: Many financial planning solutions aren’t made for non-finance people. They’re unnecessarily complicated and require an intermediate level of financial knowledge to understand. Look for something that’s simple enough for non-finance people to use, but powerful enough for your future CFO or FP&A team to work with.
- Collaborative: You should be able to easily (and securely) collaborate with your team, investors, accountants, or other stakeholders on your financial plan.
- Customizable: The tool should allow you to customize your models to reflect your business type and industry.
- Integrations: Does it integrate with your accounting, payroll, and CRM tools?
If you’re looking for something that checks all these boxes, I think you’re going to like Finmark. Plus you can try it free for 30 days!
2. Plan For Multiple Scenarios
In an ideal world, your revenue would always trend upward, unexpected expenses would never pop up, and everything would just fall into place.
But as any founder will tell you, that’s rarely the case.
The thing is, nobody hopes for the worst-case scenario for their business. But if you plan for it in advance, you’ll be better prepared to maneuver through it if it happens.
That’s why we recommend creating downside, upside, and baseline scenarios when you’re doing your financial planning. Each scenario has different assumptions for how your business will grow, so you’re more prepared for whatever happens.
Your baseline plan has the expectation that your business will grow at a steady rate. Your assumptions while building this plan might include:
- Your cash flow won’t drastically change
- You won’t go on a hiring spree,
- Your burn rate will stay relatively consistent
- Your revenue growth will be steady
A baseline financial plan is important because it gives you a benchmark. Since it’s primarily based on how your company has performed historically, it’ll be a good indicator of whether or not you’re trending up or down.
Your upside plan is your best case scenario, where your expectation is to outpace your baseline. Some assumptions you might make are:
- You’ll get new customers at a faster rate each month
- Your average revenue per account (ARPA) will increase
- Your expenses will stay relatively flat while revenue grows
- You’ll decrease your churn rate
Be careful with your upside plan though. If you’re going to make these types of assumptions, they need to be tied to actions.
For instance, you need to have a plan for how you’re going to get more customers, how you’re going to decrease churn, where new revenue will come from, etc.
Just changing your churn rate from 10% to 4% in your financial plan without a strategy for how you’re going to get there isn’t “planning”, it’s guessing.
Your downside plan is going to be the least enjoyable to create, but you’ll thank yourself for doing it. This is the plan with built-in expectations that you’ll see a decline from your baseline plan. It could include assumptions like:
- Your churn rate will stay flat, or increase
- Your ARPA will decrease
- Your burn rate will outpace your revenue growth
- Your gross margin will decrease
- Higher customer acquisition cost (CAC)
- Longer CAC payback
The advice I gave you for your upside plan also applies to your downside plan. Your assumptions need to be tied to an event or action of some kind.
For example, maybe you plan on trying some new customer acquisition channels and you’re unsure of how they’ll perform so you estimate a higher CAC or lower conversions.
Or maybe your revenue growth has been on a slow decline for a few months, so you plan for what happens if that trend continues or speeds up.
What you don’t want to do is make assumptions like “our revenue will decrease 10%” without having any data or reasoning to justify why that would happen.
Essentially, your downside financial plan should have a little bit of skepticism, not pessimism. The difference is skepticism means having some doubt, while pessimism is assuming the worst will happen.
Learn more about how to do scenario analysis here .
3. Ask “What if”
Sometimes founders and finance leaders tend to look at financial planning as a means to an end. You enter in a few numbers to get a final “report” on where your financial will be in the future.
This usually happens because you’re financial planning for a specific event—fundraising, investor meetings, preparing for the new year, etc.
Instead, I want to challenge you to take a new perspective when you’re building your startup’s financial plan. Use it as an opportunity to ask “what if” questions and see how it’ll impact your financial projections.
Remember what I said about tying your assumptions to actions? This is when you can brainstorm on what those actions are.
For example, you might ask:
- What if we try sponsored newsletters?
- What if we hire a new customer support rep?
- What if we increase our pricing by 10%?
- What if we double the amount we spend on Google ads?
- What if we create a new add-on product or service?
Since you’re financial planning, try to make your “what if” questions quantifiable, and ideally something with a monetary value attached to it. That way, you can build it into your financial plan and see how it affects your projections.
4. Don’t Assume Your Expenses Will Stay Flat
A common mistake founders make with financial planning is assuming expenses will stay flat over time. If your company is growing, more than likely, so will your expenses.
There’s a big misconception that higher expenses are a bad thing. Yes, rising expenses can be bad—if you’re spending money on unnecessary things. But think about some of the most common expenses that come with growth:
- Employees ( 63% of SMBs that predict they’ll grow revenue plan to hire new employees in 2021)
- Space (if you have a physical office)
- Sales and marketing
- Software (new tools, plan upgrades)
Generally, these expenses will all grow as your company gets bigger.
One of the most common examples is with customer support. The more customers you get, the more questions, bugs, and support tickets you’ll have.
So at some point, you’ll need to bring on new support people to handle the volume. Otherwise you risk losing customers (and revenue) because 58% of consumers will switch companies because of poor customer service.
If you’re using Finmark, you can account for these types of changes when you add expenses into your financial plan. Here’s how.
Let’s take rent for example. If your rent is currently $3,000 per month, but you expect that amount to increase 2% annually from rent increases, you can build that into your financial plan with Finmark.
Including these expense increases in your financial plan make your data more accurate, and therefore reliable. Underestimating your expenses can lead you to think you’ll have more cash available than what you’ll actually have.
5. Be Flexible
Financial plans shouldn’t be static. Create your plan with the understanding that things may change.
We’ve already mentioned the importance of making multiple scenarios to prepare for what “might” happen. But when things do pop up, you should adjust your financial plan accordingly.
For instance, if your original financial plan assumed 30% of your sales would come from product line A, but after three months you realize it’s actually closer to 50%, you need to adjust the plan.
Not only will you need to adjust your revenue, but you may also consider making changes like allocating more budget to market this product line since it’s overperforming.
Taking a “rolling” approach to your financial plan allows you to create a more accurate forecast since it’s based on the most up-to-date information available.
A good place to start is to get into the habit of reviewing your actuals each month and then make any necessary adjustments to the assumptions in your original financial plan.
6. Understand Your Cash Flow
We touched on the importance of burn rate, but let’s talk more about cash flow.
Cash flow is how money flows in and out of your business. If you don’t understand how to manage cash flow, it can literally bankrupt your business.
Cash flow is a common issue for businesses that sell physical goods. They often have to plan for months in advance to manage inventory and sales. Here’s an example.
Say you buy widgets wholesale and sell them on your website at a markup. You order your inventory in advance, but you’re not 100% sure of how much you’ll be able to sell. You place an order for your inventory (cash leaves your business), but it may be a couple of months before it arrives.
In the meantime, you still have expenses like payroll, warehouse space, and others that need to be paid.
If you don’t plan your cash flow correctly, you could end up in a position where you don’t have enough cash to pay expenses because you’re waiting for new inventory to arrive.
Always keep an eye on your cash flow and know:
- When cash is coming into your business
- Where it’s coming from
- What expenses need to be paid and when
Cash flow management is an art and a science. But if you get it right, you’ll put your business in a much better financial space.
7. Plan For Where Revenue Will Come From
I touched on this in tip #1, but let’s dive a little deeper.
Revenue is one of the most important metrics you’re going to include in your financial plan so you want to make sure the numbers are as accurate as possible. That starts by being realistic about where your revenue is going to come from.
In most cases, revenue doesn’t just grow automatically. There’s a catalyst to increase it. It could be salespeople, Facebook ads, content, events, or some other action that’s bringing in leads who will ultimately convert into customers. These are all called revenue drivers , because they literally “drive” your revenue.
You don’t necessarily need to completely map out your revenue strategy during financial planning, but you should be able to account for where any planned revenue growth is going to come from.
Here’s an example of how you can do it.
Let’s say we’re a SaaS company and one of our revenue drivers is Google Ads. We run Google Ads to get leads that will convert into customers. So we need to account for the revenue we’re going to get from our ads in our financial plan.
First, we’ll create Google Ads as an expense, and specify how much we plan to spend on the ads. We’ll plan for $1,000 per month.
Now that we know how much we plan to spend, we need to plan for how much revenue we expect to get from that $1,000. So we’ll head into the revenue section of our financial plan and add our Google Ads as a new stream of revenue.
You’ll have to fill in some data points based on your assumptions like your lead conversion rate and cost per lead . I recommend reading this article for some tips on how to make accurate assumptions for those numbers.
Once we add this in, it’ll show in our revenue projections and financial plan.
You can repeat this process for all of your different revenue drivers, including your other marketing channels and your sales team. It’s fun to play around with the numbers and test your assumptions to see what impact they have on your financial plan.
Again, financial planning makes you go beyond just setting arbitrary goals. It makes you think about how you want to achieve your goals, plan what actions you need to take, and how much it’s going to cost.
8. Consider All Employee Costs
Here’s an often overlooked expense you should account for in your financial plan, particularly for newer founders that plan on hiring for the first time—additional employee costs.
Hiring (and retaining) employees includes more than just salaries. Recruiting, onboarding, new equipment, benefits, and taxes are all additional costs that come along with hiring new employees.
According to Glassdoor , the average U.S. company spends about $4,000 just to recruit a new employee. If you hire just 5-10 new employees over the course of a year, that’s an additional $20-$40K you need to account for in your financial plan. And the larger your company, the more employees you’ll typically hire per year.
Here’s a look at some of those “hidden” expenses of recruiting that Glassdoor highlighted.
In Finmark, we make it easy to account for these expenses. You can manually add expenses like background checks and job board listings directly into your plan whenever you hire new employees.
And for things like benefits and taxes, we have a “Load Multiplier” feature that allows you to add on a specific percentage on top of salaries for taxes and benefits. You can add this across all your employees, or do it on an individual basis.
So if we have an employee with an annual salary of $85K, we can add an additional 20% to account for their taxes and benefits.
Then you can see the total breakdown of salary vs benefits and taxes for all your employees.
The more employees you have, the more important it is to account for these extra expenses.
