An Ultimate Guide to Financial Planning for Startups

Starting your own startup business can seem both exciting and overwhelming at first. Where to start is the most common question aspiring entrepreneurs have. Well, that’s a whole different story which you can explore in the ‘Startup Roadmap‘ section.

But do you know what makes a startup extremely successful? It’s financial planning.

Financial planning creates a solid foundation for your business and covers all important elements of running a business such as financial goals, revenue forecasting, cash flow, budgeting, risk management, and more.

In this blog, we will explore all these important factors one by one, giving you in-depth information on how to create a financial plan for your startup. 

By the end of this blog, you will have a better understanding of starting your business with a solid financial plan, and important elements to include in your financial planning guide to achieve long-term financial goals.  

What is financial planning for startups?

Well, your financial planning is the process of creating strategies to help your business with financial decision-making. It is just like a financial roadmap for your business.

Financial Planning for Startups

Creating a roadmap that includes your financial status, goals, and projects, are all crucial elements in financial planning for startups. 

It includes an ultimate guide to investing, your revenue estimates, cash inflow and outflow, and a long-term plan for making your idea a success.

Creating realistic financial planning for startups requires you to identify the readily available resources, the availability of funds, marketing, operations, and management, and the salaries of your employees.

Thus, a realistic financial plan is one of the most crucial factors in getting your startup idea up the ground. 

Once the financial plan is set, it is equally important to revisit, make necessary changes and track your progress.

Why is financial planning important for businesses?

According to the startup failure report, the top most reason for startups to fail is business owners not investing proper time in creating a financial planning model for their startup.

If you have expenses, drawing out a financial plan for a startup is the foremost thing you must take care of. Most people have limited resources and funding, which eventually goes to waste in endless trial and error if a plan is not set in stone.

Investors love a simple startup financial model to be delivered to them if they are going to be serious about investing in your startup business. Thus, it is a bulletproof way to start pitching to investors to organize your funding.

Financial planning for businesses allows them to take calculated risks and even identify potential risks, worst-case scenarios, and uncertainties. This, in turn, proves useful in making contingency plans to minimize the loss caused by unforsaken scenarios in business.

A good model of financial planning for startup businesses helps to set goals and also track them in the near future. This gives space for growth and improvement of necessary strategies in business.

How to create a financial plan

Let’s see now how to actually create a financial plan for your startup step by step. For a better understanding, we’ll learn how Airbnb used these steps to create a financial plan.

create a financial plan

Here’s your step-by-step guide.

1. Identify your business goals

Your goals are the starting and the end point of your business. That’s why you must start your financial planning with them. 

On the very first move, get clear about what you want to achieve both in the short run and the long run.

The only reason why identifying goals is the first step is because without knowing what you want you can’t create a plan. Only when you understand what you wish to achieve, will you be able to create a real financial plan towards achieving it.

Your goals must be easily measurable and relevant to what you are capable of achieving. 

Example: In this step, the Airbnb founders decided that their goal will be to give unique and affordable accommodation for travelers and help hosts to monetize their properties.

2. Determine your startup costs

Right after you understand what your goals are, move on to determining your startup costs. Having a complete understanding of your starting-up cost will let you create a plan with steps to help it.

What can be your startup costs?

Well, your startup costs can be any expense that is made to get your startup up and running. This can be anything from office rent to legal fees, and so on.

Don’t try to be too optimistic and consider your startup costs to be low. Research the industry and gather data to learn what other businesses had to give in order to start and run their operations.

Example: Initially, the founders didn’t have a lot of expenses. The only expenses they determined in their financial plan were website development costs, marketing expenses, and hosting services.

3. Revenue projection

Now you have to estimate your revenue to plan your expenses accordingly. How can you do that? Well, this can be done by creating a sales forecast. 

A sales forecast is an estimation that tells you how much revenue a business is expected to make with its sales, in a given period. So by creating a sales forecast, you’ll better understand what you must expect from your business.

Sales forecasting can be done by gathering data from sources like market research, customer surveys, historical sales data, etc. 

A really important tip for this step is to NOT be over-optimistic. Don’t try to think that your business is something special that’ll make more than what other businesses make. Yes, it might be special, but the business world doesn’t work that way. Just try to be realistic when creating a sales forecast and record proper projections.

