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Financial Planning For Startups – What To Do In Each Stage

Financial Planning For Startups – What To Do In Each Stage


Five Stages of Financial Planning

You want your company to achieve something, a clear picture of your future success is in your mind.

To get there, you need to decide your path, that’s what financial planning is for. Should you go deep into financial planning for your startup or small company, then?  

No! Every minute you spend planning is a minute that you are not executing, and execution is everything!

With that in mind, I developed a small guide to help you decide what are your planning needs.

Exactly the right dosage.

Are Business Plans Necessary?

First things first. “Every business needs a Business Plan” or “Business Plans are a waste of time”?

You’ll hear most consultants say one or the other.

I disagree with both: Business Plans are useful for some, useless for others.

This study confirms my opinion. Having a business plan doesn’t make your business better nor worse.

There are two occasions in which a Business Plan is useful:

a) Your potential investor requires one. (a bit obvious)

If you need to raise money and your investor wants to see a Business Plan, do it.

b) It is going to make you think.

About your customers, their problems, your competitors, the market, and your strategy.

But you don’t need to write a formal Business Plan to think about all those things. Just keep a living document with research and notes about those topics.

It will help you and your team get on the same page about the business you are building.

What a Business Plan will not help with:

a) Not every investor is going to read it.

Especially angel investors, they don’t care about all those details. They will get what they care about from an Executive Summary or a Pitch Deck.

b) Research will not make up for real feedback.

A paper won’t tell you what your customers will think about your product. You will only know when they buy it. Or when they tell you why they didn’t.

Get out of the building.

Next, let’s talk about the planning items that are actually important to grow your business

The Five stages of financial planning

There are many different articles and books about the different stages of a startup.

I adapted many of them and mixed to my own personal experience as an executive and came up with the following five stages.

Survival – Manage your Cash Flow:

At Survival, you need to monitor your Burn Rate, so you should start a Cash Flow Projection.

The first thing a company needs to do: survive. Always have money in the bank!

Companies don’t fail because they are unprofitable or because their product is bad. They fail because they run out of money.

You can only achieve anything if your company survives. It can only survive if it can pay its bills

In practice, managing cash is not complicated at an early stage. I actually created a whole blog post about creating your first financial model in 20 minutes.

Just have a system to track:

  • how much you are spending per month;
  • how much cash you have;
  • what is the timeline for your next milestone (investment, launching a product, …).

Multiply what you are spending for how long it will take for your next milestone.

If that’s less or close to the amount of cash you have, you have a problem. Good thing is now you know there is a problem. So you can do one (or more) of these four things:

  • Get revenue
  • Cut costs
  • Get a loan
  • Get an investment


Burn rate: How much cash you are losing per month.

Runway: How long it will take before you run out of money at the current Burn Rate. To calculate it just do: Current Cash Balance / Burn Rate

Tip: It is super helpful to start early with an Accounting tool such as Xero or Quickbooks (we use Xero). These apps will connect to your bank or credit card account and help you keep organized financial statements. Using one of these will also help you during tax season and for future investor due diligence.

Early Revenue – Predict Your Sales

At Early Revenue, you need Revenue Forecasting, so you should start understanding your Marketing / Sales Funnel.

The next stage begins when you get your first few paid customers. Great news! You have revenue, you have a business.

You can start to build a small team and to make decisions with a little bit of data instead of only intuition.

Then you will ask yourself: “How much will I sell per month in the next few months?”. Or “Am I able to get customers cheaper than what I make of them?”.

Those are two essential questions for your business, because:

  1. They will drive many of your decisions: hires, inventory, marketing spend.
  2. They will impact your cash flow, and cash flow is survival.

To find the answers, map:

a) how much you spend to get a customer?

b) how long it takes from spending to getting the customer?

c) and how much you make of him after he becomes a customer?

Acquiring a customer is usually a function of marketing and/or sales. To answer questions a and b above, you need to understand your funnel:

  • what are the steps you take to convert a prospect?
  • how much you spend on each of those steps?
  • and what is the conversion rate and time?

One example on how to structure your funnel can be seen at this article by investor Patti Glaza.

To answer question c above, look at your revenues per customer. Once a customer signs up:

  • how much does he pay as a one-time fee?
  • how much does he pay per period?
  • and how many customers drop your service per period?

If you can’t answer all this questions, you can’t plan your revenue. Once you can, your plan is almost obvious.

Simulate how much you plan to spend on each step of the funnel. Use your previous answers to estimate how many customers you will get, how much those will pay you, and how many will cancel your service.


Unit Economics: Costs and Revenues estimated per unit (i.e per customer or per service)

CAC (Customer Acquisition Cost): Total cost to acquire one paying customer

Marketing Cycle / Sales Cycle: How long it takes between starting to prospect a customer and him becoming a paid customer.

MRR (Monthly Recurring Revenue): Revenue from subscription or continuous usage of your product or service (does not consider one-time fees).

Churn Rate: Percentage of revenue reduction month over month from existing customers.

LTV or CLV (Customer Lifetime Value): Total value of a customer from his first payment to cancellation.

