Starting a company

Steering Success: A Detailed Guide to Startup Financial Planning

Key Takeaways

  • Get to know the integral role of financial planning in business
  • Know about the parameters of financial planning
  • Learn different types of funding
  • Understand the power of budgeting
  • Understand the effective strategies in financial planning
  • Learn common challenges faced by the startups and solutions to it
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Every other massive company of today was once a tiny organization that gradually grew up in every additional spectrum, from investments to turnovers, workforce, and much more. Over the years, with the magnificent growth of business structures and newer innovative venture principles, even the addressing names of these organizations witnessed a change. Startups can be well understood as companies running in the initial or first stage of operations. The second most important thing to have solid in your hand after having an impactful and practical idea for your business is financial planning.

With multiple backups and strict budget management, a solid financial road map could always lead to the running and establishing of a successful startup and later to cooperation. In this article, we shall be vividly discussing some effective financial strategies for your startup's successful existence and functioning.

The Essence of Financial Planning for Startups

Before going into the details of the factors that play a crucial role in financial planning, sourcing, and more, let's understand the concept of financial planning for an increased understanding.

Financial planning is a guide to successfully understanding, analyzing, planning, and executing the spending factor as per the needs to yield out the best interest in return (aiming at maximum productivity). In short, having sound financial planning and sticking by it efficiently will help you gain control over the expenditures and returns, which will help you attain financial stability. Whether a startup or a well-established company, financial planning plays a crucial role in running the organization to its potential.

Financial planning looks like presenting a well-researched draft about the expenditures, cash flow, income statement, analysis of balance sheets, and more. Considering the same for a startup, financial planning has got to do more than the list mentioned later. The first step is to identify the purpose of your startup and analyze and calculate the required resources and the available percentage in hand.

Why is financial planning important?

Let's start by understanding that financial planning is the foundation of any successful startup, and it's a continuous process (till the day you wish to run your company).

Here is why you need to have financial planning, be it a self-funded business venture or a VC-funded business initiative. An economic model and planning will showcase the possible success rate and longevity of your organizational functioning. Further, this motivates you to set and achieve targets. In the early years, you may not make a considerable profit, and cash burn is a possibility, too, and that is precisely where financial planning comes to your rescue in pulling up your proactive sleeves. 

Key Components of Startup Financial Planning

We can jot down the topmost essential components of financial planning for a startup as: - Budgeting

- Cash Flow Management

- Financial projections and

- Funding.

Let's have a deeper understanding of these congruent factors to grasp startup businesses and their successful functioning better.


Though "budgeting" appears to be simple and pretty straightforward, budgeting can be even more beyond your first-order assumptions. Allocating the financial resources in alignment with the requirements and available potential resources and drafting a detailed chart on every other cent spent with a pre-set direction is what we call budgeting in basic terms. When it comes to a part of the financial planning procedure for a startup, budgeting plays a pivotal role in determining the entire organizational existence and productive efficiency for the set time frame. Budget, in other terms, can be noted down as the financial strategy and bylaws in how and where to spend the available financial resources without risking the startup's growth.

Cash Flow Management

After budgeting comes cash flow management; budgeting sets the guidelines for what needs to be done and how to be done. In contrast, cash flow management effectively monitors, analyzes, and optimizes an organization's inflow and outflow of finance. Furthermore, cash flow management also involves ensuring that the organization has enough financial resources to meet the ends and needs of the employees and the company's well-being. Cash flow management and budgeting can be done using software for increased efficiency and fostered planning. Cash flow management also keeps a closer eye on company obligations like loan repayment and more, which will help to always be in check and take necessary actions whenever required.

Financial Projections

As the term "financial projections" suggests, it is an external projection or forecast of your startup's cashflows, outlays, income figures, and balance sheets. To understand the importance of financial projections on better notes, it draws a layout to your bankers and investors to give them insights on how the startup/company will repay the loan and further run the company. Accurate and foolproof financial projections can be created using an income statement that gives information on liabilities, tax returns, assets, and far-sighted revenue and expenditure forecasts.