Example: For this step, Airbnb projected its revenue in several ways:

  1. By conducting market analysis to learn about the industry and keep an eye on the growth rate.
  2. By asking early adopters on how they feel about the idea and whether will they come back.
  3. By determining the rate at which the startup is retaining hosts to estimate their revenue from properties.
  4. By checking out how much their competitors are making.

4. Developing a pricing strategy

The prices of your products or services immensely affect the revenue and profit of your startup. That’s why your next job is to develop a pricing strategy.

Two very important things to keep in mind – Making a profit and attracting customers. 

Your pricing must be created in such a way that is exactly the same as what your customers are willing to pay and also brings profit to your business. It shouldn’t be too low or too high.

Factors to consider:

  • Customers demand – If the demand is high, you can charge more. If the demand is low, you’ll have to lower your prices.
  • Production cost – Price must cover your production cost.
  • Quality – You can charge more if you sell a high-quality product or service. Otherwise, you’ll have to lower your price.
  • Competitor pricing – How much is your competitor charging?
  • Profit margin – Your pricing must cover your desired profit margin.

Example: For this step, Airbnb’s major aim was to keep all three parties happy with the pricing – guests, hosts, and themselves. Airbnb analyzed what similar businesses are pricing and positioned itself as an affordable alternative. Along with that, it also allowed hosts to set pricing as per the demand.

5. Managing your cash flows

What next? Well, now it’s time to project and manage your cash flows.

Cash flow is the inflow and outflow of cash in a business. This helps you take action to maintain good financial health and avoid problems.

In the beginning, try to create a cash flow projection. This will tell you how much cash inflow and outflow your startup is expected to have in the future. 

👉 Examples of cash inflows are Revenue from sales, interest income, taking out a loan, and tax refunds. 

👉 Examples of cash outflows are employee salaries, dividends payable, and mortgage payments.

Once you do that, you can decide if you need cash, defer some expenses, and so on.

In addition, go through your cash flow statement regularly and compare it to your estimate.

Example: Firstly, they estimated the cash inflow by determining how much revenue they can make. Then they carefully budget their expenses. Next, with this, they forecasted whether they will have a cash surplus or cash deficit. Finally, they decided on how they are going to conserve cash.

6. Raising money

Well, this is a simple truth – if you don’t have enough money for your business, you can’t run it. So how can you acquire money? Well, that’s what this step is about.

The very first thing is to list out all your expenses and where they come from.

Done? Good.

Next, create your budget that shows how much money you need.

After that, you can go for raising funds or arranging money.

You can make use of sources like, personal savings, family debt, loans, angel investors, crowdfunding, government grants, and so on. Each comes with its pros and cons, so try to learn and understand which one is better before taking any step.

In terms of personal savings, family debt, and loans, you can do bootstrapping initially, then go for the other sources of funding such as angels or VCs, after getting some tractions.

Example: In this step, Airbnb decided that it is going to use various sources to raise money. They were:

  • Bootstrapping – Initially, the founders rented out their own apartments and resources to make money.
  • Angel investors – They started pitching their ideas to attract angel investors
  • Y Combinator – It was accepted into the startup accelerator program by Y Combinator.

7. Review and revise

After you complete all these steps, lastly review and revise your financial plan.

You see, as your business grows, it will bring with it many new changes. These new changes may not match your previous financial plan. That’s why, you’ll need to review and revise your financial plan once in a while.

Adding to it, you also need to monitor your financial game. Check it with your financial plan and compare it to see where you are lacking behind.

How is everything working? Is it according to the plan we created? Do we need some changes?

These kinds of questions will help you identify all the errors in your current financial game and improve them.

Example: Finally, Airbnb always kept an eye on customer feedback, market trends, business expansion, and other factors to be ready to make changes to its financial plan.

Important components of a financial plan

Well, there are a few components of your financial plan that are highly important to it. One cannot create a financial plan without having a proper understanding of these components. That’s why you must know about them before you create a financial plan for your startup.


You must realistically plan your revenue stream to get a clear idea of your current and future income and plan for your business accordingly.

In most startups, generating revenue outright is not possible. External elements such as sales, ads, sales, marketing, etc are required to initially boost sales and increase conversion rates.

