The essential founders' guide to financial planning during a crisis

The essential founders' guide to financial planning during a crisis

Posted: Tue 2nd Feb 2021

With the fallout of the pandemic still lingering, too many start-ups are struggling to keep up with their finances against a backdrop of enforced redundancies and falling revenues.

Despite billions in government loans being made available to businesses, founders are still rightly concerned about navigating the future through serious economic volatility.

To alleviate some of the pressure on start-ups during these testing times, Ralston, the finance firm I work for, has developed a helpful financial plan for founders to stress less about cash flow and better understand business performance.

Read on to learn how to align your team to your business goals, track your growth and
ultimately become more decisive with this fool-proof financial strategy.

Key ingredients of a successful financial framework

Founders often don't know where to start when building a framework from scratch, particularly when finance isn't their strongest skill.

The best way to approach this is to consider some of the key elements you must include in your financial framework to help you manage your business in tough times.

Firstly, review your business plan and think carefully about your three-year roadmap. Working backwards from Year 3 enables you to start putting in place business objectives for Year 1 to ensure you're well on target. This means having clear measurable revenue and customer acquisition goals to help drive your decision making today. After you've gained clarity on your Year 3 goals, you can begin to identify what you'll need to realistically achieve in Year 1 using this roadmap.

The second element is taking the time to really define your customer acquisition channels
before deciding where to allocate your marketing investment. Ensure you set clear top-of-funnel metrics such as website sign ups so you can create a marketing strategy for meeting that metric.

The final element is having a healthy cashflow to keep your start-up afloat. Work out when
you'll realistically receive funds from customers and how much cash you'll need in the bank to cover business costs. Disciplined forward planning and keeping track of your performance are key to minimising surprises and ensuring you are laser-focused on your targets.

Popular financial myths and obstacles to tackle

It is common to think financial planning is too time consuming and to therefore opt to make a plan as you go. The reality is taking a moment to create a financial plan could actually save you plenty of time in the long term.

A myth founders usually tell themselves is "I'm not a numbers person, finance isn't really my background"; this typically has much more to do with lack of experience and confidence rather than knowledge.

You've decided to take that exciting leap to launch your start-up and naturally, that comes with lots of responsibilities. While it can be overwhelming to create a financial plan from start to finish, it's worth bearing in mind that you don't have to do it alone. Enterprise Nation has plenty of useful tools, templates and video tutorials to help you create a comprehensive plan in a few simple steps.

Ultimately, aim to avoid potential obstacles by developing a financial plan that is a living and breathing document. When you have processes in place, it's much easier to forward plan and forecast for costs like recruitment, utilities and marketing. For it to be effective, your plan should be reviewed often so you can track your business goals to ensure you're on target.

Strategies for navigating your financial plan in a crisis

The past year has shown start-ups the importance of being resilient in the face of adversity and 2021 will be no different. Luckily, there are a few things you can do to ensure this year runs much more smoothly.

Ensure you are communicating regularly with suppliers and customers so nobody is left in the dark. For example, customers should be made aware of slower delivery times and suppliers should be told about amended payment terms.

The next important step is defining your business contingency plan. Identify worst-case scenarios such as a 20% decrease in sales and consider what actions can be put in place to protect against the dip. Generate contingency options by organising them into key actions you 'must do', 'should do' and 'could do,' to address the impending risk. For example, consider cutting back on resources, office space or staff bonuses.

Finally, clearly define what needs to occur for an option to be actioned, who will own that action and the quantifiable impact/timeline. Once these have all been determined it's time to put your plans into action.

Build out tasks for owners and ensure accountability across the board. If you have triggered key options, put in regular reminders to check in on specific metrics. If you created contingencies for say a 20% drop in revenue, make sure you're monitoring this closely.

Remember, you've created a contingency plan to ensure you can act quickly should the unexpected arise.

With a combination of experience, skill and grit, Ralston offer trusted part-time and interim financial guidance that you want and need on your team. We provide interim CFOs, financial modelling, investor readiness and remote finance teams for growing businesses.

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