9. Watch Your Burn Rate
In the early days of a startup, you’re likely burning through a lot of cash. Even if you’re well funded, it’s easy for expenses to quickly spiral out of control.
That’s why it’s crucial to not only monitor your burn rate, but optimize it if it gets too high.
Pay attention to where your cash is going each month, how it impacts your revenue, and spot opportunities for improvement.
A good rule of thumb is to plan for cash before you get it. For instance, if you plan to raise a $1M seed round, you should build a financial model that details how you plan to spend that money and build a financial model for it.
With a financial model, you can forecast what your burn rate looks like over time and estimate when and if you’ll run out of cash. That’ll also be an indicator of when you’ll need to seek additional funding to continue growing.
Bear in mind, that advice is primarily for new startups who are either pre-revenue or unprofitable.
However, if you’re already generating revenue or are profitable, you still need to keep an eye on your burn rate. While negative burn rate is a good sign, it could mean you’re not maximizing your revenue potential.
In those scenarios, it’s good to have a cash reserve for a rainy day, but also think of ways you can use excess cash to fuel your growth.
10. Keep Your Data Clean
Your financial plan is only as good as the data you’re feeding into it.
As basic as it may sound, proper bookkeeping and following best practices for accounting can go a long way towards building a strong financial foundation for your business.
In practice, that means :
- Properly categorizing expenses
- Using the correct accounts
- Completing financial reports on time
It’s a simple tip, but it can make a big difference in your business—positive or negative.
11. Scrutinize Your Budget
This is an extension of the burn rate tip.
Unless you have limitless funds, you should review and analyze your budget on a regular budget.
Are there any expenses that can be reduced or eliminated?
Did you have any unexpected spikes in certain expenses?
Do you consistently have budget variances?
Sometimes businesses wait until problems arise to scrutinize their budgets at this level. But the reality is if you catch the red flags early, you have plenty of time to course correct.
You probably won’t be able to do a detailed review of each expense line item, but having a high-level view of trends in your expenses is very helpful.
Finmark can be extremely helpful for analyzing expenses in your financial plan.
Our software gives you a detailed view of your expenses, organized by department. This makes it really easy to see any big jumps or drops month-over-month.
Review this data monthly to avoid being caught off-guard.
12. Share Your Financial Plans
Ask yourself these two questions:
- Is your financial planning process collaborative?
- Who has access to your financial plan?
If you’re a founder and you’re the only person working on your startup’s financial plan, that’s a problem. And if you’re the only person who ever looks at your financial plan, that’s an even bigger problem.
Financial planning for startups isn’t something that should be done in isolation. If you have co-founders, they should be involved. If you have a team, they should be involved.
I’m not saying that everyone needs to be able to edit your plan, but you should at least ask questions and get insights from stakeholders when you’re putting your plan together—particularly as your startup grows.
Finmark is helpful here too. You can easily share your plan with other people and grant them specific levels of access.
Here’s an example of why collaboration is so important for financial planning.
Let’s say you’re building your financial plan, and want to project how much revenue you’ll drive next quarter. You need to know what actions marketing and sales plan to take and what their projections are.
Everything from what marketing campaigns you’ll be running, the expected number of leads they’ll generate, sales rep performance, and other info that’ll help you project how well you’ll perform.
Unless you’re leading marketing and sales, you’ll need to get that insight from your team. Your sales and marketing leaders will be able to give you some additional context around performance as well.
For instance, marketing might let you know that they’re going to be trying some new advertising channels so new leads might be a little less predictable.
Or your sales leader might’ve brought on a new SDR that was able to ramp up quicker than expected, so they’re going to be able to convert more leads.
This level of detail is only possible when you collaborate and get input from your team while you’re financial planning.
The other part of collaboration is sharing and presenting your financial plan. This is actually something we do at Finmark.
About once a month, the founders will review the current financial state of things with the entire company. We go over runway, revenue, customer growth and other parts of the financial plan.
That level of transparency helps everyone get on the same page and sets expectations.
All too often, founders wait until there’s a problem to get transparent about the financial plan. For instance, when they need to cut expenses or reduce headcount. In most cases, the founders know these changes are coming for months, but the rest of the team doesn’t know until it’s too late.
When you routinely review your financial plan with your team, it lets everyone know where things stand and gives them the opportunity to be proactive and course correct if things are trending downward. And when things are going well, it gives everyone a morale boost and motivation to keep growing.
I’ll be honest, it makes it A LOT easier to share your financial plans when you build it in a tool like Finmark rather than a spreadsheet. I’ve seen both, and from an employee’s perspective, looking at the data in charts and graphs is much more engaging and enjoyable than a bunch of cells.
When you’re using spreadsheets for your financial plan, you’ll generally have to take that data and create some sort of slide deck to present because spreadsheets aren’t the best tools for presenting data.
The process of building a deck is time-consuming and you can’t show the level of detail in the same way as you can in a tool like Finmark.
During our financial presentations, we dive into things like average revenue per account, which customer plan levels we projected to get for the month vs. what we actually got, and other details that require filtering data and switching between scenarios.
All of that is nearly impossible to do (smoothly) in a spreadsheet, but it just takes a few clicks in Finmark.
Long story short, collaborate! You’ll have a more accurate financial plan and your team will feel much more involved in the company.
13. Consider Working With an Outsourced CFO
Founders are often busy running the company. Sometimes you’re the COO, marketer, a salesperson, and wear 10 other hats. With all that on your plate, doing in-depth financial analysis probably isn’t at the top of your to-do list.
While early-stage startups hire accounting firms to handle the day-to-day finances (payroll, bookkeeping, etc.), there’s often not anyone overseeing strategic finance.
There’s no CFO or FP&A person tasked with looking at the long term financial strategy of the company and spotting opportunities for growth. That generally doesn’t happen until the company has matured significantly.
But even in the early stages, there are a lot of insights you can learn from analyzing your financial data. Yet so many young startups miss out on it because it never crosses their mind.
However, that has been changing. Outsourced CFO firms are becoming more prevalent, and even accounting firms are starting to offer client advisory services to provide strategic insights for startups.
If you’re in a position where a full-time finance person doesn’t make sense, but you still want to optimize your finances, consider working with an outsourced CFO. Tweet us if you want some recommendations!
14. Regularly Review Your Financial Plan
Your financial plan isn’t something you should create and leave sitting untouched until a major event like fundraising.
Here’s one way to think about your financial plan. I’m going to throw a football analogy at you, but stick with me!
In football, teams create game plans for each opponent they face. The game plan outlines all the different plays they can use, guidance for what to do in various situations (i.e. when to kick a field goal), strengths and weaknesses of their opponents, and other strategies to increase their chances of winning.
The coach reviews their game plan throughout the entire game so they can make adjustments based on how things are going. For example, if the team has a big lead by the third quarter, they might decide to run the ball more even though the original plan was to throw.
You should take the same approach with your financial plan. As we mentioned earlier, growing a startup doesn’t always go as planned. Your financial plan is your playbook that you should refer back to and adjust based on the situation.
Whenever something happens in your business and you think “we didn’t plan for this”, take a look at your financial plan and see what adjustments you need to make in order to deal with the current situation.
The perfect example of this was the pandemic. Nobody had a global economic freeze in their playbook. As a result, a lot of startups saw revenue plummet, certain expenses like rent became obsolete, growth stalled or declined, and nothing went as planned.
If you just left your financial plan alone and tried to make changes on the fly, you’d basically be playing a guessing game. Instead, you should adjust your “game plan” by reviewing and updating your financial plan.
That could mean lowering your projected revenue, cutting and reducing certain expenses, adjusting your hiring plan, or any other changes you need to account for the drastic shift in your business.
You can do this quickly in Finmark by just duplicating your original plan, and making changes to the updated version. That way you still have the original plan and can compare it to the new one when you need to.
Outside of those extreme cases, it’s good to get into the habit of reviewing and analyzing your financial plan at least monthly.
So many things can change from week to week that require some extra financial planning. For instance, what if your marketing strategy isn’t panning out quite like you planned, so your projected leads and revenue are off. You can adjust your financial plan accordingly.
The bottom line is that plans can (and should) be changed. Financial planning is an active and ongoing process.
Ready to Start Financial Planning For Your Startup?
We covered a lot in this guide. But our goal isn’t just to give you information—we want to make sure you take action.
Start by signing up for a free trial of Finmark .
Whether you’re starting from scratch or transitioning from a spreadsheet, using a dedicated tool will save you hours of time and make financial planning for your startup easier than ever.
This content is presented “as is,” and is not intended to provide tax, legal or financial advice. Please consult your advisor with any questions.
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Historically financial modeling has been hard, complicated, and inaccurate. But financials are the lifeblood of any company. They’re too important to be ignored or outsourced. They should be a core part of every founder’s job. This doesn’t have to be scary. And you don’t have to do it alone. The Finmark Blog is here to educate founders on key financial metrics, startup best practices, and everything else to give you the confidence to drive your business forward.
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How to make a financial plan for a start-up
Do you want to ensure a sustainable financial future for your new start-up business? If so, it’s important to get to grips with the basics of financial planning and analysis. Find out everything you need to know, including how to make a financial plan for a start-up, right here.
What is financial planning?
It’s important to remember that financial planning isn’t just about modelling the way that your business’s bottom line is likely to change over time, but creating solutions to improve financial performance. Whereas your company’s accounting team will analyse the historical performance of your business, financial planning takes an active role in shaping the future.
Why is financial planning important?
Before getting into the nitty-gritty of start-up financial plans, it’s important to consider why they’re necessary in the first place. Although virtually all companies will do some form of financial modelling, it’s especially important for start-ups, not least because it plays a key role in the financing process . Many financiers and investors will require a financial plan before they’ll consider funding your start-up, so on a purely practical level, a financial plan for a start-up business is important.
You should also consider the fact that it’s a necessary part of building a viable business model. Without a financial plan, you won’t be able to quantify your assumptions about the business. Plus, by building out different scenarios for the business (especially negative scenarios where things don’t go the way you expect), you’ll be much better able to deal with potential issues as they arise. Finally, financial plans can provide your company with benchmarks and targets to achieve, which is an effective way to measure the success of your company, particularly in the early years when you may not be making a profit.