Although a bullet-proof roadmap for revenue generation is not ideal or even realistic, having a basic idea and an account to plan your revenue streams acts as a catalyst in the process.

Various types of businesses need to take care of different types of revenue streams. Some of them are listed below –

  • Sales – Selling goods and services to your target audience and analyzing the size of your market is one of the easiest types of revenue. Startup businesses can calculate their sales revenue by simply analyzing their target market, the price of their product, etc.
  • Advertising – If your company generates revenue through advertising, the number of views, website clicks, shares, website or app traffic, ad impressions, etc are ways to analyze your revenue.
  • Subscription – If yours is a company built on subscription programs as a revenue stream, you can analyze your revenue by calculating the number of subscribers, churn rate, and pricing of your service.
  • Royalty – If you earn by licensing copyrights, you can estimate your revenue by analyzing the value of your copyrights and licenses.

Thus, planning your revenue streams well in advance gives you valuable insights, allows you to take calculated risks, and avoid foreseeable damage in the near future.  

Future Expenses

One must be able to predict future expenses to have a stable business. These can be either direct expenses or indirect expenses.

Direct expenses are basically costs of sales such as raw materials, tools, equipment, hosting, etc. Indirect expenses are costs other than production expenses such as rent, salaries, etc.

Future expenses, although difficult to estimate, can be looked after in some simple ways like this:

  • One of the very basic ways to predict future expenses is to keep an eye on past patterns. Historical data on company expenses can help identify these patterns and spending trends and can help look out for future expenses aligned with similar patterns.
  • Creating a budget is crucial for any company, however small or large scale. Calculating and budgeting expenses such as travel, food, rent, holidays, etc can help your expenses in check.
  • Industry benchmarks and competitive company expense trends can help predict near-future trends for your own company.
  • Lastly, future expenses can never be set in a bullet-proof plan and thus requires you to have a contingency plan for your company to overcome unforeseeable expenses.

Thus, careful and mindful analysis can help identify future expenses beforehand and also can help plan for your company’s future.

Cash flow

Cash flow can be described as the amount of money that comes in and goes out of your business. Without maintaining a full record of your cash flow, you might lose track of your expenses and end up putting your reputation down the rabbit hole with unpaid bills lying around.

Operating cash flow means the cash that the company generates internally from its sales revenue, inventory, etc. If your operating cash flow is positive, it means that your company is doing well enough and covering the daily expenses easily.

Investing cash flow is another aspect that shows how the company has planned its long-term investments such as property and equipment. You must not invest negatively where your cash investment is more than your cash generation.

Thus, by this report, investors can make an informed decision, and managers and business owners can keep easy track of their cash inflow and outflow over a set period.


KPIs or Key Performance Indicators are factors that indicate how your business, department, and goals are doing as per set market values. This helps company owners to track their growth and identify any areas that may require improvements.

Some important indicators are as follows:

  • Employee satisfaction – If your employees are satisfied with the work environment that your company offers, it is an indicator of good overall performance.
  • Churn rate – It means the rate of the audience that stops using your products or services over a set timeline due to a lack of satisfaction and upgrades. This helps identify areas of improvement and helps upgrade your products as per customer needs.
  • Revenue – Revenue growth rate is another indicator that tracks the flow of revenue in the company to identify ups and downs.

Hence, KPIs help monitor a company’s growth over time and have room for developments and improvements to scale the business.


Calculating risk is an essential part of financial planning for startups. By estimating future risks, startup owners can plan ahead to do damage control and make informed decisions about investments, marketing, advertising, and business strategy.

Some risk management steps to help you plan ahead:

The very first step is to identify potential risks. This comes with years of experience and patience. These risks may include market risks, financial risks, legal risks, etc that are specific to your industry and business.

Every risk may have different impacts on your business. The various damage can include financial losses, lower market rates, reputation damage, etc

You can use a risk matrix tool such as Creately’s risk assessment, to analyze the impact these risks put on your business. This is necessary in case of multiple risks occurring at a time as it helps to prioritize the ones with the most potential damage to your company. This way you can make informed decisions and focus on the important tasks first.

Once identification is out of the way, implementing strategies for damage control is important. These strategies may include controlling reputation by making donations, diversifying your business, changing strategies, claiming insurance, etc based on the type and intensity of the risk your startup business is facing.

