Why should you care about startup finance? “I’m the visionary,” you might say. “I don’t want to get bogged down in financial reports. That’s what bean counters are for.” Right? Wrong. You need to understand your numbers — to understand your business better, make better decisions, make fewer mistakes, and hopefully turn a little cash in to a lot of cash.
Sometimes entrepreneurs think they can leave the finance and the numbers to the bookkeepers and accountants. That’s a really bad idea. You certainly want to have a bookkeeper. You certainly need accountants. And you can use them to collect and analyze the financial data, but you need to understand the underlying financial flows of your business. That’s key to your understanding of how to manage your business. And sometimes finance is not about money. So for example, how long will it take to get a customer to buy your product? How much cash do you need to get to this milestone? How much do we spend on marketing in order to generate the revenues we’re looking for? How long will it take to convert a prospect into a paying customer? These are some of the questions that investors are going to ask you that you should be asking of yourself that finance can help you answer.
The tools we’re going to talk about are going to help you manage the business that you’re running from day‑to‑day. And most importantly, they’ll help you get into the future and build an even more successful company. The five key elements of startup finance form a pyramid on which you can build your company. At the base of the pyramid is the foundation of your business, that’s reflected in your balance sheet, in your capitalization table. Above that are the processes of your business. Those are reflected in your income statement and your cash flow statement. Above that is your business model and your business model formula. That’s the engine of your business. We’re going to talk about converting that into financial numbers. Then we’ll talk about your operating budget and your long‑term financial forecast. And on top, we’re going to talk about monitoring your performance. We’ll talk about your monthly financial statements and about building a management dashboard.
These tools help you understand what has happened in your company, what is currently happening in your company, and what you can expect will happen in your company going forward. And if you take full advantage of these tools, they can even give you an early warning system to make sure you see what’s going to happen in your company before it happens. The world of entrepreneurship is really filled with uncertainty. Things are changing rapidly. So you need every tool that you can get to manage that uncertainty.
By the end of this series, you will have the tools you need to build a successful company. And I hope you will see finance not as a dark art, but rather as a powerful tool to help you build a brilliant successful company.