How do I produce a start-up financial plan?
One of the key elements of financial planning is learning how to write a financial plan for a start-up business. When you create the plan, you’ll need to think about a broad range of issues, including your business’s gross/operating margins, profit potential, fixed/variable costs, break-even point, potential changes to cash flow, and profit durability. Some of the activities that you’ll need to undertake when producing a financial plan for a start-up business include:
Sales projections
Expense projections
Balance sheet projections
Income statement projections
Of course, making a financial model requires a significant amount of effort. For a little more insight into generating financial projections for start-up businesses, take a look at our guide to financial projections .
How does financial planning work?
Generally speaking, businesses use financial planning software for start-ups to create a financial plan. For example, accounting software like Xero or QuickBooks can help you produce start-up financial plans, while there are many different financial plans for start-up business templates available online. Simply browse around until you find a template that’s well suited to your business’s needs.
Tips for producing a good financial plan for a start-up business
Now that you a little more about how to make a financial plan for a start-up, let’s take a look at some of the tips and tricks you can utilise to optimise financial planning:
Understand that financial planning is continuous – You can’t simply switch your financial planning activities on and off. Ensure that the financial planning and analysis process is ongoing to give your business the best chance of success.
Never underestimate the importance of cash – When it comes to start-ups, and businesses in general, cash is king. To keep your business in the black, make sure that your cash flow remains healthy with well-founded cash flow projections.
Creativity is key – Although it’s a numbers game, creating a viable financial plan for a start-up business is a creative endeavour. Think creatively about your business and consider alternative sources of financing, as well as different ways to launch the business.
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6 Small Business Financial Statements for Startup Financing
Financial Statements You'll Need for Your Startup Business Plan
You're ready to start your small business and your're working on a great business plan to take to a bank or other lender. A key part of that plan is the financial statements. These statements will be looked at carefully by the lender, so here are some tips for making these documents SELL your business plan .
Financial Statements You Will Need
You may need several different types of statements, depending on the requirements of your lender and your own technical expertise.
The statements you will certainly need are:
- A startup budget or cash flow statement
- A startup costs worksheet
- A pro forma (projected) profit and loss statement
- A pro forma (projected) balance sheet
Your lender may also want these financial statements:
- Sources and uses of funds statement
- Break-even analysis
Putting these Statements in Order
First, work on your startup budget and your startup costs worksheet. You'll need to do a lot of estimating.
The trick is to underestimate income and overestimate expenses, so you can create a more realistic picture of your business over the first year or two.
Then work on a profit and loss statement for the first year. A lender will definitely want to see this one. And, even though it's not going to be accurate, lenders like to see a startup balance sheet.
Some lenders may ask for a break-even analysis, a cash flow statement, or a sources and uses of funds statement. We'll go over these statements so you can quickly provide them if asked.
Business Startup Budget
A startup budget is like a projected cash flow statement, but with a little more guesswork.
Your lender wants to know your budget - that is, what you expect to bring in and how much to expect to spend each month. Lenders want to know that you can follow a budget and that you will not over-spend.
They also want to see how much you will need to pay your bills while your business is starting out (working capital), and how long it will take you to have a positive cash flow (bring in more money than you are spending).
Include some key information on your budget:
- What products or services you are selling, including prices and estimated volumes
- Key drivers for expenses, like how many employees you'll need and your marketing initiatives
A typical budget worksheet should be carried through three years, so your lender can see how you expect to generate the cash to make your monthly loan payments.
Startup Costs Worksheet
A startup costs worksheet answers the question "What do you need the money for?" In other words, it shows all the purchases you will need to make in order to open your doors for business. This could be called a "Day One" statement because it's everything you will need on your first day of business.
- Facilities costs, like deposits on insurance and utilities
- Office equipment, computers, phones
- Supplies and advertising materials like signs and business cards
- Fees to set up your business website and email
- Legal fees licenses and permits
Profit and Loss Statement/Income Statement
After you have completed the monthly budget and you have gathered some other information, you should be able to complete a Profit and Loss or Income Statement. This statement shows your business activity over a specific period of time, like a month, quarter, or year.
To create this statement, you'll need to list all your sources to get your gross income over that time. Then, list all expenses for the same time.
Because you haven't started yet, this statement is a called a projected P&L, because it projects out your estimates into the future.
This statement gathers up all your sources of income, including shows your profit or loss for the year and how much tax you estimate having to pay.
Break-Even Analysis
A break-even analysis shows your lender that you know the point at which you will start making a profit or the price that will cover your fixed costs . The break-even analysis is primarily for businesses making or selling products, or to set the right price for a product or service.
It's usually shown as a graph with sales volume on the X axis and revenue on the Y axis. Then fixed an variable costs (those you must pay) are included. The break-even point marks the place where costs are covered.
This analysis can also be useful for service-type businesses to show an overall profit point for specific services. If you include a break-even analysis, be sure you can explain it.
Beginning Balance Sheet
A startup balance sheet is difficult to prepare, even if there isn't much to include. The balance sheet shows the value of the assets you have purchased for startup, how much you owe to lenders and other creditors, and any initial investments you have made to get started. The date for this spreadsheet is the day you open the business.
Sources and Uses of Funds Statement
Large businesses use Sources and Uses of Funds statements in their annual reports, but you can create a slightly different simple statement to show your lender what you need the money for, what sources you have already, and what's left over to be financed.
To create this statement, list all your startup and working capital(on-going cash needs), how much collateral you will be bringing to the business, other sources of funding, and how much you need to borrow.
Optional: A Business Requirements Document
A business requirements document is similar to a proposal document, but for a larger, more complex project or startup. It gives a complete picture of the project or the business plan. It goes into more detail on the project that will be using the financial statements.
Include Financial Statements in Your Business Plan
You will need a complete startup business plan to take to a bank or other business lender. The financial statements are a key part of this plan. Give the main points in the executive summary and include all the statements in the financial section.
Finally, Check for Mistakes!
Before you submit your startup business plan and financial statements, check this list. Don't make these common business plan mistakes !
Check all numbers for accuracy and consistency. Especially make sure the amounts you are requesting are specific and that they are the same throughout all the parts of your business plan.
SCORE.org. " How to Set Up and Maintain a Budget for Your Small Business ." Accessed Sept. 10, 2020.
SCORE.org. " Financial Projections Template ." Accessed Sept. 10, 2020.
Harvard Business Review. " A Quick Guide to Breakeven Analysis ." Accessed Sept. 10, 2020.
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How to Write a Financial Section for Your Startup Business Plan 2022?
Free Financial Statements Template
- sonal mishra
If you are a first-time entrepreneur, such questions might give you a tough time, and why not, finance is inarguably the most important financial section of a business plan .
No matter what your vision is, how impeccable your marketing strategies are, and what you aim to conquer with your product, in the end, everything boils down to how much your idea can make (earn) at the end of the day.
Hence, it is critical to justify your business with good figures. Fill in accurate numbers in the business plan and elaborate them in a way that genuinely makes your business sound like a profitable venture to investors.
In fact, you’ll find many investors taking a quick peek at the numbers even before the executive summary .
Income statement
Cash flow statement, balance sheet, how to make financial assumptions.
Basically, the financial section will demonstrate whether or not your business idea is viable, and whether or not your plan will have the capability to attract any investment in your business idea. Here is a startup financial plan example of Airbnb’s Financial Traction.
In this article, we’ll outline the fundamentals of a startup financial plan that will provide a clear picture of your company’s current value, as well as the ability of your idea to earn a profit in the future. This information is very important to business plan readers.
How to Write the Financial Section of a Business Plan?
The financial section in a business plan is divided into three segments – income statement , cash flow projection, and the balance sheet , along with a brief analysis of these three statements. These three important statements are the bird’s view of the financial stats of your organization.
Apart from this, investors may also ask about break-even analysis to understand when your startup taking off the profits.
1. Income Statement
An example of an income statement report for your startup business plan is as below:
Also known as the profit and loss (P&L) statement , it elaborates the profit or loss the business is expected to generate over a given period of time.
In a nutshell, the Income Statement shows your expenses , revenues , and profits for a particular period. Basically, it is a snapshot of your business that shows the feasibility of the business idea.
The Income statement can be generated keeping into consideration three scenarios: worst , expected , and best .
Established businesses should produce Income Statements annually. However, startups and small businesses should provide monthly reports while writing a business plan.
2. Cash Flow Statement
An example of a cash flow statement is as shown below:
This section provides details on the cash position of the business and its ability to meet monetary commitments on a timely basis.
A startup business should show monthly projections for the first year of business. It also shows quarterly information for the next two years.
When writing a business plan, you need to show Cash Flow Projections for each month over a period of one year as part of the Financial Plan of your startup. The Cash Flow Projections consists of three parts:
- Cash Revenue Projection – Here you have to enter the estimated or expected sales figures for each month.
- Cash Disbursements – This will take into account various expenses across categories. List out expenditures that you expect to pay in cash for each month over a period of one year.
- Reconciliation of Cash Revenues to Cash Disbursements – Reconciliation here signifies adding the current month’s revenues and subtracting the current month’s disbursements. The result is then adjusted to the cash flow balance that is carried over to the next month.
3. Balance Sheet
An example of a balance sheet statement is as follow :
A balance sheet is a snapshot of what you’re worth. A balance sheet adds up everything your business owns, subtracts all debts, and the difference that you get shows the net worth of the business, also referred to as equity. This statement consists of three parts: assets , liabilities , and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.
The term “balance” we are using for this sheet because it is representing the balance between Assets and Total Liabilities & Equity.
The purpose of the balance sheet:
- It indicates the capital need of the business
- It helps to identify the allocation of resources
- It calculates the requirement of seed money you put up, and
- How much finance is required?
The investor wants to see your balance sheet to understand the condition of your business on a given date, which is usually the end of the fiscal year .