Lastly, reviewing your risks and mitigation strategies from time to time is equally important here. This helps keep you on your toes with damage control, make necessary strategy changes, and make informed decisions based on the current company situation.

Thus, risk management can never be a full-proof method but implementing certain damage control strategies and being active in this area can help you avoid reputation and financial damage to a great extent. It increases your chances of getting back up from the ground quickly.

Some additional tips for creating a financial plan even better

Ok, now you know everything about a financial plan, except for some additional tips. So it’s time to get some additional tips about creating a financial plan.

1. Test your assumptions

The first and foremost tip to avoid falling off your entire business model is to test your strategies in different scenarios. Try applying your assumptions in more conservative or more aggressive scenarios to ensure that your model works fine even outside a set timeline.

You can also run a competitor analysis to ensure that your strategies are valid in today’s market. Asking questions like ‘What if we double the amount used on advertising and marketing? or ‘What if we hire new salespeople?’ and trying to find a logical answer that suits your company metrics can help you tackle future hurdles with ease.

You can collect data to test your assumptions by running a market search, competitor analysis, etc, and analyze if your financial plan is realistic and can be put to use in the real world. Looking for market trends, industry benchmarks or gaps, etc are some ways to do so. Change your assumptions in case your data and assumptions don’t align together.

Thus, by putting your assumptions to the test, you can identify what works and what doesn’t for your business. It can help improve the efficiency of your business and help make informed decisions about buying and selling, customer feedback, investments, recruitment, and other important factors in the business.

2. Be flexible

Revisiting your strategies and allowing adjustments is very important in creating a guide for financial planning for startups with changing market trends, unexpected expenses, and unforeseeable risks of running a startup business.

Market changes are unavoidable and happen rapidly. Being flexible with your business strategies can help make changes in revenue projects, expenses, cash flow, investments, and recruitments faster and more effectively.

Unforeseeable risks such as the economic downfall of the market, financial losses, natural disasters, and other factors can hamper the growth and sustainability of your business. Thus, adjusting and being flexible with your financial plan can allow you to mitigate these risks effectively.  

By regularly looking after your financial plan and making necessary changes, you can make more informed decisions on recruitment, investments, pricing, and other important factors that affect the success of your startup business.

3. Track your Burn Rate

Tracking your burn rate is crucial, especially in your early days when you are likely to burn through your cash faster. Paying attention to where your money is being spent is the only way to secure yourself and not spiral out of control.

One way to track your money is to plan your expenses before you receive the money. This helps you plan ahead of time, spend where needed, and track your burn rate ahead of time.

Some reasons why you must track your burn rate are as follows:

  • If your startup burns out cash and runs out of money in the initial stages of starting your company, it may result in a total shutdown. So, watching your burn rate can help you make informed spending decisions and adjust your pricing, investments, recruitments, etc as required.
  • If your company is seeking investments from investors, it is crucial to have a stable burn rate. Investors watch the company’s burn rate closely before putting their money on the platter. A higher burn rate indicates that the startup does not work through its expenses mindfully and drives investors away.

Thus, watching your burn rate is a critical tip in financial planning for startups. It helps review your financial plan, make adjustments as required, manage your cash flow more mindfully, and make better strategies further on.

4. Clean Data

Your financial plan is only good until your data is clean and updated.

Inaccurate data can cause more harm than you may realize and incomplete data can make your financial plan incompetent in the cut-throat market. This may further lead to wrong financial projections, poor decision-making, financial losses, etc.

By keeping your data updated, decision-making improves, and financial projections are reliable and accurate. 

Keeping your data clean can help your business comply with financial reporting requirements like taxes, auditing, and other regulatory filings throughout the year which can otherwise lead to fines and penalties.

5. Seek Professional Help

Financial planning for your business can be overtly tiring, especially if you are not a finance guy. We recommend seeking professional help as it avoids time lost in trial-and-error, gives more accurate results, and saves a ton of time.

Professional financial advisors or accountants make the process of creating a guide for financial planning for startups much more smooth and easy. They have the expertise and the required knowledge to take up any business and understand its complexity, all while creating personalized financial planning guides as per the company’s requirements.

While the process can take long, tedious hours on end, financial advisors can take the load off your back and allow you to focus on things that fall under your expertise.

