Financial projections for startup are what guarantee the sustainability of the business and prove its value to investors.
Therefore, it must be
taken seriously and treated as a management priority, especially in companies
that want to grow fast and scale their operations.
Of course, it is not
always easy to monitor cash flow, manage accounts and even analyze financial
reports, but maintaining this routine is part of the entrepreneur's
challenges.
Were you interested in
learning more about financial projections for startups?
How do Financial projections for startup work?
Financial projections
for startup are one of the most important activities for the survival and
growth of the business.
In this case,
controlling finances means having the company's financial situation always
on the radar and monitoring all entries and exits.
Also, part of the
activity is the control of business assets, management of accounts payable and
receivable, bank reconciliation, and analysis of reports, among other
tasks.
The goal is to utilize
the startup's resources as efficiently as possible, ensure that it stays
on the scalability path, and generate the expected profits.
Contrary to what some
entrepreneurs think, financial control needs to be carried out from the
beginning of the business and not just when it reaches a specific phase or
size.
That way, you build
a solid financial foundation for your startup, avoid the risk
of premature bankruptcy and gain more arguments to attract investors.
Why do the financial projections of your startup
Controlling the
startup's finances is not optional, as managing the numbers is decisive for the
business's success (or failure).
It is not difficult to
imagine this situation: you start your business full of enthusiasm and get a
good investment from an angel investor, but you see your
cash running out daily and costs increasing.
If you don't act
quickly to secure the necessary working capital until the next round of investments,
you could have your startup dream interrupted by a lack of cash and
debt.
Also, investors will
only want to put money into your business if you have good numbers and
financial projections to show for it.
With adequate
financial control, you will be able to prove that the startup has a
future and will be able to follow through with plans to scale your
business.
5 points that deserve attention in financial projections for startups
Financial projections for startup have particularities, and every entrepreneur
must be prepared to take on the task.
Check out some
essential points of attention in this area.
Cash flow
Cash flow is the
central dynamic of finance at a startup, that is, the inflows and
outflows that move money in the company.
Therefore, the first
rule of Financial projections for startup is to know exactly what goes in
(income) and what goes out (expenses) from your cash.
Preferably, it would
be best to track these transactions in a specific financial
management system, allowing you to monitor daily, weekly and monthly cash flow.
Working Capital
Working capital is
the financial reserve you need to keep in cash to cover short-term
expenses and ensure the startup's functioning.
At times, costs will
be higher than revenues, especially in the beginning, when it is normal to
operate in the red until the customer base is formed.
Therefore, it is
necessary to have enough working capital to fulfill the company's obligations
during these periods, seeking to make the most of its own or
investors' money - if it is necessary to take out bank loans, interest can
weigh on the budget.
Accounts Payable
and Receivable
Another essential
point of Financial projections for startup is managing accounts payable
and receivable.
For this, you must
make a chart of accounts to organize payments (space rent, payroll,
suppliers) and receipts (sales income, contributions, income) in your financial
cycle.
When the company
starts invoicing, the ideal is that the suppliers' payment date is not too far
from the date of receipt of sales to reduce the use of working capital.
Break-even point
The break-even point
is when the company equals its income and expenses. That is, it becomes
sustainable and ready to start making a profit.
In startups, it is
important to calculate how long the business will take to reach this point and
get out of the red, starting the company's expected profit generation.
They are remembering
that some startups prioritize growth and manage to reach billions in market
value, even giving a loss from a financial point of view or making very little
profit.
Therefore, generating
profits depends a lot on the strategy adopted. Still, the company must maintain
its sustainable operations and prove its profit potential to
investors – even in the long term.
Cost control
Cost control is
critical to startup survival, especially in its early years.
In this case, the idea
is that fixed costs (rent, payroll, fixed accounts) are kept at the lowest
possible level at the beginning, reducing the company's burn rate (cash burn
rate).
Also, as the business
grows, you will need to maintain a lean cost structure to achieve
scalability.
For more information
you should visit business plan consultant.
Start on the right foot: ideal financial projections for startups.
If you don't have the
time or don't do well with financial control tasks for startups, the best
option is to outsource this task to a qualified team.
At Start with the
Right Foot, you can hire a complete Financial BPO solution called Financial
Uncomplicated, which includes the following services:
– Diagnosis,
implementation and training
- Control of accounts
payable and receivable
– Cash flow
management and its evolution
- Bank reconciliation
- Financial DRE
– Issuance
of invoices and slips
– Online portal for
accessing financial information
– Annual budget
projection
– Preparation of
documents for the accountant.
In addition to having
all the financial routines resolved, you will be able to count on a team of
accountants and analysts specialized in the challenges of startups and
scale-ups.
Do you understand how
to make financial projections for your startup?
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