While writing a business plan for a new venture, you will have to work on creating projections for Balance sheets. These will serve as benchmarks to compare against actual results at the end of the fiscal year. Hence, it is important to look ahead to see how your balance sheet will appear given your marketing, sales, and inventory forecast. These three components of the business can have a major impact on your projections.
How Would You Make Assumptions While Projecting Your Financials?
Remember, while writing a business plan, you’re not providing actual data, but an educated guess. The financial forecast means the predictions about the financial stats of the future .
As advised in the reference article, always use What-if scenarios while projecting your financials. This will increase transparency and help the investor to understand the best , expected, and worst sides of the startup. Because the future is unpredictable, it’s advised that you create several versions of your forecast.
It is a forecast and thus, it is highly recommended to go with simple math. No one expects you to understand everything. It is a prediction about the future and hence, financial predictions are not 100% accurate in predicting the future performance of your business.
Do not clutter the financial section by including every small detail. It distracts readers from focusing on core digits, There is lots of space available in the appendix of your business plan . attach other detailed statements there in the appendix.
If you are using your business plan to get a loan, then it is highly recommended to include your business’s financial history as part of the financial section.
To auto-assemble all of the above-given calculations in the financial section of a business plan , you’d need business planning software to make sure that you get this right on the first attempt itself.
Online Financial Planning Software is designed to help you create projections in the financial section. You can use it to highlight the viability of your business idea. Understanding the financials, and if possible, mastering them can help you attract investment.
Learn more about how to calculate financial projections for your business plan
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Do you want to increase the odds that your business startup will be a success? Then download this step-by-step business plan template and use it to lay the groundwork for your new business.
Writing a business plan gives you an opportunity to carefully think through every step of starting your company so you can better prepare and handle any challenges.
While a thorough business plan is essential in the financing process, it's helpful even if you don’t need outside financing.
Creating a business plan can:
- Help you discover any weaknesses in your business idea so you can address them before you open for business
- Identify business opportunities you may not have considered and plan how to take advantage of them
- Analyze the market and competition to strengthen your idea
- Give you a chance to plan strategies for dealing with potential challenges so they don’t derail your startup
- Convince potential partners, customers, and key employees that you’re serious about your idea and persuade them to work with you
- Force you to calculate when your business will make a profit and how much money you need to reach that point, so you can be prepared with adequate startup capital
- Determine your target market and how to reach them
Laying out a detailed, step-by-step plan gives you a blueprint you can refer to during the startup process and helps you maintain your momentum.
What this business plan template includes
Writing a business plan for a startup can sometimes seem overwhelming. To make the process easier and more manageable, this template will guide you step-by-step through writing it. The template includes easy-to-follow instructions for completing each section of the business plan, questions to help you think through each aspect, and corresponding fillable worksheet/s for key sections.
After you complete the 11 worksheets, you will have a working business plan for your startup to show your SCORE mentor .
The business plan sections covered in this template include:
- Executive Summary
- Company Description
- Products and Services
- Marketing Plan
- Operational Plan
- Management and Organization
- Startup Expenses and Capitalization
- Financial Plan
The Appendices include documents that supplement information in the body of the plan. These might be contracts, leases, purchase orders, intellectual property, key managers’ resumes, market research data, or anything that supports assumptions or statements made in the plan.
The last section of the template, “Refining Your Plan,” explains ways you may need to modify your plan for specific purposes, such as getting a bank loan, or for specific industries, such as retail or manufacturing.
Complete the Business Plan Template for a Startup Business to create a working business plan for your startup.
Then, contact your local SCORE mentor to review and refine your plan either online or in person.
For more than 100 years, Deluxe Corporation has sought to create the tools that help shape our economy. Since 1915, Deluxe has recognized the vital role that small business plays in our communities, from job creation to business development. For these reasons, the Deluxe Corporation Foundation provides financial support to nonprofits that help entrepreneurs and small business owners succeed. Our grants to SCORE have totaled more than $1.5M in recent years, with the majority of these funds supporting the creation and updates of online training and certification for SCORE mentors.
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Start » startup, business plan financials: 3 statements to include.
The finance section of your business plan is essential to securing investors and determining whether your idea is even viable. Here's what to include.
If your business plan is the blueprint of how to run your company, the financials section is the key to making it happen. The finance section of your business plan is essential to determining whether your idea is even viable in the long term. It’s also necessary to convince investors of this viability and subsequently secure the type and amount of funding you need. Here’s what to include in your business plan financials.
[Read: How to Write a One-Page Business Plan ]
What are business plan financials?
Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you’ll need to plan for your business’s future, and to make your case to potential investors. You will need to include supporting financial documents and any funding requests in this part of your business plan.
Business plan financials are vital because they allow you to budget for existing or future expenses, as well as forecast your business’s future finances. A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.
Sections to include in your business plan financials
Here are the three statements to include in the finance section of your business plan:
Profit and loss statement
A profit and loss statement , also known as an income statement, identifies your business’s revenue (profit) and expenses (loss). This document describes your company’s overall financial health in a given time period. While profit and loss statements are typically prepared quarterly, you will need to do so at least annually before filing your business tax return with the IRS.
Common items to include on a profit and loss statement :
- Revenue: total sales and refunds, including any money gained from selling property or equipment.
- Expenditures: total expenses.
- Cost of goods sold (COGS): the cost of making products, including materials and time.
- Gross margin: revenue minus COGS.
- Operational expenditures (OPEX): the cost of running your business, including paying employees, rent, equipment and travel expenses.
- Depreciation: any loss of value over time, such as with equipment.
- Earnings before tax (EBT): revenue minus COGS, OPEX, interest, loan payments and depreciation.
- Profit: revenue minus all of your expenses.
Businesses that have not yet started should provide projected income statements in their financials section. Currently operational businesses should include past and present income statements, in addition to any future projections.
[Read: Top Small Business Planning Strategies ]
A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.
Balance sheet
A balance sheet provides a snapshot of your company’s finances, allowing you to keep track of earnings and expenses. It includes what your business owns (assets) versus what it owes (liabilities), as well as how much your business is currently worth (equity).
On the assets side of your balance sheet, you will have three subsections: current assets, fixed assets and other assets. Current assets include cash or its equivalent value, while fixed assets refer to long-term investments like equipment or buildings. Any assets that do not fall within these categories, such as patents and copyrights, can be classified as other assets.
On the liabilities side of your balance sheet, include a total of what your business owes. These can be broken down into two parts: current liabilities (amounts to be paid within a year) and long-term liabilities (amounts due for longer than a year, including mortgages and employee benefits).
Once you’ve calculated your assets and liabilities, you can determine your business’s net worth, also known as equity. This can be calculated by subtracting what you owe from what you own, or assets minus liabilities.
Cash flow statement
A cash flow statement shows the exact amount of money coming into your business (inflow) and going out of it (outflow). Each cost incurred or amount earned should be documented on its own line, and categorized into one of the following three categories: operating activities, investment activities and financing activities. These three categories can all have inflow and outflow activities.
Operating activities involve any ongoing expenses necessary for day-to-day operations; these are likely to make up the majority of your cash flow statement. Investment activities, on the other hand, cover any long-term payments that are needed to start and run your business. Finally, financing activities include the money you’ve used to fund your business venture, including transactions with creditors or funders.
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How to Estimate Realistic Business Startup Costs — 2022 Guide
What will it cost to start your business? It’s hard to know for sure, but it’s important that you start planning early on to avoid any unforeseen expenses.
Launching a successful business requires preparation. And while you may not know exactly what those expenses will be, you can and should begin researching and estimating what it will cost to start your business.
What are startup costs?
Startup costs are expenses incurred before the business is running. These are the bills and expenses you will need to cover leading up to the launch of your business. While every business will need to account for specific startup costs, your business will generally fall under either a brick-and-mortar, online, or service-based organization.
Why calculate startup costs?
Like your business plan, estimating your startup costs is part of building a roadmap for your business . Having even a rough estimate can help you avoid unnecessary risks and stay on track during more volatile months.
Still not convinced that you should explore your startup costs? Here are a few more reasons why you should calculate your startup expenses.
Every business is different
Every single industry and business requires vastly different expenses, which means there’s no simple formula for calculating startup costs. But that doesn’t mean you can’t make an educated guess that accurately reflects the needs of your business.
A SaaS business, for example, may need to account for additional online tools or server expenses to keep its site up and running. But an apparel store, brick-and-mortar, or online, will need to account for physical inventory and shipping expenses.
Establish a firm foundation
Many people underestimate startup costs and start their business in a haphazard, unplanned way. This may work in the short term but is typically much more difficult to maintain. Managing startup costs is almost impossible until you calculate them accurately and customers are often wary of brand new businesses with makeshift logistics.
Build your financial plan
Your financial plan is an overview of your current business financials and estimates for growth. Having realistic startup costs, even if they’re just estimates, is one of the key elements of building a viable financial plan . Understanding what it will take to start your business can help you:
- Estimate profits
- Conduct a breakeven analysis
- Extend the runway of your business
- Identify potential tax deductions
To successfully leverage your financial plan, you’ll need to revisit it consistently throughout the life of your business. Having these early startup estimates will provide you with a baseline that you can reference during these reviews. After a few months of operating, you’ll know if your estimates are realistic or if you need to make any adjustments.
Secure loans and attract investors
Investors and lenders want to understand the roadmap you have in place for your business. You’ll need to be ready to answer questions about your business model, sources of revenue, growth forecasts, and initial startup costs. They need to see that your business is viable and that you’ve thoroughly explored what it will take to start, operate and grow.
Having realistic startup costs laid out is a necessity in this case. And being able to show how you believe expenses will change or remain similar over time will give them a better idea of how you intend to manage your business.
How to identify your startup expenses
Like when developing your business plan , or forecasting your initial sales, it’s a mixture of market research , testing , and informed guessing. It’s up to you to adjust accordingly based on actual results over time.
If you need a starting point, look at your competitors and industry benchmarks for specific expense categories. You don’t want to directly copy the expenses you find, but confirm if your estimates make sense based on current market factors. You may find that you have a competitive cost advantage based on a healthy vendor relationship or a common expense you’re able to avoid based on your business model.