They have access to resources that you as a business owner won’t. They have access to resources, tools, data, software, and other information which can help create perfect financial guides for your business.

Overall, they save time and money, provide valuable expertise, and numerous resources all while creating the perfect financial plan for your startup business.

6. Review your plan regularly

Reviewing your financial plan on a regular basis can help your company adapt to the rapid industry changes in the market, industry, and changing goals of your business.

It allows you to track your progress and identify potential opportunities to take up in order to make your business successful. It also allows you to identify potential risks on time and mitigate them without much loss to bear.

Financial planning is in general a time-consuming endeavor. Regularly reviewing your financial plan can be much easier than doing it once a year as it helps stay focused on business goals, keeps expenses under check, and actively ensures that your company is progressing and growing.

Picking the right financial planning tools

While spreadsheets might seem easier in the beginning, it is important to choose a good financial planning tool to make tracking everything easier.

Here is the list of things to keep in mind while choosing the right tool for your startup:


Although there are plenty of tools available online, it is important to choose the one aligning with your brand needs. Tools that offer features such as cash flow projections, financial statements, and scalability features are ideal to use.


If you are from a non-finance background, you must find a tool that is easy to understand and require only a piece of basic knowledge about financing. Pre-built reports and model templates are your best friends!


If you are tied to a budget, you can find plenty of good options that are affordable and offer a free trial before paying for the entire month. You must take full advantage of such tools and do your trials and errors properly.


Another non-negotiable feature to keep in mind is whether or not the tool you’re choosing integrates with the other software you require such as accounting and payroll.

So, if you find a tool that ticks the list, go for it.

Financial modeling vs financial planning

Financial modeling is the process of creating a mathematical representation of a company’s financial game.

Many people think both financial planning and financial modeling are the same thing, but in reality, they are not.

While financial planning is about setting financial goals and creating a roadmap, financial modeling is all about using financial techniques to arrange and analyze financial data.

Approaches to financial modeling

Top-down approach

While making a top-down approach, you must consider a high-level or outside-in view of the economy, trends in the market, investments, etc. It is considered a good option for investors looking out for a best-case market scenario before investing in an idea.

The first step of this approach is industry analysis including market, GDP growth rate, inflation, and other macroeconomic indicators. Although not the most practical approach to rely on, it helps investors identify market trends and potential risks.

The next step is to analyze the industry and the market. This includes assessing industry trends, sectors that are likely to see growth, investment opportunities, supply, and demand, etc.

Lastly, investors look deeply into individual company dynamics such as management, financial health, and the potential of the business to analyze investment opportunities.

Bottom-up approach

While the top-down approach is over-the-top optimistic, it can sometimes give false trends in the market. The bottom-up approach is quite the opposite of the top-down approach and is more focused on internal factors than external ones. 

It focuses on individual companies and is an inside-out approach which accurately makes it an ultimate guide to investing for investors. 

The first step is simply to analyze the company. Financial health, growth potential, and competition are some factors to be considered here.

The next step involves industry and market analysis, similar to the top-down approach, and includes identifying sectors with potential growth or declining factors, industry trends, supply, and demand, etc.

Lastly, investors use this macro-analysis to understand the business idea and its potential in the market to invest in startup businesses.


  • Why do I need a financial plan?

    If you want your business to thrive in a competitive world, you need a financial plan. This plan helps you manage your expenses, income, and investments, and maintain good financial health.

  • What are the three main financial statements?

    The three main financial statements are:
    Balance sheet
    Income statement
    Cash flow statement

  • What are the features of a financial plan?

    The features of a financial plan are:
    Achieves goals


Financial planning is an important aspect of running a startup business. 

It allows you to be on your toes with all important business aspects such as financial goals, cash flow, estimating expenses, recruitment, investments, testing assumptions, and staying flexible. 

By taking appropriate time and expert advice on creating a financial plan, you are setting long-term goals for your business. 

A good and strategic financial plan can help your business grow by leaps and bounds. It helps identify potential opportunities and avoid or mitigate risk factors, and it is an essential tool if you are planning on ruling the business market long-term. 

Suraj Shrivastava

Suraj Shrivastava at ForgeFusion shares simple, effective ways to grow your business using SEO, content marketing, and AI, learned from helping over 50 companies. When he’s not working, he loves teaching others or watching documentaries.