Depending on your background, you may or may not feel comfortable with financial matters. If you’re an entrepreneur, however, it’s important to understand how to manage your personal and business finances. It’s not rocket science and can be learnt. When founding a company, it is important to understand your finances, as a lack of financial security can cause a great deal of anxiety (see Maslow’s hierarchy of needs, where financial security comes before self-fulfilment). I’ve had my worst sleepless nights when business liquidity was low and I was uncertain whether we could continue operating and pay salaries. So, what have I learned?
Overhead is Death: This post-it note still hangs in my home office. Keeping your finances lean helps. Set a budget for your monthly spending and make sure you have 3–6 months’ worth of reserves to cover your rent in case times get rough. Also, stop comparing yourself to others and make friends with other entrepreneurs. Most of my friends from HSG now earn a lot of money, but this is not a healthy comparison, as most of them are employees and have built themselves golden cages. It helps to connect and spend time with other entrepreneurs who love to reinvest their earnings as soon as they have some and who live a pragmatic life.
Pay Yourself First: Until a few years ago, I was paying myself last. Then, another entrepreneur gave me the tip that I should pay myself first. But why should I pay my salary first? It motivates you to work even harder to ensure that the whole team can make ends meet — and that’s what really matters.
Know your Numbers: When you first plan your business’s finances, a lot of guesswork and assumptions are involved. Try to benchmark yourself against other start-ups in a similar field. Show them what you have, and check www.crunchbase.com or www.pitchbook.com to see how much money other start-ups have raised to achieve growth. People will be your biggest expeditor, so check on LinkedIn how many people competitors have hired to get a feel for your own planning. Believe me, your first year of planning will be inaccurate, but you will improve at forecasting in your second year of business. Numbers are fun because you can regularly measure your growth.
Cash is Queen: If you show me a hockey stick forecast, I hope you will achieve it. What I’m more picky about is knowing how much it will cost you to get there, because these assumptions need to be more solid. Liquidity management is essential, so you have to know how much money you are spending — this is called a burn rate.
Financial Statement Setup: Make sure you have a profit and loss statement covering the last three years, with monthly tabs. I usually use Excel for this. Also, make sure you have a monthly liquidity overview. I usually accumulate and cross-check cash inflows and outflows on the same P&L sheet. Even better would be a separate cash flow statement. If you need help setting these things up, check out this video.
Ultimately, money matters because it buys you freedom, focus, and peace of mind. So don’t shy away from it. Be curious, ask questions, establish routines, and surround yourself with people who prioritise financial clarity. Financial literacy is one of the most empowering tools you can give yourself as a founder, whether you’re just starting or scaling fast.