Financial Planning for Your Startup in 8 Steps

By Nadia Zaharieva

1. Startup capital: Get creative.

How do you estimate how much money you need to start a business? Begin by preparing a budget—a table in which you will log all the expected expenses until opening day. Spend some time exploring costs—of equipment, materials, repair, and others—so you can predict them as accurately as possible. Budget for unexpected expenses (10-15% of your total) as unplanned things always come up. Get creative: you do not need to borrow to get the necessary startup capital. Give deferred payments, consignment, or barter a try instead.

2. Monthly budget—working capital: Think ahead.

Your business needs money not only to take off but to operate as well. If you buy a car, the purchase cost is your initial investment, and car use–related expenses such as for fuel, wiper fluid, oil and tire changes, and parking space rental come from your monthly budget. The monthly budget is actually the turnover you need to keep your business going. Think ahead: without turnover, your shop may remain empty and your production cease in the first month.

3. Estimates of revenue and expenditure: Be conservative.

Most newbie entrepreneurs are excessively optimistic about revenue. How many days a year will your business be open? 365? Even if you work without a day off, it is likely that you will have little to no business over the weekends. There is no one at seaside hotels in winter. Be conservative: whenever you calculate expected revenue from your business, multiply your work days by your conservative projection. Similarly, to estimate your expenses as precisely as possible, you will need to study prices, seasonality, sales, and competitors’ revenues and earnings beforehand.

4. Break-even point: Analyze this.

Initially, your business will only have costs; revenue will come slowly and not immediately. At the outset, your revenue will not be enough to cover your costs, but over time, it will reach a point when your earnings will equal the costs incurred—that is, there will be neither a profit nor a loss. Break-even point analysis is just an analytical exercise: it won’t help you grow your business, just tell you how much you need to sell to break even.

5. Cash flow: Learn to forecast.

Operating cash flow is the difference between sales income and the potential cost of raw materials, supplies, etc. Forecasting and controlling your cash flow will provide you with low-priced cash at the right moment and will allow you to effectively use your temporarily free cash.

6. Loans: Be smart.

Startup risk is very high, and banks hate risk. The only way to get a good loan for your startup from a bank is if you offer good collateral. Typically, banks require that the collateral value is at least one and a half times the loan amount—that is, if you get a loan of 10,000 Bulgarian levs, you must offer collateral worth 15,000 levs.

Interest is the price of risk. The higher the risk, the higher the loan interest rate. In addition to interest on the loan, you may be charged an application fee, a loan servicing fee, and an early repayment fee. You may also incur costs in getting a mortgage or setting up a bank guarantee. Be smart and always compare several banks’ terms. Most importantly, figure out whether your business is strong enough to repay the loan.

Another thing banks hate is taking debt collection action. Banks want to come to an understanding. Always negotiate with and seek assistance from your bank.

7. Alternative financing: Go online.

There are different ways to fund your idea—from raising funds through crowdfunding platforms to participating in startup accelerators, where you can present your idea to potential investors and partners. Do you need a guide in the world of alternative solutions for your startup in Bulgaria? Check out StartUp Navigator.

8. Money management: Be modest with yourself and generous to your business.

As you start making money, the temptation to buy a new car or an expensive house grows stronger. But a car and a house are liabilities. Not only do they not bring gains, they actually require maintenance and incur other expenses as well. Businesses must constantly evolve, so reinvest your earnings in innovations, improvements, and training. If you spend everything on yourself, your business will soon go under.

Nadia Zaharieva has 17 years of experience in banking. She was an investment manager for hotels and tourism at the Bulgarian-American Enterprise Fund and the Bulgarian-American Credit Bank. She is the program director for private sector development at ABF.

The article is based on a lecture Nadia Zaharieva gave in the Business Achievements for Social Entrepreneurship program in Mirkovo in 2018.   

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