Now that may still leave you wondering, how do I actually estimate realistic startup costs for my business? Start by making these three simple lists.
1. Startup expenses
These are expenses or upfront costs that happen before you launch and start bringing in any revenue. These should be split into one-time and ongoing expenses. By separating them in this way you can give yourself a more accurate estimate of what it will take to launch your business. Here are some common expenses to consider in both categories:
One-time expenses
- Permits and licenses
- Incorporation fees
- Logo design
- Website design
- Brochure and business card printing
- Down payment on rental property
- Improvements to the chosen location
Ongoing expenses
- Legal services
- Loan payments
- Insurance payments
- Marketing costs
These makeup just a handful of the potential costs you’ll need to consider. Some will remain fixed, others will operate as variable costs and some may shift between the two over time. By having them outlined this way from the start, you’ll be able to keep better track of your expenses and identify any natural cost-cutting options over time.
2. Startup assets
These are costs associated with long-term assets purchased in order to start your business. While cash in the bank is the most basic startup asset (and we’ll talk more about that later) there are some other common assets you may need to invest in:
- Starting inventory
- Computers or other tech equipment
- Office equipment
- Office furniture
Why separate assets and expenses?
Now there’s a reason that you should separate costs into assets and expenses. Expenses are deductible against income, so they reduce taxable income. Assets, on the other hand, are not deductible against income.
By initially separating the two, you potentially save yourself money on taxes. Additionally, by accurately accounting for expenses, you can avoid overstating your assets on the balance sheet. While typically having more assets is a better look, having assets that are useless or unfounded only bloats your books and potentially makes them inaccurate.
Listing these out separately is good practice when starting a business and leads into the final piece to consider when determining startup costs.
3. Cash required to get started
Cash requirements are an estimate of how much money your startup company needs to have in its checking account when it starts. In general, your cash balance on the starting date is the money you raised as investments or loans minus the cash you spend on expenses and assets.
This is the last piece of the puzzle you’ll need to get started. As you build your plan, watch your cash flow projections . If your cash balance drops below zero then you need to increase your financing or reduce expenses.
How much cash do you need?
Many entrepreneurs decide they want to raise more cash than they need so they’ll have money left over for contingencies. While that makes good sense when you can do it, it is difficult to explain that to investors. Outside investors don’t want to give you more money than you need, because it’s their money.
You may see experts who recommend having anywhere from six months to a year’s worth of expenses covered, with your starting cash. That’s nice in concept and would be great for peace of mind, but it’s rarely practical. And it interferes with your estimates and dilutes their value.
For a better estimate of what you really need in your starting cash balance, you calculate the deficit spending you’ll likely incur during the early months of the business. From there, estimate how much cash you’ll need moving forward until you hit a steady break-even point several months and even years after opening.
How to estimate how much your expenses will cost
Now that you have your potential assets, expenses, and starting cash it’s time to put them all together to estimate your full startup costs. There are two potential methods you can use to develop these estimates.
The more traditional, which I call the worksheet method, involves creating separate worksheets for starting costs and starting financing.
The more innovative, which we use in our LivePlan software, simplifies this with rolling estimates for expenses, assets purchase, and financing to manage cash flow as a continuous process. Each option is valid so let’s dive into how to perform each method.
The traditional method — Startup worksheet
The traditional method uses a startup worksheet, as shown in the illustration here below, to plan your initial financing. The example here is for a retail bicycle shop. It includes lists of startup expenses in the upper left, startup assets in the lower left, and startup funding on the right.
The total startup costs in this example are $124,650, the sum of expenses ($3,150), and assets ($121,500) required before lunch. The funding plan, on the right, shows that the owner plans to invest $25,000 of her own money and $99,650 in loans. The loans include a $70,000 long-term loan and other loans including a commercial credit of $17,650, a $2,000 note, and other current debt (probably credit card debt) of $10,000.
Notice the balance here. One side shows the startup costs and the other shows where the money will come from.
Notice also that the assets include $35,000 in cash and bank account. That estimate, in this example, comes from the example shown above, which calculates the need for $25,708 in initial cash. The entrepreneur estimates $35,000 instead, to have a buffer.
Remember, the worksheet is covering what happens before launch. It doesn’t include ongoing sales, costs, expenses, assets, and financing after launch.
This worksheet example shows an estimated $3,150 in expenses incurred before startup. That is your initial loss when starting, meaning that these expenses can be deducted against income later, for tax purposes. This loss may look bad on the surface, but it’s quite normal for fledgling businesses. In fact, it’s financially beneficial, as having expenses to deduct from future taxes reduces your tax bills.
The LivePlan method — Consolidated estimates
LivePlan suggests a different and probably more intuitive way to estimate startup costs. The key difference between LivePlan and traditional methods is the estimates start when a business starts spending rather than when it launches and starts getting revenues. There is no division between the launch date and pre-launch spending. So there is no specific startup table.
For example, in the Soup There It Is sample business plan, the revenue starts in April—but the spending starts in January. As you can see in the illustration here below, this startup estimates $11,500 in startup expenses, including $4,000 each in January and March plus $3,500 in March.
And, in the balance sheet, you can see that the startup projects needing $30,000 in initial cash investment, of which $21,375 is left at the end of the startup period. Founders have spent $11,500 on startup expenses. Of that, they owe $2,875 in accounts payable. So remaining cash is the result of starting with $30,000 and spending $8,625 so far.
And the remaining $2,875 in accounts payable takes the sum of expenses up to $11,500. Notice also that these deductible expenses create a loss at the startup of $11,500. (For a look at how these same numbers would show up in the traditional method, read on to the following section.)
And how do you estimate, with the LivePlan method? Start with revenues, costs, and expenses (including payroll). Add in assets. And then solve the resulting cash flow problem by adding financing including loans and investments.
For example, here is how the Soup There It Is balance sheet looked before the founders added investment, loans, and inventory:
Do you see the problem there? A business plan isn’t done until the projected cash balance is above zero at all times. Otherwise, checks are bouncing, the bank is up in arms, and the business in trouble.
So the founders, as they develop their plan, first project money coming in and out, and from that, they can estimate how much financing, including investment, they need to make that work.
Reconciling the two methods
What’s the difference between the two methods? Let’s look at how the traditional startup worksheet would look using the information from the Soup There It Is plan.
The plan would start in April, not January. And what the LivePlan method shows as happening in January through March is consolidated into the startup worksheet. You can see these numbers in the projected balance sheet for the LivePlan method, above.
If you prefer the traditional startup worksheet method but are working with LivePlan, then you would set your starting date as April, not January; and you would set owner investment (in financing) as $30,000.
You would use the starting balances option in LivePlan to set starting balances as $21,275 of cash, -$11,500 in retained earnings (the loss at startup), and $2,875 in starting accounts payable.
Things to consider when estimating startup costs
Pre-launch versus normal operations.
With our definition of starting costs, the launch date is the defining point. Rent and payroll expenses before launch are considered startup expenses. The same expenses after launch are considered operating or ongoing expenses. And many companies also incur some payroll expenses before launch — because they need to hire people to train before launch, develop their website, stock shelves, and so forth.
The same defining point affects assets as well. For example, amounts in inventory purchased before launch and available at launch are included in starting assets. Inventory purchased after launch will affect cash flow , and the balance sheet; but isn’t considered part of the starting costs.
So, be sure to accurately define the cutoff for startup costs and ongoing expenses. Again, by outlining everything within specific categories, this transition should be simple and easy to keep track of.
Your launch month will likely be the start of your business’s fiscal year
The establishment of a standard fiscal year plays a role in your analysis. U.S. tax code allows most businesses to manage taxes based on a fiscal year, which can be any series of 12 months, not necessarily January through December.
It can be convenient to establish the fiscal year as starting the same month that the business launches. In this case, the startup costs and startup funding match the fiscal year—and they happen in the time before the launch and beginning of the first operational fiscal year. The pre-launch transactions are reported as a separate tax year, even if they occur in just a few months, or even one month. So the last month of the pre-launch period is also the last month of the fiscal year.
Consider startup financing as part of your startup costs
Of course, startup financing isn’t technically part of the starting costs estimate. But in the real world, to get started, you need to estimate the starting costs and determine what startup financing will be necessary to cover them. The type of financing you pursue may alter your startup or ongoing costs in a given period, so it’s important to consider this upfront.
Here are common financing options to consider:
- Investment: What you or someone else puts into the company. It ends up as paid-in capital in the balance sheet . This is the classic concept of business investment, taking ownership in a company, risking money in the hope of gaining money later.
- Accounts payable: Debts that are outstanding or need to be paid after a certain time according to your balance sheet. Generally, this means credit-card debt. This number becomes the starting balance of your balance sheet.
- Current borrowing: Standard debt, borrowing from banks, Small Business Administration , or other current borrowing.
- Other current liabilities: Additional liabilities that don’t have interest charges. This is where you put loans from founders, family members, or friends. We aren’t recommending interest-free loans for financing, by the way, but when they happen, this is where they go.
- Long-term liabilities: Long-term debt or long-term loans.
Aim for long-term success with realistic startup costs
Whether you use the LivePlan method or the traditional method for estimating your startup costs, make sure you’ve considered every aspect of your business and included related costs. You’ll have a better chance at securing loans, attracting investors, estimating profits, and understanding the cash runway of your business.
The more accurately you layout startup costs and make adjustments as you incur them, the more accurate vision you’ll have for the immediate future of your business.
Editor’s note: This article was originally published in 2018 and updated for 2021.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry .
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Firmbase raises $12M to modernize financial planning for startups
Firmbase , a startup that offers a modern financial planning and analysis platform for startups, has raised a $12 million seed round led by S Capital, with Meron Capital and numerous angel investors also participating in the round.
Financial planning probably isn’t top of mind when you think of startups, but with the tech industry’s new-found focus on financial restraint, being able to create budgets, run financial forecasts and analyze business data is now more important than ever.
“We identified a significant need for a modern platform that enables you to do continuous planning rather than one-offs,” Firmbase co-founder and CEO Tomer Federman told me. “[With Firmbase], the process is connected to your data sources, rather than static spreadsheets.”
