Our financial expert Olivia has worked for some of the biggest financial firms across the globe.
In this blog post our financial guru Olivia who has worked with some of the biggest financial institutions and banks in the world, has created the ultimate guide on understanding financial terms for your newly founded company.
Understanding finances as a founder or aspiring entrepreneur is the foundation for not only financial success, but overall strategic planning and longevity. Financial management needs to be a priority before you even start if you want to build a sustainable business. One of the biggest problems we see many start-ups make is not having a well-thought-out financial plan if not one at all. Not only is this a red flag but an indicator of a founder who does not understand the importance of money management. This also applies to VC-backed companies that completely burn through their capital and can’t close their next round of investment. Yes, ‘news flash’ investment-backed companies fail too.
The media often portrays companies as collapsing overnight, but that’s far from the truth. The reality is the company would have been experiencing cash flow problems prior before they went bust. The question moreover is why did the founder not see the problems beforehand? Or did they simply keep winging it, in hopes that these very problems would magically disappear or fix themselves? What’s even more shocking is the number of start-ups that don’t understand the basic financial terminologies that are instrumental in running a business. Our team is often left in complete shock when boutique owners and founders tell us they don’t have a financial plan nor ever thought to create one.
Below is a list of the key financial terms all business owners should know..
Break-even | Income Statement | Gross Profit | Margins | Cash Flow | Net Profit |Overhead Cost | ROI | CPC | Balance Sheet | Profit & Loss Sheet
A list of key financial terms if raising outside investment..
Venture Capital | Equity |Cash runway | Terms Sheet |Angel Investors |Pre-Seed |Series A, B| Cash Runway | IPO | Burn Rate | Churn Rate | Cap Table | Convertible note| Equity dilution | Cap Table | Pitch Deck
I remember meeting a founder based in Los Angeles who was given £150k pre-seed by an angel investor to launch his company in Beta. Fast-forward 14 months later and the company no longer exist. He blew 60% of the investment on marketing and the rest nobody could seem to account for. The first question would be, at what point did he realise he needed to stop wasting money on marketing funnels that weren’t bringing in a great return? At what point did he also stop to check his cash runway?
Best Accounting Software For Startups
We get it, not everyone has the funds to hire a top-notch accountant to ensure their finances are in check. But accounting apps have taken over, making managing your business finances a breeze. Platforms such as Sage and Xero remain the leading accountancy apps, with most platforms offering one-month free trials and 50% discounts for the first 6 months. In other words, there is no excuse for why you can’t get your business finances in check. It would be best if you prepared a financial plan before launching your business. Without one you will hit many roadblocks and either run out of capital or end up with a business that was doomed from day one. You may find that after completing your financial plan, the business idea you had in mind may require outside investment or that the business may not be as profitable as you thought.
If you require mentorship or help creating a financial plan for your newly founded fashion brand our financial expert Olivia has a number of services to help you get started on Lavi Rev.
