Module 5 — Financial Planning & Funding

Financial projections for startups are inherently uncertain, but they serve essential purposes: they force founders to think through the economics of their business, provide a framework for decision-making, and communicate the opportunity to investors.

A startup financial model typically includes: Revenue forecast (units × price, cohort-based growth, conversion rates), Cost of Goods Sold / Cost of Revenue (direct costs of delivering your product), Operating expenses (salaries, marketing, rent, technology, legal), Capital expenditures (one-time investments in equipment or technology), and Cash flow projections (when cash comes in and goes out — the number one killer of startups).

The most critical calculation is your burn rate (monthly cash outflow) and runway (cash available ÷ burn rate = months until you run out of money). Every founder must know these numbers intimately.

Best practices: Build bottom-up from specific assumptions (not top-down from market share fantasies). Create three scenarios: base case, optimistic, and pessimistic. Identify the key drivers that most affect outcomes and track them obsessively. Update projections monthly as you learn.

The funding ladder progresses through stages, each appropriate for different levels of business maturity:

Bootstrapping: Self-funding through savings, revenue, and frugality. Preserves 100% ownership and forces discipline. Best for businesses that can reach profitability with modest capital.

Friends & family: Early, informal investment from personal networks. Higher emotional stakes. Treat it professionally — use proper agreements.

Angel investors: High-net-worth individuals who invest their own money in early-stage companies, typically £25K-£500K. They often provide mentorship and connections alongside capital.

Venture capital (VC): Institutional funds investing larger amounts (£500K-£50M+) in high-growth startups. VCs seek 10x+ returns, which means they're only appropriate for businesses targeting very large markets.

Grants & competitions: Non-dilutive funding from governments, foundations, and innovation programmes. Free money but often restricted in use and slow to obtain.

Break-even analysis determines the point at which total revenue equals total costs. It answers: how many units must we sell (or subscribers must we gain) before the business becomes self-sustaining? The formula is: Fixed Costs ÷ (Price per Unit - Variable Cost per Unit) = Break-even Volume.

Investor due diligence examines: team quality, market size, traction, competitive advantage, unit economics, and the reasonableness of financial projections. Being prepared means having clear answers to the hard questions investors will ask.