Financial planning can be one of the most challenging aspects of running a startup — not least because most founders must learn how to do it on the fly, while juggling all the other demands of growing a new business. But the right financial plan, implemented in the right way, can mean all the difference for your startup’s long-term viability.
Of course, financial planning is a broad category that involves a number of different tools and processes. It can be hard to know where to start, which is why we’ve put together this guide with five tips to get you started. Use it to build out your key goals and financial foundations, which should keep you steady as new challenges inevitably arise.
To plan effectively, you must have a goal to plan against. You can evaluate your company’s success at planning for (and achieving) its financial future using a type of performance measurement known as KPIs, or key performance indicators.
It’s a good idea to formulate top-level KPIs for your business. These should be specific, actionable, and measurable — and they should collectively form a clear snapshot of your progress over the coming months and quarters. You may also want to settle on a core set of finance-specific KPIs, which may or may not be the same KPIs you measure to evaluate your overall business’s success.
Two common financial KPIs are gross profit margin and net profit margin. The former is the difference between the revenue you bring in and the cost of goods sold; the latter is the percentage of revenue that remains after you deduct expenses, taxes, and any additional costs. How you prioritize these may depend on the stage of your business, but the bottom line is that you must have a clear objective before you put any planning mechanisms in place.
Especially at the early stages, it’s crucial to have enough cash on hand to keep the lights on — both literally and figuratively. This means monitoring your cash flow and, ideally, automating your accounts payable and accounts receivable processes as much as possible to ensure consistency.
Even if you theoretically have enough cash coming in vs. going out, it matters when that cash hits your accounts. You don’t want to be stuck in a situation where you’re waiting for a client to pay an invoice just so you can afford to pay a contractor for their services. Keeping an ample cash reserve on hand is ideal, but at the very least, set terms with your clients and suppliers that are favorable to your cash flow. This means communicating clear invoicing policies to your clients on one hand, and negotiating longer payment terms with your suppliers on the other.
Omi, can help you track and automate your business contracts and payment obligations from one place. It also seamlessly integrates with your accounting software, so you can keep your cash flow on track no matter which other tools you use.
Another way to manage your cash flow, of course, is to ensure that you have a long runway of cash on hand to grow and invest in your startup. In many cases, this means fundraising from outside investors.
Attracting venture capital is rarely easy, but it will go more smoothly if your startup clearly has the potential to grow into a much larger and more valuable company over time. If it does, the next step is to make your startup fundraise-ready. Start to build relationships with as many investors as you can — but prioritize those who have a good knowledge of your industry and can provide insight and help along the way.
Once you’ve identified the right investors, work on developing a succinct and compelling pitch deck. You don’t need to start from scratch; Pitch and Canva both have great templates to work with, and the VC firm Sequoia Capital offers a great guide to pitching that speaks to what VCs care about most.
Financial planning requires an understanding of your full financial picture. Unfortunately, too many businesses neglect to account for a big part of that picture until they’re hit with a penalty or notice. We’re talking, of course, about taxes.
An end-of-year tax surprise can put your business in a dire situation, especially if you’re operating on a lean budget and don’t have the funds to afford an unexpected tax payout. Invest early in a tax professional who can explain your tax obligations and help you find deductions to minimize your burden.
Fortunately, financial planning is much easier these days thanks to a bevy of financial technology tools and platforms that exist to automate processes. For example, accounting software can help you streamline bookkeeping and reconciliation.
To modernize and automate your contract management workflow for ultimate peace of mind, consider Omi. Our platform simplifies the task of tracking payment activity and automates a whole host of other payment processes, such as approvals and reconciliation.
The world of startup finance is far from static, but the more predictable your finances, the better positioned you are to steer your startup toward growth and profitability. At Omi, we provide the financial tools and infrastructure you need to keep your spend predictable.
But a business doesn’t just need predictability — it also needs tools that save time and automate crucial elements of financial planning. That’s one of the reasons why we’re launching our latest product, Omi. Omi is a way to help you track and automate your business payments from one place, giving your finance team insight into the metrics that matter the most.
For a demo, send an email to hello@omi.com to learn how Omi can help your business.
Omi makes it easy to keep track of our vendors and gives us actionable insights into our finances where we don’t have to open excel