Funding represents contributing financial resources to an organization or a business initiative for a purpose with well-drafted terms and conditions that both the investors and organization representatives agreed to on mutual grounds.

There are different sources to convince and access funding for a startup; however, below are some of the most popular means of financing for startups.

  • Bootstrapping
  • Angel investors
  • Government loans,
  • Crowdfunding
  • Incubators
  • Venture capital funds
  • Venture debt funds


The concept and execution of running your business from personal investments is known as bootstrapping. Bootstrapping comes with challenges at each stage, whether for the lack of massive funding (in most scenarios) or lower viability. This form of financing comes with greater control over one's business. Mostly, small entrepreneurs with small-scale businesses adapt the bootstrapping form of financing for the added benefits of not needing to be answerable to any external parties and for the reduced risk of inviting debt. Bootstrapping focuses on a minimalistic business structure often characterized by extreme simplicity in transactions and the speed at which the venture achieves its target.

Angel Investors

Angel Investors are often referred to as your financial godfathers. They are wealthy private investors who are always looking to invest in small-scale businesses in exchange for equity. It is important to note that angel investors contribute money from their assets and not from any collective funds, unlike Venture capitalists.

Angel investors play a significant role in annual meetings and events, amplifying their presence as active shareholders.

Carrying out a detailed study on your angel investor before approaching and understanding the type of businesses they invest in, along with a clear and concise pitching script, can work wonders for your startup venture.

Taking funds from an angel investor involves lesser risk (as angel investors get back equity in return) than getting a loan from a bank, as the pressure of paying back within the timeframe can often cause added chaos.

Government loans

Depending on the region, state, and business plan, the government has several plans and schemes to support your business venture through loans. These loans must be paid back within a specific period with an added sum of money that comes in the form of interest (usually at a lower interest if your business proposal falls under their pre-set criteria).

These loans raised by the government within the states or outside the states are also referred to as public debts.


Crowdfunding is yet another way of raising funds for your business venture from multiple people in different proportions. This way of financing your business expenditure is often an approach picked by startup enthusiasts to ensure access to alternative funds.

The primary benefit of crowdfunding is easy access to multiple investors at a time (though the money invested by a single person is way less when compared to an angel investor). Moreover, for companies facing stringent time constraints, crowdfunding is a reliable and suggested funding method for the time it often tends to save.


Incubators are a well-curated business mentorship program where the entrepreneurs are educated about different business models and structures and are also given a chance to meet some willing and active investors. Business incubator programs are often hosted and provided by great business institutions, and they primarily work with early-stage businesses.

Venture capital funds

Venture capital funds are a large sum of money pooled by investors ( like well-off investors, investment banks, and financial institutions). These investors who happen to invest in business projects are also designated as limited partners of the business organization.

Venture debt funds

The type of loan sanctioned by bank or non-bank lenders focuses on early-stage, rapidly growing businesses for hefty returns. Concerning the money lender, the criteria and conditions keep changing, including revenue, cash flow, profitability, and market opportunity. 

Steps to Effective Financial Planning

Effective financial planning is undeniably a potential precursor of the startup's success. The strategy for the former mainly involves the below-mentioned factors, and let's have an elaborate understanding of the same.


Assessment involves systematic evaluation of assets, liabilities, and existing business capital and preparing a critical performance report to analyze the situation effectively.

This simple yet efficacious procedure helps gain more comprehensive knowledge about the company's understanding of the organization's stability and profitability.

These financial assessments aid in adapting better business models, tracking expenditures and cash flow, and dissolving into healthy financial practices.

Goal Setting

A venture without a proper goal is a business strategy that welcomes failure. Goal setting requires a vivid understanding of the company's capabilities and the available resources to foster growth.

Establishing short-term and long-term financial objectives can be visibly made impactfully by adopting the smart strategy, which is as follows:

  •  Specific
  •  Measurable
  • Achievable
  •  Relevant
  • Time Bound

Smart strategy guarantees you a sense of direction and a better organizing structure.

