Financial Planning and Management for Startup
A little story, a few months ago I traveled by motorbike to a place far from the city to meet my family. On the way I faced a problem where it was tough to find a gas station so I couldn’t continue my trip because I ran out of gas. I just remembered that I needed to ensure the gas was enough to reach the destination. So this story has something to do with a startup. Proper Financial Planning and Management are necessary for this startup to run.
Planning and developing a startup financial management strategy must be a top priority as a foundation to keep the company afloat amidst intense competition. They are required to evolve and innovate constantly. Moreover, planning company finances is not only profitable in terms of managing cash flow in and out, Four things must consider in preparing a startup financial planning:
1. Prepare Production Costs
The first step is to list what will be include in the production costs. Production costs are costs used to make products or services for your company. For example, the cost of purchasing production equipment and digital assets to support services provided, such as professional software. Details of production costs also include administrative, marketing, and legal costs. You should prepare to seek additional funds if production costs are higher.
2. Project Profit and Loss
You are can start by making estimates of capital turnover, expenses, estimated profit and loss, income, market analysis, and the break-even point of your product or service. Knowing the amount of profit you want, you should understand how much the selling price of the product itself is. The trick is to compare the estimated turnover with the cost of goods sold and operating costs. Then you can set what percentage of the sales price so you can calculate the potential profit.
3. Planning cash flow
Just like profit and loss projections, in cash flow forecasts, you only need to prepare reported estimated funds to show changes in your startup company’s cash for one period or year. It can be additions or decreases.
The increase or decrease in cash during a period is determine mainly by the amount of spending and investment sales, for example cash outflows such as paying dividends, paying taxes, paying salaries, interest, and so on. For example, if your startup business fund is high, it means you have the potential for a high level of liquidity. But if it illustrates low cash flow, startups are less effective in using cash. So that cash is stable, at the planning stage, you have to prepare the data. What data is required? Availability of capital (both own and foreign investment), projected income, and plans for production or orders.
4. Long-term Financial Planning
I should discuss many things about planning, but I want to focus on spending strategy and budgeting in this video. So, there are revenue and expenses that you should calculate first, and then, you can set the expected revenue and expected costs from it. The spending strategy depends on this report, and once you set the plan, stay within the program. Budgeting also depends on your spending strategy because budgeting should include all areas of anticipated revenues and expenses.
Standard accounting sets this: You have a net income when revenue is more significant than expenses. Net income represents the difference between the total revenues and expenses, while net loss represents the excess of expenses over revenues. Find another related article in here