Launching a startup is exhilarating. You have a vision, passion, and drive to build something great. But without careful financial planning, regardless of the strength of your product, running out of cash is the most likely reason for a startup to fail in the first five years.

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Managing cash flow - tracking money coming in and going out of your business - is a make-or-break skill for any founder. Do it right, and you fuel sustainable growth. Do it wrong, and you end up searching to raise equity funding at a valuation that forces you to give him a high percentage of your business, no matter how good your product or service is.  

This guide covers budgeting basics for maintaining positive cash flow and gives you some tips on how Kikin can help you build business value without giving up your equity. 

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You’ll learn how to:

• Forecast expenses and monitor spending
• Optimise accounts payable/receivable
• Identify the right financing options
• Strategically use non-dilutive funding to fuel production
• Scale without compromising financial health
• Follow these tips, and you’ll master the numbers game. Your startup will have the runway needed to transform an idea into a thriving company.

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Create an Accurate Budget

All successful startups begin with a budget - an estimate of expected revenues and expenses over a set timeframe. 

Budgeting allows you to:

1. Plan production cycles and growth milestones
2. Spot potential cash shortages before they become crises
3. Make strategic spending tradeoffs
4. Determine how much outside financing is needed

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When creating your initial budget: Forecast conservatively. Underestimate revenue and overestimate costs whilst building in a buffer for unexpected expenses.

List all assumptions behind your projections. As your business evolves, you can update estimates to reflect growth. If your business mainly sells products online, the easiest way to set your revenue projections is by using the below formula. 

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Site traffic x conversion rate x average order value

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For example; if you can get 10,000 visitors in month one to your website and you convert roughly 2.5% of your visitors, spending $100 each, you will have $25,000 in revenues. 

We will go into more detail in a future blog post on how to optimise your business for each of these revenue forecast metrics which are foundational to a good financial model. 

Other elements that should be consistent in the way that you build your budget are the following. 

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Connect expenses to milestones. Assign costs to the key activities and production targets that will move your startup forward. This allows you to prioritise spending.

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Analyse cash flow daily. Review income and outlays to understand exactly how much cash you have on hand. Ongoing monitoring ensures you catch any discrepancies between projections and actuals.  This should lead to a cash flow model that shows your cash forecast for a minimum of 13 weeks from the present day. 

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Financing 

With a well-constructed budget, you can then secure financing to bridge the gap between the money you have, the cash flow from sales and the funds needed to achieve your startup’s objectives.

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Choose the Right Funding Mix

Most startups will require some initial working capital that is likely to be in the form of outside friends and family capital.  This is the right financing to raise to cover expenses before revenue kicks in. As you scale, you strategically utilise different forms of funding to sustain operations.  The purchasing of goods to sell is often the first large upfront cost and it’s advised to negotiate hard with suppliers to get good payment terms.  If you can delay the cash outlay to purchase the goods until after you have started selling this can help create a healthy cash flow conversion cycle and more cash be spent on marketing and growing underlying business value.   If you are struggling with payment terms this is where Kikin comes in.  We can help improve your cash flow by funding your costs, paying your suppliers upfront and keeping them happy. 

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As a first-time Founder, funding can be a minefield of buzzwords and rejects but it’s important to keep open-minded as there are several startup financing options:

Bootstrapping - Self-funding a business by cutting costs or leveraging personal assets. Requires significant cash reserves.

Crowdfunding - Raising small investments from a large group of individuals, usually in exchange for future products or equity. More viable for consumer goods startups. Crowdcube is the go-to in the UK and we would be happy to make an introduction. 

Angel Investors - Wealthy individuals who provide startup capital in exchange for equity or convertible debt. Usually invest $25K-$100K. You would be surprised how far you can get with some outreach via LinkedIn.  

Venture Capital - Institutional investors who provide substantial capital ($500K+) for high-growth startups. Take a portion of the equity in exchange.

Business Loans - Banks lend startups money that must be repaid with interest. Approval depends on your credit score, assets, and financial documents. Kikin is the best place to get started for this type of funding. 

Vendor Credit - Suppliers provide raw materials, inventory, or other assets you need, allowing you to pay later. Useful for financing production.

Customer Prepayments - Customers pay upfront for product or service subscriptions, financing production. Common for software startups.

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Assess each option based on costs, repayment terms, timing, and the level of control founders must give up. If you want to maximise your control and ownership then being tactical at this stage is critical. Often a mix of funding works best. For example, bootstrap until you have a proven product, then use angel funding to scale with some credit funding to pay for production and manufacturing. 

Match financing to the exact need. Avoid taking more than required or tapping funding too quickly.  Also, you should be looking to work capital requirements into negotiations with part suppliers to extend payment timelines. This preserves cash which preserves ownership.

Invest Funds Wisely - once you secure financing, smart allocation aligned to strategic priorities is key.  Don’t tie it all up on stock that sits on your balance sheet.  Outside funding needs to drive underlying business value.  If it’s just moving from cash into slow-moving inventory on your balance sheet you aren’t building business value. 

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Focus first on essentials to get your product to market and acquire customers:

Core team - Marketing, technical talent

Production - Inventory, equipment, software

Growth - Ads, sales commissions

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As a start-up, you should be assigning spending to business objectives, it’s to soon to be considering departmental budgets.  Business growth and proof of concept, both proven with sales and repeat sales should be the key objectives.  

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Key Behaviours 

• Reinvest revenue to fuel expansion. Plough income from early sales into product improvements, customer acquisition, or entering new markets and use Kikin to purchase your stock.  
• Keep fixed costs lean, avoiding long-term commitments for physical assets. Instead, outsource manufacturing and leverage cloud-based tools to conserve cash.
• Build in flexibility to dial spending up or down. For example, use freelancers to supplement staff during peak demand versus hiring full-time.
• Review budgets bi-weekly, adjusting for changes in cash flow or priorities. Having ready-to-execute contingency plans allows you to respond quickly.

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Scale Up Without Busting Your Budget

Balancing aggressive growth against financial stability only gets harder as your startup matures.  The same budgeting, monitoring, and control practices remain vital. Your metrics and size of your data might have improved but it’s the same underlying challenge - forecasting growth whilst maintaining enough cash to do it. 

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Scale-up processes: 

• Enforce strict spending oversight through stage gates for large outlays. Ensure all teams understand policies and make sure you can always track back to who approved what spend. 
• Automate tracking of cash flow, burn rate, runway projections, and performance vs. targets using financial management software.
• Keep revenue flowing through upsells, renewals, and diversified income streams. This provides insulation against dips in any one product line.
• Maintain realistic forecasts that account for execution risks as you push to new heights. Be the first to flag potential misses early.
• Watch for waste as the scale of everything - staff, marketing budgets, office space - multiplies.
• Continuously improve cost efficiency.Watch for waste as the scale of everything - staff, marketing budgets, office space - multiplies. Continuously improve cost efficiency.

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Master these financial fundamentals, and your startup can turn the excitement of a seed round into a Series A. Then B, C and beyond, without outrunning your money.  The landscape for raising start-up capital is ever-evolving, and you only need one or two people to say yes to set your business on the right path.  However, at each stage you will give up a little more ownership therefore, balancing equity-based financing with tactical debt allows you to hold more of your business for longer and potentially save millions in future earnings.   Get ready to crunch the numbers, balance the books, and build a legendary company supported by great cash flow budgeting.

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Kikin has been built by entrepreneurs who have raised millions $ in venture capital, and private equity from seed to Series C, so if you want some advice on how to plan your budgeting process get in touch with us at hello@kikin.io

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