Early Growth – Create high level budgets

At Early Growth, you need cost planning, so you should start High-Level Budgets.

After you figured out your revenue, your business will start growing. If you got here, congratulations, it is not for many!

The next challenge you will face is going to be a balancing act. You will have too many opportunities.

But you won’t have resources for all of them. How will you decide?


The word budget can cause chills for some. In the corporate world it is associated with lengthy and bureaucratic processes. And at the end no one can spend on anything.

That is not a problem caused by budgets, but by lack of opportunities and ambition. A budget is just a tool to decide how to allocate limited resources.

Unless you have more resources than opportunities, you need one. Every area in your business has limited capacity:

  • Engineering can only build so many features,
  • Customer support can only help so many customers,
  • Marketing and Sales can only get so many new customers,
  • HR can only recruit so many new team members,
  • And so on…

What is the additional capacity that will maximize your company’s growth?

Don’t think about who complains the most. Or what will balance the org chart. Or what are the tasks no one is doing.

Think about what brings the most value to the company.

Some budget decisions are not obvious:

If your product has too many bugs, you will need more customer support reps. But what if you give engineering more budget and fix the problems once for all?

Or your marketing team may not be efficient because it’s working with bad data. If you bring a data analyst, it may lead you to spend more in marketing.

Resource allocation is a big part of being an entrepreneur. Listen to your team and your customers to understand your capacity constraints.

Communicate with your team why you are allocating budget as you are. Don’t leave room for doubt. You will still hear complaints. But hopefully that is just because you have an ambitious team that wants to achieve more

How tight or loose you want to be with your budget is optional. The key here is that you organize it in a way that makes sense for your decisions

Tip: At this point, it might be a good idea to have a Financial Analyst if you don’t have one yet. He will help you build your models based on your assumptions and track how you are doing versus the plan.

Growth – Build Your Operational Plans

At Growth, you need decentralization, so you should start Operational Plans.

Things are clearly going in your favor, your company transitions to this next stage: Growth.

By now, your team has at least between 50 and 150 people and is adding a few more every week.

It becomes challenging to know the name of every person in the company and even harder to know what every person is doing.

Your simple Revenue Forecast and your High-Level Budget will become too simplistic.

Multiple products or multiple pricing plans with different growth rates will skew your plan based on an average revenue per customer.

Multiple marketing channels with different CAC at different volumes will skew your marketing budget based on average CAC.

This same rationale can be applied to any area in your business that grows more complex. Averages won’t work anymore

The next level of planning is to have Operational Plans for specific areas of the business.

You still need all the previous plans. But now they will be adapted to use inputs from Operational Plans from each of the more complex areas of the business.

This means the bulk of the resource allocation exercise will start happening within teams not on the company level

These plans are very specific to each area, a Product Roadmap is completely different from a Sales Plan or a Marketing Plan, but they should all be connected to the company strategy and main priorities.

An Operational Plan outlays resources and metrics related to company objectives for a certain area in a higher level of details than a Business Plan would go. There’s no right or wrong for how much detail is too much.

This transition is very challenging for many entrepreneurs. It is hard to trust your managers to make these decisions, but it is the only way to grow after a certain point.

The hard truth is, as your company becomes more complex, centralized decisions will become worse.

Your managers are the ones who really understand what is going on in their departments. Hire great people, make sure they understand the company strategy, and trust them.

When done well, operational plans are a centerpiece of extremely efficient companies.

Tip: To make this transition smoother, ask for Operational Plans a little bit before you actually need it. Be very involved in the first few cycles and it will help develop trust and confidence on both sides.

Scale – Make your plans dynamic

At Scale, you need real time iteration, so you should start Dynamic Planning.

It doesn’t feel like a startup anymore.

Your company finally got significant market share with at least one product, its name is recognized, you established some kind of competitive advantage, and your senior leadership is consolidated

At this point, you may be considering big moves such as going overseas, entering new markets, or new categories within the same market. The challenge? It is way harder to move fast than it was before.

To maintain agility, you can’t keep adding complexity to your planning as in previous stages. You need to improve the process of planning itself, to make it more iterative. You need Dynamic Planning.

A Dynamic Plan is integrated with one source of truth for performance for the whole organization, allowing for reforecasting and changes in direction according to successes and failures.

Let’s say you have a certain budget related to a product that ends up being way more successful than you expected. If you don’t adapt your plan fast, you will have problems of lack of customer support, lack of inventory, etc. A big win can become a disaster.

Another example is a scenario of crisis, or a major change in market conditions. Your company will want to adapt fast in those scenarios.

Making your plans dynamic reduce the trade off between being adaptable and being efficient. Features that you will want in your Dynamic Planning solution include:

  • Ability to create what-if scenarios;
  • Model top-down and bottom-up budgets;
  • Link performance metrics to each other;
  • And automatically balance resource allocations when changes happen.

If you are at this stage, you will have to choose between building your own planning system or going with an external software.

Unless your company is a tech company with a very unique profile and massive scale, go with a external vendor. It will be faster, cheaper, and you will be leveraging planning knowledge that your vendor develops through their relationship with several companies like yours.

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