Start-up Finances

Phase 1: More energy (money) is expended than what is replenished by income. The budget runs on deficits, usually, founder salaries are not paid in full. (Founders should plan for this in advance.) Additional income funds faster expansion, not higher salaries.

Phase 2: Budget surplus happens! You are able to meet all business obligations and partial salaries for founders. Surplus is invested in a fat layer to fund critical obligations should this be a ‘false’ phase two.

Phase 3: Consistent surplus with healthy margins happen. Full budget and salaries are activated, fat layers are maintained, and debt repayment starts.

Phase 4: Debt under control or paid off. Profit margins healthy. Profit share to investors and founders begin.

Misunderstanding the budget cycle makes room for critical errors that destroy the business. Usually, because we manage the budget according to a phase we have not yet reached. Know your numbers, be patient, make good choices.

PS: These phases are usually longer than you expect.

Emiliano Bar

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