Financial planning for a startup starts with defining short- and long-term financial goals. Once you know what those are, you can begin working on a plan to get there. Here are some steps to create a strategic plan for your new business.
Understand your financial condition
Take a good look at your current financial condition. What income and expenses do you expect? What are your assets and liabilities? This is a good place to start.
Determine your startup costs
Startup costs include renting office space, hiring staff, buying office furniture and equipment, etc. Many companies choose to outsource payroll services. Their partner takes care of most of their payroll responsibilities, such as withholding tax, wage calculations, reporting, etc. Automating payroll could also be an option for your startup.
Choose the right financial planning tool
Gone are the days when businesses did everything manually. It is not a question of whether you will use a tool but which tool. Will it scale as your company grows? Or will it require you to change your whole financial plan?
A lot of the financial planning software currently available on the market targets finance experts. It isn't very easy and requires an average level of financial knowledge at best. Your tools need to be simple enough for laypeople to use but solid enough for your future CFO to operate.
Your solution should make it possible to collaborate with others safely and securely, such as your team, accountants, investors, and other stakeholders. You need to be able to customize your models to reflect your niche or sector.
Finally, it should integrate with payroll, accounting, and CRM tools.
Consider funding sources
This step can precede the previous one, but if it doesn't, this consideration is critical at this stage. Common sources are savings, small business loans, grants, or venture capital.
Revenue streams
How is your business going to generate revenue, and how much do you expect it to generate? Are you selling products, services, or both? You need to create marketing plans and set your prices. Essentially, your startup's financial forecast is a road map that will enable you to track progress and make any changes needed along the way. It should include short-, medium-, and long-term goals.
How do you predict sales?
The first step in predicting sales is collecting data. It can come from customer surveys, market research, or historical sales data. Once you've collected it, you can use it to create a model of future sales.
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Set prices
Setting prices is the next step. Conduct in-depth market research to gain insights into your sector, customers, and competitors. Identify your target group and how much they are willing to pay for your product or service. Study potential buyers' behavior and purchasing patterns to understand their expectations and demands.
You can do interviews or build focus groups besides surveys and market research. It's a good idea to monitor your competitors' prices to make sure you're offering value yet remaining competitive.
Define your revenue targets and profit margin as you consider your expenses, growth potential, and future projections.
Most common pricing models
The most common pricing models for startups are competitive pricing and cost-based pricing. Competitive pricing is the model startups most often turn to. They look at their competitors' prices and adjust theirs accordingly. You need to monitor and analyze similar companies' pricing strategies to ensure your offerings are competitively priced. This approach is appropriate for startups who want to present their products or services as affordable alternatives and gain a market share. However, lower prices are just one advantage. It's advisable to consider features, quality, and customer experience to avoid a price war and its adverse consequences.
Cost-based pricing is where you set prices depending on your production costs. This model guarantees your production is covered. To use this model, you need to calculate your profit margin, fixed costs, and variable costs. Cost-based pricing is simple, but you risk setting prices that are either excessive or too far below the average.
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Related reading: A Guide for Startup Owners: How to Build a Strong Financial Foundation for Your Business and How to prepare your startup business for growth.