Strategic Planning

Strategic planning to achieve your present goals involves drafting elaborate details on tax standings, current investment, saving reserves, personal and other professional commitments, and financial obligations, if any. It's necessary to understand that strategic planning is a vast process, as well-curated planning often grants the desirable output, and sticking to strategic planning can be a questionable process, too (in highly adverse situations).

Monitoring & Review

Monitoring and reviewing are as important as running the business itself. Failure to understand the business scenario and wrong investments can turn things upside down in the nick of a second.

Regularly reviewing financial plans and adjusting them to changing business needs and market conditions can bring outputs beyond expectations.

Common Challenges and Solutions

Even if you are a fresher or an experienced professional in the business field, it is quite natural to make some financial mistakes and face numerous economic challenges. Well, all you have to remember here is that every other challenge has a solution and can be executed if the problem can be approached correctly. Here are a few of the common challenges faced by startups.

Challenge 1: Limited Resources

Solution: By focusing on effective resource allocation, prioritization, and lean management, limited resources can be used to their maximum.

Challenge 2: Underestimating startup costs

Solution: It is quite apparent to under-calculate the expenses and apply for a lower loan amount from the bank. It is always safer to pool in an extra margin of money and keep it as a separate fund (something that can be used in an emergency)

Challenge 3: Mispricing: entrepreneurs sometimes tend to miscalculate the price so that it can end up being too different from the real market price.

Solution: Always understand how competitors are pricing their products and decide for yourself how you want to introduce your product to the market. This needs to be analyzed and executed by keeping the consequences in mind.

Challenge 4: Offering too many sales promotions

Solution: Too many sales provisions are acceptable, but understanding the requirement and executing something makes more sense and saves your pocket. The idea and goal is to yield the best from the minimal.

Challenge 5: Sales are good, but profit is low

Solution: This could happen because some hidden price gets involved in the business. Analyze, monitor, and thoroughly check the expenditure chart to understand the crisis. It can be as small as wrong vendor selection or unnecessary money spent on the product's packaging, etc.

Challenge 6: Late client payments

Solution: Delayed payments can be as bad as a bad business for the interruption it causes in the cash flow management. Create efficient and stringent policies and terms to foster on-time payment and procedures.

Challenge 7: Late payment of bills

Solution: Just like delayed payments can cause an uproar in the business model, delayed bill payments can cause even worse. Piling up debts is never an appropriate idea for the additional pressure and tension it creates for the overall situation. Be it a huge success or not, your bills always need t to be up-to-date.

Challenge 8: Inefficient cash flow management

Solution: It is essential to manage your accounts and keep rechecking your financial transactions and well-updated bookkeeping for a better functional experience for your organization.

Specific software can help if you find the manual work too tedious.

Challenge 9: Slipping away your salary.

Solution:  You might have decided not to pay yourself a salary initially, but you will need to factor it into your financial plan later.

 You always need to acknowledge your work just like how you acknowledge your employees and need to strictly decide on the date when you can withdraw your salary.

Good financial planning involves paying your needs and alleviating the cash flow further.

Utilizing Financial Planning Tools

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Technology has advanced so much these days that we have software and online tools for almost all functions. The hack here is to understand the right type and set of tools that are required and work the best for your purpose and efficiently incorporate the same.

Some of the available tools In the market that can make the financial management of a startup easier are as follows (these tools are often accessible after paying a sum of money. It is always better to go for paid tools rather than unpaid ones for the added security and confidentiality:

  • Xero
  • Intuit QuickBooks Online
  • Oracle NetSuite Accounting Software
  • FreshBooks Accounting Software
  • Zoho Books Accounting Software
  • Melio

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With different purposes like invoice drafting, keeping accounts, balance sheet calculation, financial predictions, etc. These are some of the most common tools that can go well for startups with effective results and smooth functioning.

Please note, concerning the business model adopted and the type of financial management followed at your organization, the right choice of software/ tool keeps changing.