Before co-founding Firmbase, Federman worked at Facebook (when it was still called Facebook) on brand and video advertising, as well as its audience network. He also previously co-founded Everblend, an early coffee subscription startup, and studied finance in college. Like so many Israeli founders, Federman met his co-founder and CTO Vlad Shumlin during their time in the Israel Defense Forces, where Shumlin focused on cybersecurity.
Federman noted that during his time at Facebook, he realized that building a budget and financial forecasts needs to involve stakeholders beyond the financial planning and analysis (FP&A) teams. “VPs of R&D, for example, are really important stakeholders, because who knows how many engineers they’re going to hire. The director of marketing, the head of sales — you need to have them engaged in the process so that you’ll actually be able to build more accurate forecasts and budgets,” Federman explained.
Today, a lot of the data to build these models sits in silos and pulling it all together is a lot of routine work that takes up a lot of time. Once that’s done, the data goes into a spreadsheet and simply keeping that updated as headcounts change, for example, takes up a lot of time. The promise of a product like Firmbase is that it can aggregate all of this data and automatically update existing models.
“A lot of the magic that happens on our platform, if you will, is through the very flexible and dynamic modeling engine that we’ve built, which then helps you do things like scenario planning and comparing different outcomes and things like that,” said Federman.
Firmbase integrates with a lot of the standard financial and HR tools, including ADP, NetSuite, Rippling, Salesforce and Workday — as well as, of course, Excel.
The team decided to focus on tech companies first, though it plans to expand beyond them in the future. For the most part, that’s because the company wants to focus and a big pharma customer would have very different needs from a tech company, but Federman also noted that for tech companies, which tend to move quickly, the utility of a service like Firmbase isn’t so much the plan but the planning. “Plans become obsolete for tech companies within 30 days, right? Things always change and so I think they really appreciate the data-driven approach and the flexibility that our platform provides, because with the click of a few buttons, you can change things and see how they impact your plans. We’ve seen really good product market fit there,” he said.
Unsurprisingly, Firmbase has also started building some machine learning features into its product. Given that this technology excels at quickly summarizing historical data and providing forecasts based on it, that’s not a major surprise. The company is currently beta testing these features with a small set of customers.
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How to Write a Startup Business Plan
A startup business plan is an outline of your ideas and strategies for what you’ll need to do to start, manage, and even complete your startup’s mission. Creating one might sound simple enough, but because it’s a startup’s roadmap for success, it can be a complex document to create.
Writing a business plan can make a world of difference for entrepreneurs who desire external funding. It involves determining your target customers, understanding what makes them tick, and figuring out how to reach them through marketing campaigns.
In this blog post, we’ve explained why you should have a startup business plan, different types of startup business plans, and we’ve included 12 of the most effective tips for writing a startup business plan. If you’re ready to start with now, we have a product launch template to get you started quickly.
What is a startup business plan?
A startup business plan is a written document that outlines your ideas and strategies for launching, managing, and eventually exiting your new venture.
A well-constructed business plan can be crucial to the success of any entrepreneurial endeavor . As you prepare your proposal, keep in mind that it will evolve as you learn more about your market.
To start, create an outline of the most important items you'd like feedback on before writing anything down officially.
Then ask yourself these questions:
- What do I want?
- Why does my company exist?
- How will I make money?
- What are my long-term goals?
A detailed business plan helps you set milestones for measuring success. You can share the plan with investors who may want some reassurance on the viability of their investment in your company.
The best way to create a successful startup business plan is by including everything in an organized and easy-to-read document — marketing strategies, financial projections, team bios, timelines, and more.
What is a lean startup business plan?
A lean startup business plan is a method for developing products that relies on iterative experimentation to reduce uncertainty.
It has been used by companies such as Google , Amazon, and Facebook in the early stages of their development, and involves testing your idea with real customers early in development.
Lean startups are less likely to fail because they have tested their product or service with live feedback from consumers. Doing this allows them to make changes quickly without wasting resources on something no one wants.
The goal is not to build an extensive business plan but rather a "lean" one that can be changed based on customer feedback and then re-evaluated in regular intervals until it reaches market potential — or fails.
A lean startup business plan is a strategy that focuses on getting a product in front of customers as quickly and cheaply as possible. Use the lean startup business plan to validate your ideas before wasting time and resources.
Why do you need a small startup business plan?
A small startup business plan is one of the most important steps in building a company. Apart from helping you to focus on company goals, it aids in obtaining feedback from potential partners and keeps the team on the same page.
The best thing about starting small? You can change course at any time! If you need help developing or tweaking your small startup business plan, use this guide for entrepreneurs to get started.
You've built a product and you're ready to take the next step, but what's your plan? First, you need a strategy in place. Do you know how much money it will cost, or where exactly that funding should come from? What about marketing strategies for getting customers in the door?
You’ll also need to find ways to retain them afterwards so they keep coming back again and again (and spending more).
Obtain external funding
If you want to get funding from lenders or investors, you need a startup business plan. Lenders want to make sure they're investing in a company that will last and grow.
A well-organized idea shows passion for its purpose and outlines clear goals for helping customers. At the same time, having an exit strategy is also important.
Making a plan for when things don’t pan out as desired lets investors understand how much value there can be while giving customers (and yourself) peace of mind.
Understand your target market
One key piece of your business plan is knowing how to conduct a market analysis. To do this, consider the industry, target market, and competitors.
Are there any market trends or competitor factors that can affect your business? Review them closely and get ready to make required changes to your business plan.
Prioritize high ROI strategies
In business, ROI is important. Any business that doesn’t generate as much cash as it burns is likely to fail.
With a startup business plan in place, the strategies with the highest ROI become crystal clear. You'll know exactly what to tackle first and how to prioritize the rest of your tasks.
Accelerate financial health
Business plans are not crystal balls, but they can help forecast your financial health. Planning for expenses is vital to keep operations steady and identify problems as soon as possible.
Cash flow projections can help you see if goals are achievable or highlight upcoming issues that need correction before it's too late.
How to write a small startup business plan
Use this guide for entrepreneurs to develop or tweak a startup business plan. By following this easy six-step process, you'll soon have a clear path to startup success.
1. Clarify the startup vision, mission, and values
The first step to writing a startup business plan is understanding the startup itself.
Once you know what your startup does, ask yourself why. What is the startup's mission? What problem will it help customers solve? The startup's mission statement helps define its reason for existing.
It’s usually expressed in a simple sentence, but can also be written as a short paragraph.
Try to answer these questions: What does your startup do? How will it make money? How quickly do you hope it will grow? Are there any significant milestones or deadlines that need to be met?
2. Outline the executive summary
Now that you have an idea for your startup, its mission, and a vision in mind, it's time to write your startup business plan executive summary.
Keep it simple and precise. Begin by writing a one-sentence startup business plan introduction that showcases the core customer need/pain point and how you propose to solve it.
3. Develop startup goals and milestones
Next, write down the milestones and goals for your startup business plan. This is a crucial step that many entrepreneurs forget when they're starting out.
Do you want to focus on getting new customers? Or attaining a specific revenue number? Without clear short-term goals, it can be hard to know how to prioritize startup tasks.
4. Write a company description
Answer the two fundamental questions — who are you and what will you do? Then, give an introduction to why you're in business.
Provide a summary of introspective goals, clarifying intangible aspects such as values or cultural philosophies. Make sure to mention:
- Proposed business structure (limited partnership, sole proprietorship, incorporated company, or a general partnership)
- Business model
- Business vision and mission statement
- Background information of your team members
5. Conduct market analysis
Choosing the right market is crucial to your organization’s success. There are different kinds of products and services that a business can offer and each has particular requirements for a successful market fit.
If you choose one that doesn't have a large enough customer base or is not profitable enough, your company may end up struggling for every sale.
Ensure that there is a clear market niche — an ideal audience of customers with a need or a pain point that your business can help solve.
6. Develop startup partnerships and resources
When you're launching a small startup, one of the most important things that your business needs is capital. There are several ways to get going on this front.
When thinking about sources of funding for startups , consider startup grants, startup loans, startup investors, and startup accelerators.
7. Write a startup marketing plan and startup budget
Your startup business plan is almost complete! All that's left is to create a startup marketing plan and budget. Your startup marketing plan will help you define your company’s target audience and brand image.
The startup budget is an integral part of any startup that helps you take the guesswork out of writing expenses.
Examples of startup business plans
Business plans differ based on the nature of the business, target market, competitive advantage, delivery of product/service, scope, and size.
Though the core business plan template remains the same, the content and flow change. Here is an example of an accounting firm's business plan:
Vision statement
At our company, ABC Accounting Services LLC, we work hard to provide the best service and build a strong team. Our vision is for this brand to be recognized as #1 throughout NYC by both smaller businesses and larger corporations.
Our values are reflected in all that we do: integrity (ethical behavior), service (giving top priority to clients' needs), excellence ("doing it right"), teamwork (working together).
Executive summary
ABC Accounting Services LLC is the premier accounting firm in New York City and will handle various financial services. We specialize in audits, bookkeeping, tax preparation/compliance work, and budgeting assistance with high-quality consulting.
Business structure
ABC Accounting Services LLC will be structured as an LLC — a Limited Liability Company in the state of New York. It will provide accounting, bookkeeping, taxation, auditing, and compliance-related services to small, medium, and large enterprises situated in New York City.
Marketing strategy and competitive advantages
Despite the fact that there are many established accounting services firms in our industry, we have a great chance of becoming successful because of the high demand for financial consulting.
Often, small businesses don't need full-time employees but would rather hire an accounting service provider like us to handle their bookkeeping and tax returns on time every year.
It is best to find a unique niche or carve out your own market in the financial consulting services industry. If you're able to create an identifiable brand identity for your accounting business, then you will likely see less competition from other firms.
Startup milestones
ABC Accounting Services LLC will focus on delivering an exceptional client experience to grow the business and expand market share.
Startup business plan template
Here's a template you can follow when creating your startup business plan:
Top tips for writing a startup business plan
The following tips will help you create a compelling startup business plan without getting overwhelmed.
