Intro

We’re probably here because we’re launching a startup and freaking out about how finance works. We don’t consider ourselves a “financial type” or we have some finance background but are wondering if any of it really applies to startups.

This course is designed to provide the least amount of information we need to do a competent job of managing our startup’s finances in Year 1 and beyond. That’s it. If by the end of this course we still don’t understand startup finance, we should go home, put our head in the toilet, give ourselves a swirly, and then quit the startup world altogether.

Just kidding! We mainly just wanted to say “swirly” in a finance course ;) The point is, if we have no clue what we’re doing, we’re in the right place.

Who I am and why I’m so Nerdy about Startup Finance

A quick tidbit about me and why this is a topic I care a lot about. I’m Wil Schroter, the Founder + CEO of Startups.com. But at night, I’m also secretly our Chief Financial Officer as well. I even wear a cape with a dollar sign on the back. That puts me somewhere between a knock off of the Riddler and the superhero version of the Monopoly man. But I digress.

What’s important is that I’ve been managing startup finance for 25 years across 9 of my own startups (3 of which were venture-backed) and countless other startups that I’ve advised, mentored, or in some cases, acquired. So I’ve been on the front lines of startup finance through lifetimes worth of pain.

In my travels, I’ve learned one thing: Founders rarely understand how finance works and are terrified of what they don’t know. My job here is to demystify how finance works and lay out an incredibly simple way to start managing finance that I can explain in one day.

The Least We Need to Know About Finance

Realistically, until a startup reaches a certain size (typically in Years 2 or 3) Founders only need to know 3 main things about startup finance.

one

How to build a financial forecast

We don’t need to become financial wizards – we’re not running a hedge fund here – but we need to get a basic idea of how our finances will potentially play out over the next year or so. We do this using a handful of key assumptions about the business that calculates into a full financial forecast.

two

How to create an income statement

An “income statement” is just a simple spreadsheet that tracks our revenue and expenses each month. We’ll provide a template that we can use to populate our own numbers to get started. It’s essentially paint-by-numbers.

three

How to manage an income statement

Our business isn’t very big early on, so the finances usually aren’t too complicated. In Year 1 we just need to know how to record income and expenses. It’s the same process every month, so once we figure it out for one month, we just rinse/repeat the same thing every other month.

This whole course is built around making those 3 concepts super easy to understand and manage. Almost every aspect of building and managing a startup’s finances maps back to just those 3 principles. If we can take the time to master those, we’re 90% of the way there in terms of managing the finances of a startup. The other 10% is stuff we couldn’t possibly teach in a single course, and by the time we’re big enough for it to matter, we’ll be able to hire someone else to worry about it.

Stuff we won’t cover

There are some big topics that we’re specifically NOT going to cover which are whole courses unto themselves.

  • Taxes. We won’t make many references to tax situations because it’s a massive category. However, we’ll talk about where we’ll record certain types of taxes like payroll taxes or sales tax. We just won’t be going over how to prepare our taxes. That’s extra.
  • Software (Quickbooks, etc). We’re going to focus entirely on a single spreadsheet that’s free and easy. It won’t work for everyone, and in some cases, we may defer to software like Quickbooks in lieu of what we’re doing. That’s cool, just know that we’re not covering those packages, but rather the fundamentals of how finance works.
  • How to be a CFO. Someday our intrepid startup will need a full-time finance person. They will have a fancy degree (hopefully) and provide more complex guidance. While we won’t walk away with an MS in finance, we will walk away with the chops to be a competent bookkeeper through Year 1 and beyond.
  • Complex Cash Flow Issues. In order to develop a “one size fits most” finance crash course, we may be leaving some of the nuances of our business - such as how we manage cash flow – out of this course. We’re not ignoring it, but if we’re going to be managing a complex commercial real estate transaction or forecasting demand and inventory around a voluminous number of SKUs – our model is going to be a little too simplified.

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Understanding Basic Finance
  • Learn how the first year of finances of a startup is different than any other year.
  • Dig into how startup finance is a combination of “forecasting” for the future and “accounting” for the present.
  • Focus on beginning with an accounting system that’s easy to understand and manage.


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