Financial planning is the backbone of every successful startup. In the second workshop of the Startup Workshop, we discussed the basics that will help you keep your finances under control right from the start. Here are the key takeaways.
Types of financing: equity vs. debt
One of the first decisions you have to make is choosing the right financing. You can choose between equity and debt capital:
Equity comes from yourself or from investors. There is no repayment obligation, but you bear the full risk.
Debt capital comes from banks in the form of loans, for example. Although you have to repay the money, you retain full control over your company.
The mix of equity and debt capital depends on your business model - each option has its advantages and disadvantages.
Profit and loss account (P&L) - your barometer of success
The profit and loss statement (P&L) shows you whether your startup is making a profit or a loss. It is a key tool for monitoring your financial health. You list your income and costs, subtract the variable and fixed costs and end up with the net profit. This tool is indispensable for making informed decisions about investments and cost reductions.
Cash flow and liquidity - the pulse of your company
Cash flow describes how much money is coming into your business and how much is going out. A positive cash flow is crucial to ensure that you always have enough funds to pay your bills. A liquidity reserve for at least 3 to 6 months protects you from financial bottlenecks.
Conclusion
Solid financial planning is the key to long-term success. Keep an eye on your cash flow, plan carefully and always ensure that you remain solvent.
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