Struggling for funds for your start-up? Here's how to assess cash burn

Start-up founders should have a modified cash-based profit or loss statement, reports Tech in Asia

Types of startups in terms of finance

Quick starters are startups that can theoretically operate immediately without requiring significant investment in time or technology. On the other hand, late bloomers can only start operations once the core product is developed.

The purpose of a financial plan for quick starters is primarily to assess business success. For late bloomers, a financial plan is primarily used to determine runway and cash burn. 

Overall structure

Generally, a financial plan should have at least three key sections: assumptions, calculations, and reports. It’s not a hard and fast rule but it’s the general rule. Professional model builders will include more details, but hey, you don’t want to go into that level of detail at the business planning stage.

Intermediate calculations

After you’ve done the assumptions tab, you’re almost done. You can actually skip this step and combine this procedure with either the assumptions tab or embed it in the formula when you do your proforma statements and report.

The intermediate calculations sheet is used to calculate all information from the assumptions tab. We usually do all the calculations in this sheet to avoid having extensive formulas cluttering the final report. All information in the report, ideally, should just be a summary of the information calculated in your intermediate calculations sheet.

Report

The last section is fully yours to design. It fully depends on what you have identified as your key performance indicator, revenue targets, funding requirements, and, of course, the availability of cash to burn.

At the very minimum, I recommend startup founders having at least a modified cash-based profit or loss statement included in the report. The modified cash-based profit or loss assumes that all sales and costs are paid immediately. 
 

This is an excerpt from the article published on Tech In Asia. You can read the full article here