Financial planning for startups to weather the COVID crisis
As we enter a second year of the COVID crisis, many founders are struggling to manage their finances amidst falling revenues and enforced redundancies. Whilst government support is being made available to businesses, there is plenty of uncertainty about the future and how to navigate through serious economic volatility.
To help startups through these challenging times, Ralston has developed a practical financial plan for founders to hire faster, stress less about cash flow and better understand their business performance.
Discover how to become more decisive, align your team to your business goals and track your progress with this tried and tested financial methodology.
Key elements of your financial framework
If this is your first time doing a financial plan, it can be tricky to know exactly where to start and what you should include in your framework. The first step we recommend is to think long term (3 years ahead) and work backwards, ensuring you have measurable targets for revenue and customer acquisition in order to drive your decision making now. Once you’re clear on your Year 3 targets, you can identify what you’ll need to feasibly achieve in Year 1 with this roadmap.
Secondly, define your customer acquisition channels and where to invest your sales and marketing spend. Set clear top of funnel metrics e.g. leads generated or website sign-ups then create a strategy for meeting that KPI.
Finally, figure out how much cash you’ll need and when you’ll realistically get funds from customers to ensure healthy cash flow. Consistent forward planning and tracking of your performance are key to minimising surprises and ensuring you are laser-focused on your goals.
Common financial myths and obstacles to overcome
How many times have you put off financial planning because it’s daunting or too time-consuming? There’s no silver bullet, but a great place to start is to translate your targets into a straightforward financial model you can understand. A popular myth founders often tell themselves is “finance isn’t really my background, I’m not a numbers person”, this has much more to do with lack of confidence and experience rather than knowledge. Taking the leap to launch your company is an exciting prospect but you’re now financially committed to all your stakeholders. This can seem overwhelming to some but you don’t have to do this without support. There are plenty of useful tools, templates and video tutorials online to help you create a water-tight plan in a few simple steps.
Another common myth is “I know my business inside out already and I’ll hire a CFO when we are too big for me to manage things alone.” This sounds great in the short-run, but as your business gains more traction your focus widens. It quickly becomes harder to prioritise between focusing on customer acquisition, fundraising, marketing and every other hat founders need to wear.
Ultimately, you want to forecast for different scenarios and create a financial plan that is a living and breathing document which evolves alongside you. This will allow you to make quick decisions and be adaptable when obstacles inevitably arise. This means you need to be disciplined in keeping your plan updated and continuously monitor your progress to make sure you’re on target. Tie your plan into monthly meetings and quarterly reviews so you’re referring to it regularly and adjusting it accordingly.
Tactics for navigating finances in a post-COVID world
The past year has shown founders the importance of being resilient in the face of adversity and this year will be no different. There are a few things you can do to ensure 2021 starts on the right foot. Make sure you are communicating performance and expectations regularly with your staff, suppliers, customers and investors. You should have consistent messaging about the state of your finances to preempt any anxiety within the business. For example, investors should be assured that their funds are protected, staff should be made aware of changing performance targets and suppliers should be held accountable to their payment terms.
The next important step is building out your business contingency plan. Identify risks/worse case scenarios such as a 10% decrease in revenue and consider what actions can be put in place to protect against the dip. Generate contingency options by organising them into actions you ‘must do’, ‘should do’ and ‘could do,’ to address the impending scenario. For example, consider cutting back on resources, office space or bonuses. Finally, clearly define what needs to occur for an option to be actioned, who will be the owner of carrying that action forward and the quantifiable impact and timeline.
Once these have all been determined it’s time to put your plans into action. Create tasks for owners and ensure accountability. If you have milestones put in reminders to check in on specific metrics. If you created contingencies for say a 10% drop in revenue, make sure you’re tracking this closely. Remember, you’ve created a contingency plan to ensure you can act quickly should the unexpected arise.
Discover more about effective financial planning at our upcoming webinar and get a head start on your startup finances.