Definitions To Get Your Cashflow Up And Running In No Time

90% of startups fail, we’ve all heard the statistic. But, exactly why do these startups fail? It’s because of Cash.

Planning your financials probably feels like a daunting task. You’re not alone. And you can hire help along the way but taking the first stab at creating your financials means you’re taking responsibility for every aspect of your business and ensures you become familiar with the numbers of your company.

91% of the startups that do fail, quote financial issues as the main reason. Understanding your cashflow, budget, expenses, payments, runway and burn-rate are not only essential to keep your business (aka your heart and soul) running, but will also help you speak to investors in the future. You can (and should) hire a professional to help you out, but knowing the numbers can put you leaps and bounds beyond the pack who think “I need customers first, the money will come”. The problem with this thought process? Customers need to buy from a viable company that will be around for a few years. And, you probably want to keep yourself from losing your savings as well as your blood, sweat, and tears.

So, where do you start?

...With some definitions.

What is cashflow?

Basically, cashflow is the process of keeping track of the ins and outs of your cash. For investors, or yourself, it is a window into how the company is being operated.

Finance - plans the future of the company’s accounting

Accounting - keeps track of what happened in the past

Payment - when you pay someone else

Expense - agreed on responsibility to make a payment in future (future payment)

Sources - where you’ll get the money from (own money or from friends/investors, revenue)

Uses - how you will use the money

Budget - the amount of money you plan to spend. Or a financial forecast on what must be spent. Based on what you’re actually able to spend, not what you want to spend.

Burn rate - the amount of money that you’ll spend in a given month

Runway - the number of months you have before the money runs out

So, now that you have some basic terms to get started, you need to think about your own numbers and projections. You’ll likely be making educated guesses as to your financials. This will be your pro forma financials. These will become more accurate over time but it is important to compare where you think you’ll be in the first few month to where you actually are and adjust your runway accordingly.

Hopefully, this is a good start to getting yourself prepped for more financial know-how. These definitions come straight from the Financial Modelling lecture of our First Time Founder School. We’ll continue to offer you insights from the course. You can sign up here to receive those insights and watch our introduction webinar. But, the best way to turbocharge your launch is to take the course itself. You’ll get templates to adapt to your business and the opportunity to work with your instructor and fellow students to plan your financials and set your business up for success (the first time around)!

Click here to learn more about the First Time Founder School by Startup Course and Next Chapter.