Building a financial structure is quite simple, and is often dismissed at inception. Lots of entrepreneurs choose to structure their finances based on estimates. This is incorrect. Financial Structures are created from real numbers.
I will provide three reasons why early-stage companies need financial structures:
- Planned Funding â€” Most startups raise capital to misspend on operational expenses or inventory. This is called a cash burn. There’s an excellent chance cost of revenue, or purchased inventory will never realize into throughput. We can minimize this risk by positioning ourselves in preexisting revenue streams. Financial structures help to determine whether capital allocations are directed towards assets or liabilities.
- The Margin of Leewayâ€” Can we hire another associate? What if we spend $50k on advertising? What is the consequence of not purchasing assets? Does this accelerate our cash burn? A financial structure helps answer these exact questions â€” the margin a startup has is defined according to its goal.
- Overall Goal â€” The financial structure is an outline of how a company will manage capital. The structure must be established at its inception. This will help ensure future allocations line up with the overall goal of the company.
Financial structures are always accurate. The accuracy of the structure is to communicate and successfully manage the company towards profitability. CFS provides consulting services for early-stage and established companies to help create financial structures that encompass the overall goal.
For further information about CFS, please contact:Â Cash Flow Stewardship, Inc.Â 4611 S 96th Street Suite 248Â Tel: 1-402-804-3777