Know your audience
To write an effective business plan, tailor your language and level of detail to match the audience reading it.
Have a simple and clear goal
If you have a goal of securing funding for your business, it will be an uphill task with lots of work and research.
Simplifying and breaking down bigger goals into smaller, actionable tasks will assist you in getting through them faster.
Spend time researching
Avoid assuming anything about your target audience, product/service, or the market need.
Spending adequate time and effort on research from primary and secondary sources will help you develop an accurate business plan.
Build a startup toolkit
The process of creation becomes easier if you have the right startup tools and software by your side. Pick the right ones that will help you in your journey.
Keep it precise
Short and easy-to-read business plans are best kept within 20 pages. If you have additional documents, consider adding them as appendices or provide a link if available online.
Ensure tonal consistency
Keep the tone consistent by having just one author write your startup business plan. Otherwise, be sure to edit it thoroughly before you finalize it.
Add reference points
All information regarding the market, your competitors, and your customers should reference authoritative data points.
Be ready to pivot
A business plan should be fluid and flexible. Think of it as an evolving document that will continue to change over time.
How to create a business plan with Wrike
A good business plan is a powerful tool and can be a key predictor of future progress, but simply filling in a startup business plan won’t help you achieve success. You need to create action steps with accountability that will help you reach your goals.
Wrike’s project management software can help your organization deliver successful projects and maximize individual and team productivity, and our product launch template can help you turn your startup business plan goals into actionable steps.
Start a free trial of Wrike today to see how it can help to simplify work, showcase progress to stakeholders, and achieve startup success.
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Would You Take Financial Advice From A.I.?
The financial services industry is plotting how to incorporate tools like ChatGPT into its products. But humans will still be necessary to provide personal advice.
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By Paulette Perhach
Paul Weiner, an artist, has been experimenting with artificial intelligence for the past year, generating A.I.-created visual disinformation and seeing whether he can get the images to spread. But recently, he turned to ChatGPT, a chatbot that has the ability to respond to complex questions, for a much different reason: With his 30th birthday looming, he decided to ask it for advice about retirement planning.
“Maybe ChatGPT would have some answers that I might otherwise get from someone who I’d have to pay a lot of money to,” he said.
Generative A.I. like ChatGPT has knowledge workers gripping the rails, bracing for how it might affect their jobs , and consumers leaning in to see what costly services could soon be replaced with a prompt. As the investment industry turns to artificial intelligence as a financial planning and advice tool, the values of accuracy, humanity, security and accessibility are jostling for prominence. In the future, who — or what — will we be asking to advise us on some of life’s most important decisions?
ChatGPT recommended that Mr. Weiner open a Roth individual retirement account and certificates of deposit, as well as automate his savings and create a budget. He hasn’t yet opened any of the accounts or, as the chatbot also suggested, worked with a financial adviser.
“It’s a lot of information that gets thrown at you pretty quickly,” Mr. Weiner said. He found the short explanations insufficient for what a C.D. does or the differences between a Roth I.R.A. and a traditional I.R.A. He concluded that speaking to a financial adviser would probably be more helpful.
“But that kind of circles back to the whole reason I’m doing this on ChatGPT to start with — it’s free,” he said.
A.I. has joined the financial chat
Delyanne Barros, a money coach , said she felt that most of the hundreds of thousands of people who follow her on social media had no idea what ChatGPT is. “Am I the only one geeking out on this thing?” she asked. When she asks her followers if they’ve used it, she said, “they’re like, ‘What are you talking about?’”
She’s teaching them the basics: There’s a free version of the service, and it works as more than just a Google alternative.
On Instagram, she asked if any investing newbies had asked ChatGPT to teach them to invest. Some had tried but reported that they kept getting stuck in a loop of repetitive answers. Ms. Barros found that she was able to get valuable information about allocations, tax efficiencies and retirement withdrawal rates, but she posits that was because she had knowledge of the investment terms she needed to use.
“You have to know how to frame the questions,” she said. “A lot of people don’t understand that you get an answer to something and it can build on that answer. You can ask follow-up questions, and it’s like a chain.”
Ms. Barros has also used ChatGPT to double-check her calculations regarding her retirement plan. Despite its handiness, she is not worried that chatbots will replace her.
“With something like investing, I’m not concerned as a personal finance educator, because I can see that it’s not like: ‘Oh, we don’t need you anymore. We have ChatGPT,’” she said. “If anything, this is going to be a tool that’s going to enhance my coaching experience with people, but it’s definitely not going to be replacing us, because people still need a lot of guidance.”
Even if you don’t think you’re familiar with it, chances are you’ve already been using generative A.I.
Intuit started to integrate A.I. into its software products, which include Mint and TurboTax, more than a decade ago, said Ashok Srivastava, the company’s senior vice president and chief data officer. Today, he said, Intuit’s platform performs 58 billion machine learning predictions per day. Another Intuit product, QuickBooks, predicts cash flow for small businesses, and the company has found that when it gives users advice based on artificial intelligence, 95 percent of small-business owners take that advice.
They’re still focusing on a strategy that combines human interactions with A.I.-powered ones. Customers, for example, can meet with a live expert, and then A.I. will create a categorized and tagged summary of the conversation for later review.
Bugs in the system
As of now, the technology is promising, but it’s not 100 percent accurate.
“These systems tell plausible stories, they give you plausible ideas, but not necessarily correct ones,” Mr. Srivastava said. “What we’re focusing on is actually providing the correct experience to the person, so that it’s grounded in reality and data that is appropriately personalized to them, so then they can make the best financial decisions as they move forward.”
Mr. Srivastava said he did not envision a future where humans were taken out of the financial planning equation.
“I’ve grown up in the field, I’ve seen it evolve, and it’s an amazing technology,” he said. “I think that the human connection is still important. I envision that we will want to help C.P.A.s, bookkeepers, financial planners, financial advisers — everyone in this ecosystem — grow and prosper along with the use of artificial intelligence.”
Josh Pigford, the founder and chief executive of Maybe , had been building a personal finance management platform that could help people make financial decisions when ChatGPT debuted. A few months ago, Maybe was rebuilt from the ground up, this time with GPT, the technology behind ChatGPT, as the foundation of the platform. The process always begins, he said, with a question people want to answer.
“The way that we were initially tackling this is giving you access to a financial adviser who can answer those questions for you directly,” Mr. Pigford said. “As we started testing GPT’s ability around that, we realized, well, OK, actually GPT can do this really well.”
Things became even more interesting when people added their financial data and information, such as age, location, and goals. The system could then take into account everything from dependents to joint filing to local tax codes — details a financial adviser would be able to use — and deliver that directly to the consumer.
That, of course, brings up the subject of privacy. Through Maybe’s system, the banking information is secured and does not feed back to OpenAI, the company that created ChatGPT.
Hallucinations — the tendency for ChatGPT to spout off incorrect information — have also become a worry. Mr. Pigford and his team identified the issue during early testing.
“There was a point there where it was actually making up entire transactions, and building this back story of like, ‘You bought this item from Home Depot to help cool off your living room,’” he said. “That’s a legitimate problem.”
As the technology has improved, Mr. Pigford has seen a drastic decrease in these hallucinations in just weeks. The way they’re designing the software includes a toggle to switch between a chatbot and humans for advice.
“The belief, the hypothesis, what we’re sort of banking on is that we’re able to actually offer that sort of hyper-personalized input and advice without you having to, you know, form a relationship with a certified financial adviser where you’re paying them an assets-under-management fee, or even paying them, you know, a couple hundred bucks an hour,” he said. “You’re able to get very specific advice, regardless of what your financial situation is.”
But Mr. Pigford believes it’s too early to do away with live professionals. “I think we’ll have some transition period where we’ll want humans involved for a while,” he said. “The goal is not to completely do away with a financial adviser.”
First steps into the ChatGPT world
Glenn Hopper, author of “ Deep Finance: Corporate Finance in the Information Age ,” relates this GPT era to the screech of dial-up internet. The prevalence of A.I., he said, is “going to come quicker than the adoption of the internet and broadband internet and web browsers.”
“I’ve stopped making predictions, because every time I make a prediction, I’ll say six to 12 months, and then I’ll read an article the next day that this item has already appeared,” Mr. Hopper said.
He warned that tools like ChatGPT would make scamming and phishing more sophisticated, so users should be cautious of anyone asking for their bank information.
“The very first thing that I tell everyone is, if you’ve been ignoring artificial intelligence up until now — stop,” he said. He doesn’t think people need to become experts, but they should have a basic understanding of how the technology works, he said.
“If we’re going to hand over our decisions to them, and we don’t have any idea how they’re working, I mean, you might as well shake one of those Magic 8 Balls and get the answer from that,” he said.
Explore Our Coverage of Artificial Intelligence
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Executives from leading A.I. companies, including OpenAI and Google, warned that the technology they were building might one day pose an existential threat to humanity .
One of the most urgent warnings about the risks of A.I. has come from Geoffrey Hinton, whom many consider to be the godfather of artificial intelligence .
Tens of millions of American jobs could be automated by generative A.I. The companies behind these new technologies are looking to the government to regulate the industry .
The Age of A.I.
In Silicon Valley’s hacker houses, young A.I. entrepreneurs are partying, innovating — and hoping not to get crushed by the big guys .
A lawyer representing a man who sued an airline relied on ChatGPT to help prepare a court filing. It did not go well .
How has the Shoggoth, an octopus-like creature from a science fiction story, come to symbolize the state of artificial intelligence? Kevin Roose explains .
Few people are as involved in so many A.I. efforts as Reid Hoffman, a Silicon Valley investor. His mission? Showing how new technologies can improve humanity .
Amid those making pledges and sweeping plans aimed at reining in A.I., New York City has emerged as a modest pioneer in its regulation with a focused approach .
BUSINESS STRATEGIES
The expert guide to starting a successful consulting business
- Emily Shwake
Do you have specialized expertise in your industry? Do your colleagues turn to you for guidance and decision-making advice? If so, you might consider starting a consulting business.