Case Studies/Real-life Examples

Case Study 1: Squire - the Uber of barbers

A customer-face app booking application for haircut services (a barbershop point of sales and management system)

Background: Songe LaRon and Dave Salvant of Squire are two individuals who are into banking and law. The startup idea for a customer face-app booking application struck them when they noticed the procedural steps in the barbershop to avail of the services had stayed the same for a long time, with the same old queue and long waiting hours. They believe that LaRon and Salvant could see and analyze the blindspot for the technology, which other investors probably should have recognized.

Role of financial planning: Passionate about their idea, LaRon and Salvant went from investors to investors to pitch in their idea. They were fortunate enough to have caught the attention of an executive ready to participate in the project by funding a seed capital.

  • - To announce their initiative and reach the service to the maximum number of people, they put up a pop-up barber store in our workspace.
  • - With this trial run, they were able to understand the pros and cons
  • - Pros: scheduling of appointments and payment became a lot smoother
  • - Cons: Requirements and expectations of the barber still need to be met.\
  • - In 2016, the duo purchased a barber shop at risk to study the cash flow management and the business at a better level.
  • - Further on understanding and executing their ideas, they leveraged the technology by scaling from B2C to B2B.
  • - The risk paid off as Squire is now available in 3 countries and has raised 165 million dollars till now.

Squire's success exemplifies how efficient financial planning with the proper allocation of figures and resources can pay back profits and recognition.

Case Study 2: TaskRabbit to RunMyErrand

TaskRabbit, later named RunMyErrand, is an online marketplace offering services for local demands like assembling assistance, delivery of products, handyman works, and more.

Background: In 2008, Leah Bosque Solivan ran out of food for her pet, and that's when she realized how inconvenient it was for her to run her errands in the middle of the night. This led to the thought process, "What if there was a tailor-cut service available to cater to her needs for which she was willing to pay too?".

The initial setup and idea was to have a website named "RunMyErrands" with 100 runners and move around to offer services in the Boston Area.

Role of financial management: Leah Bosque Solivan was passionate about her venture when the concept of "sharing economy" business models was new and unwelcome. However, one of her friends connected to the CEO of Zip Cars, and he liked her idea and saw potential in her venture.

  • Scott Griffith, the CEO of Zip Cars, advised Bosque Solivan to apply for Facebook's startup incubator, fbFund.
  •  She was introduced to various investors through her fellow entrepreneurs and friends.
  • She got $1.8 million in seed funding in the incubator.
  • The next set of years marked a period of excellence with a proportional increase in the funding received from $5 million to $17.8 million in Series B funding.
  • The company eventually rose from a 100-runners company to a 2000-runners company and later expanded to nine countries and 75 cities.
  • Bosque Solivan faced problems while launching the application for IOS users. However, they were taken care of with the proper allocation and investments.
  • In the year 2017, the company was acquired by IKEA.

The right approach to investors and efficient allocation of resources led the company to serve from just the Boston Area to nine countries and 75+ cities.


It is a unanimous fact that financial planning is the backbone of any organization. Effective financial planning, when executed precisely, can lead your company to gauge potential chances of success, and misconduct in the same leads to failure of your success on cent percent assurance.

Starting right from the chosen business model to the allocation of resources and clearly understanding how the expenditure and returns fluctuate, financial planning always has the best in place to offer to your business venture. We also discussed the possible challenges faced by startups and the strategies to overcome the crisis.

Regular financial assessments and adapting flexible strategies as per the requirements foster your company's growth at an accelerated level.

Financial planning is nothing less than a core component of your business strategy. Ignoring the same can cause problems with high negative severity, and doing vice-versa can yield desirable turnover.

Encouragement for startups to integrate financial planning as a core component of their business strategy

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At Levy, we help early-stage founders streamline and automate regulatory and legal ops, HR, and finance so you can focus on what matters most — your business.

Note: Our content is for general information purposes only. Levy does not provide legal, accounting, or certified expert advice. Consult a lawyer, CPA, or other professional for such services.

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