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The business startup costs that are the least complicated for startups tend to be our "fixed costs" like office space, utility bills, or software expenses incurred. While these start-up costs grow with any new business, they don't scale the way our variable cost projections do when starting a business.

Fixed Costs vs. Variable Costs

The reason we separate our fixed costs versus our variable costs is that we want to isolate our startup cost categories to focus on what will truly drive our business plan. Things like scaling our advertising costs will have an exponential effect on our revenue, for example.

But our fixed costs don't have nearly this impact.

Our fixed expenses do "grow" over time, but not exponentially. Therefore we tend to separate...

All startup financial projections are based on a few key assumptions about how we feel the business will perform.

In this section, we're going to explain what key assumptions drive our financial forecasts and how to adjust them to create a financial model that works.

Download our Income Statement Template here to get started and follow along.

What’s the Goal Here?

The Assumptions tab in our income statement template gives us a worksheet to help determine what the right values will be to populate in our projected income statement. The tab itself is just a worksheet that drives things like our revenue projections, cost assumptions, and ultimately net income.

We’ll walk through each of the assumptions in this worksheet one by one to give a little m...

The beauty of the startup game is that you only have to be right once.

The frustrating part is you never know when that one time might be! While we all love to hear Founders regale us with origin stories of their massive successes, what we miss most often is the part where they had many misses along the way.

We write those misses off as incidental — they aren't. Every one of those misses started with that very same Founder thinking that was going to be the time they got it right.

How Many Shots Do We Have?

What we tend to misunderstand, most often early in our careers, is that there's rarely one single moment where it's all “make or break.” It's kinda like when we were in High School and we thought what happened at that moment was going ...

Startups create financial projections in the form of a "Pro Forma Income Statement" — which simply means a financial forecast. Early-stage startups are still building their financial models with assumptions, forecasting everything from sales revenue to marketing costs to a basic cash flow projection.

We're going to explain exactly how to build financial projections for your startup even if you have no idea where to start!

Financial Projections are just Assumptions

Most businesses that have been around a while have historical financial statements that detail how operating expenses, direct costs, fixed costs, and their sales forecast have worked all along — startups have none of this.

Therefore instead of working from real-world data to build our...

Startups live and die by financial projections — yet we tend to suck at creating them!

That's because we're so busy trying to create the "perfect" financial statements, when in fact what we should be working on is identifying what key assumptions will drive our projections at all!

Assumptions are the raw materials that make up our financial statements and tell us whether we're headed toward gross profit or total disaster! Here we'll be taking a beginning inventory of the 3 most important financial assumptions that tend to drive most startup company projections.

Assumption #1: "How Many Customers Will We Acquire?"

Our first step is to construct a series of assumptions that tell us how many paying customers we will get through the door. All of th...

Every kid should become a startup Founder, even if they never want to start a business.

Years ago, I started teaching entrepreneurship at my kid's Middle and High schools. What I thought might be an exercise in futility wound up being an incredibly eye-opening experience. As it turns out, kids are freakishly good at being Startup Founders!

When I was a kid, no one told me I could forge my own path. We sort of were handed a dozen careers, and you got to pick one. It was basically our guidance counselor telling us "Oh, you're good at math? You'll be an accountant." Never mind that we never really wanted to be accountants.

Kids Have Unlimited Curiosity

Instead of shoe-horning kids into some prescribed path, entrepreneurship leverages their gre...

While we may not know all there is to know about our business yet, there’s still going to be some good old-fashioned accounting to do. So let’s break out those green visors and add machines — it’s time to learn WTF accounting is!

At its core, in order to be an accountant we need to be able to collect all the sources of income and expenses and translate those into a spreadsheet. When the numbers are small, this is so easy to do we’ll wonder why people get paid to do it. When they get large, we’ll wonder why anyone is willing to do this for any amount of money ever!

Can any Founder do Accounting for Startups?

Yes! Because accounting for startups in the early days just isn't that complicated yet. Even if we've never seen any financial statements ...

All financial projections for startups are based on a handful of financial assumptions. The problem is we tend to make very bad assumptions!

There are no "genius MBAs" out there building financial projections in a business plan that magically come true because they took a class on it. Financial assumptions, particularly for startups, are about making and refining a million tiny guesses until our financial performance gets somewhere close to our financial projections.

Everyone Guesses... and We're Usually Wrong

Startup financial projections are built around making a series of educated guesses about how things might go. Public companies make sales projections, issue projected income statements, and create revenue forecasts all the time. The diff...

A Startup's financial health isn't just about updating financial statements and balance sheets — it's about understanding basic business financials, and guess what? It's not that hard. This primer is designed for Founders and operators who know little to nothing about startup financials.

Intro: The Basics of Startup Finance

The fundamentals of startup finance are this simple – we record every income item (our goods sold) on one side and then record every cost (operating expenses) on the other side of our financial statements. We subtract the income from the costs – and voila! – profit (or a loss... in the early days it’s usually a loss.)

There’s no special black magic to recording income and expenses.

We don't need Complex Accounting Software (...

No matter how much we stand to lose, there is always a way to recover.

At the time it sure doesn't feel that way. Nothing keeps us up at night more than playing out every possible scenario of catastrophic outcomes for our startup. We think about the cost of losing our startup, our team, our investor's trust, and ultimately, our personal well-being.

And yes, all of this is super terrifying. But here's the thing, Founders have an amazing ability to recover from catastrophic losses because, in the end, we never consider the fact that the one thing we can't lose is our own tenacity.

It's important to think beyond the "monster in the corner" and play out the entire scenario of what a big loss means, looking all the way past to the other side of ...