To start, you'll need to create a business plan, then make a business website that promotes your services. While this may sound like a lot, the freedom, independence and opportunities for exploration and growth that come with consulting can be quite rewarding. For first-hand advice on starting a consulting business, we consulted Ken Goldstein, Wix user and managing director of The Goldstein Group . Here’s what you need to know before becoming a consultant, including a breakdown of the types of consulting businesses and how to start your own.
What is consulting?
Consulting is a career that centers around giving expert advice to other professionals. This type of service business can take a variety of forms depending on your background and experience; for example, you could be a brand consultant who guides company messaging or an IT consultant who works to improve companies’ technical systems.
According to Goldstein, the best consultants are disciplined, humble, patient, self-assured and self-aware. They have excellent time management and listening skills, thrive working on their own and can admit when they make mistakes.
While consultants get to be in charge and manage the clients and projects they take on, many early career consultants struggle with the work-life balance and isolation. “In the early days, I never took time off for fear of not being available to clients," said Goldstein. "I thought that I could lose them as a client. Over time, I’ve learned to set boundaries, as taking care of myself helps me better serve the clients.”
Types of consulting businesses
All consultants partner with companies to share expert advice, identify problems and offer new solutions. However, consulting businesses differ by expertise. The following are the most common types of consultants:
Strategy consultants assist with high-level business decisions, such as advising executives on business strategy.
Marketing consultants advise companies on marketing strategies like content, social media or paid acquisition.
Operations consultants use data and research to help companies reduce costs, streamline their operations, improve productivity or increase business efficiency.
Financial consultants help companies improve their profits or reduce spending.
Human resources consultants offer companies advice for recruiting, onboarding, training, development, retention and resolving conflict.
Compliance consultants ensure that companies comply with all federal and local laws and regulations.
IT or technology consultants recommend improvements to company software and technological systems.
Legal consultants ensure that companies can properly navigate the legal system.
Sales consultants advise on matters such as incentivizing sales teams and improving the sales process for customers.
Sustainability consultants help businesses meet environmental regulations, adopt sustainable practices and reduce their carbon footprints.
How to start a consulting business
Now that you have brainstormed a few service business ideas , follow these steps to start your own consulting business:
Define your niche
Evaluate your target market
Create a website
Form your business
Make a financial plan
Determine your rates
Create a business plan
Market your services
01. Define your niche
Every consultant has a focus or niche. In fact, the best consultants stand out because of their specialty. Ken Goldstein unexpectedly found his niche in the field of people management after helping a dental practice create a safe and positive work culture. After the dentist hired him, his business flourished through word-of-mouth networking.
Today, he helps businesses who need help recruiting and retaining employees. “Once I help clients make sure they have the right people in place, I’ll work with them on strategic planning,” said Goldstein. He also hosts workshops and performs as a keynote speaker.
If you’re still not sure what type of consultant you want to be, think about your skills and experience, as well as the advice you’d offer businesses. What do you consider yourself an expert in? What do you enjoy talking about and teaching to others?
Use these questions to pinpoint your skill set before launching your business. Based on your niche, you should also consider researching consultant certifications. This will show clients you meet global standards for performance in competency, project management, ethics and personal conduct. For example, Goldstein is both CPBA- and DiSC-certified—two important certifications in his field.
02. Evaluate your target market
Once you know your specialty, you can target a set of potential clients. Are they primarily in one industry? Are they large enterprises, startups, or something in between? Complete market research to learn about your audience’s pain points and needs.
On top of that, knowing about your clients’ challenges helps you define your services. Use that knowledge to make a business plan, come up with a marketing strategy and set your rates. “Take the time to be very clear of what your deliverables are,” said Goldstein. “Decide if you’re a commodity or a service provider, because you can’t be everything to everybody.”
03. Create a website
Today, every business needs a website to build a brand, promote services and act as a booking site . A service website provides more information about your background and experience, and through proper search engine optimization, also helps prospective clients discover your services. These healthcare websites serve as one example of how service websites can help boost business. With this in mind make sure to think carefully about the business goals for your website .
Create a website even before you officially register your business. A successful consulting website will include:
A clear brand identity, including your logo and color scheme. This logo maker can help you get started.
Your business’s name. Don’t have one? Use this business name generator .
An overview of your business and your mission statement.
An About page that communicates your background and experience. Be sure to follow best business website design practices.
A Services page that explains your offerings.
An appointment scheduler that lets clients book and pay online.
Tip: Check out this blog post on how to make a business website for more detailed information to make yours shine (and how to create a hotel website for inspiration). You should also consider setting up your Google Business Profile , once your site is live.
04. Form your business
Now that you’ve laid the groundwork, it’s time to start a business .
First, you’ll need to determine your business’s legal structure so that you can properly register your business . Do you want it to be a sole proprietorship, limited liability company or corporation? Consult with a tax professional to make sure your chosen structure makes the most sense for your firm. You'll also need to register your business name as a part of this process.
Next, equip yourself with all the tools you’ll need to manage it smoothly. Will you need a brick-and-mortar storefront? Do you plan to work from your home office? You should also consider any software you’ll need. For example, you might want to use teleconferencing software to communicate remotely with clients.
05. Make a financial plan
As you legally register your business, you should also form a financial plan. Lay out all the costs of starting your business and determine if you’ll need to take out a loan. To accurately estimate the costs and set up a preliminary budget, use a tool like the U.S. Small Business Administration’s startup cost worksheet to account for business formation and registration expenses as well as software and marketing costs.
Make sure to open a business bank account to separate your business spendings and earnings from your personal finances. To stay organized, consider investing in an accountant or assistant. If you prefer to go the DIY route, consider using bookkeeping software.
06. Determine your rates
Goldstein implores consultants to build a pricing structure for your services. Will it be hourly? Will you offer a flat fee for each project? Or will you offer a performance-based rate dependent on your results?
Then, figure out how much to charge. Use similar businesses in the local area to get a ballpark of how to price a service . Keep in mind that location often affects pricing. For Consultants living in urban areas of the US, for instance, can typically charge higher rates than those living in rural areas. You should also factor in your level of experience and the budgets of the clients you will serve. According to Indeed, the highest-paying consultant jobs make an annual salary between $56,000 and $100,000 .
If you’re still not sure what to charge, here’s a shortcut: Set an hourly rate that would enable you to achieve your goal salary. Start by dividing your former salary by 52 work weeks, then divide that number by 40. That will give you the hourly rate you were making at your former job. Then, mark that price up based on competitor prices and your own salary goals.
One final note from Goldstein on determining your rate: “Be proud of your work and don’t discount your pricing.”
07. Create a business plan
A business plan is a formal written document that contains your company’s future goals, the methods for attaining those goals and the time frame for achieving them. Think of it as a roadmap for your firm. It should discuss marketing, financial and operational details. This includes a value proposition, a target market analysis, a SWOT (strengths, weaknessess, opportunities and threats) analysis with an evaluation of competitors and opportunities, estimated costs and forecasted profit.
Business plans outline your strategic action items and keep you (and your employees) on target to meet your objectives. You can also use it as a guide to keep your short-term SMART (specific, measurable, achievable, relevant and time-bound) goals in line with your company’s long-term strategy.
Keep in mind that business plans evolve over time. If you find that your long-term goals eventually change or that new opportunities arise, you can review and update your business plan to align it with your new direction.
08. Market your services
If you don’t have clients, you won’t have a consulting business. You must consider how you’ll promote your offerings when starting a consulting business. Several common approaches to marketing a consulting business include:
Blogging , which establishes your expertise in the field and makes you discoverable online.
Webinars , or online seminars that you can offer for free to draw in clients.
Podcasts , which you can use to build your reputation as a thought leader and gain a foothold in the industry.
Social media marketing , such as sharing posts, creating ads or sending private messages over LinkedIn.
Advertising in print, on social media or on search engines.
Public speaking or coaching to expand your network and grow your reputation.
Referral marketing to incentivize clients to refer your services to other companies.
Cold calling members of your target audience with your elevator pitch.
Emailing potential clients with a branded business email.
Invest in marketing methods that will put you directly in front of prospective clients. Consultants cite referral marketing as their most successful promotional strategy, with 37% noting it’s their primary means of generating new business.
Goldstein recommends networking with other consultants and subject matter experts in various fields. That way, when a project arises, you can consult them as subject matter experts or even refer their services to a client (and vice versa).
Post-launch tips for succeeding as a consultant
Once you start your business, how will you stand out so that people hire you? Use these tips to succeed with clients:
Identify your industry’s pain points: Think about the most pressing challenges companies in your industry face, and become an expert in how to address them.
Sell your results: Keep an organized portfolio of your past successes. Attract clients by showing them tangible results to similar problems you’ve solved in the past.
Empathize with your clients: Use your soft skills to build personal connections with your clients and show them you’re deeply invested in their business.
Stay organized: Impress your clients by staying on top of deadlines, juggling different projects with ease and keeping your business running smoothly.
Keep networking: A robust cadre can not only keep you abreast of new industry and economic developments, but it can also help you keep a steady stream of work. Plus, you’ll always have someone to bounce ideas off and have conversations with.
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A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.
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Your startup's financial plan is the roadmap that lays out the path for your company's future financial success. In it, you make predictions and plans based on historical performance and industry research. Start with your company's current financial situation, add in future goals and predictions, and strategize how to get there.
Creating a financial plan is often the most intimidating part of writing a business plan. It's also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.
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Why is Financial Planning Important for Startups? It costs money to grow a business, and most people don't have unlimited resources. If you don't plan for how you're going to grow and how much it's going to cost, you can easily waste your two most precious resources—time and money.
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Include Financial Statements in Your Business Plan. You will need a complete startup business plan to take to a bank or other business lender. The financial statements are a key part of this plan. Give the main points in the executive summary and include all the statements in the financial section. 09 of 09.
1. Income Statement An example of an income statement report for your startup business plan is as below: Also known as the profit and loss (P&L) statement, it elaborates the profit or loss the business is expected to generate over a given period of time.
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Now that you have brainstormed a few service business ideas, follow these steps to start your own consulting business: Define your niche. Evaluate your target market. Create a website. Form your business. Make a financial plan. Determine your rates. Create a business plan. Market your services.