272. Managing Finances Effectively for Your Startup for Beginners in 2026 | Bae HQ IncuBaetor 4/6

0:00We're going to look now at managing your finances as a startup founder. especially if you're a first-time founder, the math is a bit different. First of all, importantly, this gamer, this is not financial advice. Once you start making money, get a professional accountant as soon as you can, make sure you're above the board, make sure you're paying your taxes properly, all of that good stuff. You want to have somebody who you can trust to advise you there. Now, advocate finances, right? Because in the startup land, people get so excited about their idea. and it's like this actually is a business too and it has to actually make money and some people get lost in this idea of oh one day we'll make money or one day we'll figure things out but you should be thinking about that along the journey and make sure that if you are sacrificing revenue or sacrificing profit that there is at least a strategy there or why you're doing it.

0:51A startup which can have loads of hype but isn't making any money isn't really a business and at the end of the day, if you're starting a business, you probably do want to make money out of it, right? One of the problems I just see so many founders face is they try so hard to be like a purist, or like there's just one right way of making money and they don't want to, and they're a bit stubborn. But actually you don't get extra points for that. And so many of the best companies, rather than being a unicorn straight out of the gates, they're actually more like cockroaches. They're hard to kill. They find ways to keep the money flowing, to keep being able to pay their costs and keep being able to stay alive.

1:29So when you're thinking about growing your business or starting a company, you don't need to just think about, okay, I need to stop doing everything else straight away. I should only make money in the way that the startup was meant to make money in this perfect vision of yours. That's just not true. You can make money in other ways. And whatever you need to do at the beginning, that's legal, that keeps your books alive and keeps your company alive, it's totally okay. A lot of this looks like too is when we think about startups, you can take investment on, which means that other people are paying for you to figure things out and they can pay for extra growth.

2:04They can pay for different things to make you grow faster, but you can also bootstrap and that's using your own money. And there's different ways you can do this. So those of you who are lucky to be wealthy enough, you can use your savings. so when I started initially out and we started Bay HQ I did use my savings my savings were bank crawling us and the savings we put into the company were enabling us to have more run weight so we could figure things out and be able to make more money to where we are today but nobody has that privilege and one thing you need to be very careful about is if you do have that privilege and you do have your own wealth but you're choosing not to use your own savings that's a massive red flag to potential investors of why do you want to risk their money but not your money and make sure you're able to explain this.

2:50Another way is looking at pre-sales. So if you don't have the money up front for whatever reason, rather than straight away giving away part of your company and giving away equity, what you can do is start selling in advance and collecting the money and the payments to begin with and then delivering the goods or the services later on. So you can do this through there's different platforms. You've got a Kickstarter, places like that, where actually you say, okay, I'm going to make this product. You pay me today, you might get a discount, and then you have the money to then go and build whatever you're going to build.

3:21Another thing too is early revenue. As I said, this doesn't have to be pure. So one great example I have of this is Varan and Sunil from Magic AI. So now they're doing like millions in revenue, but at the beginning and what they're selling now is actually AI powered mirrors. So it's a hardware company needs a lot of R &D at the beginning to get off the ground. How they start making money at the beginning is dropshipping with treadmills. So it's related to what they're doing now in terms of in the fitness space and that customer bank they had could then potentially sell onwards, but it's totally unrelated to AI hardware, right?

3:56So they use that method, they found a way to make money and they use that to then fund the research and to keep them a lighter longer to get to where they are today. And there's no shame, for example, in using services and other types of companies to help you have the money in order to get off the ground. And also, I know people who, for example, will work part-time as baristas. Maybe they'll work part-time as an Uber driver. Maybe they'll work part-time in the gig economy. All those things are totally okay if that helps you feel financially comfortable so that you can spend more time on your startup and get it to a position where it makes a revenue that funds itself.

4:35And some founders never want to raise investment. They want to completely bootstrap themselves, which gives them the opportunity to own the whole company. So if they ever have an exit, then all of that money goes to them. And sometimes people want to run their company forever. And if they want to run the company forever, then they don't want to have external investors to be telling them what to do. If you are looking to scale, then you can do a bootstrap. And there are examples of people who've got to hundreds of millions of revenue bootstrapped. But obviously it is easier if you have a huge amount of money behind you to make that kind of transition.

5:10And when you bootstrap or when you're able to make revenue before needing investment, that gives you optionality, right? And you think about how this world works is that investors aren't necessarily benevolent. They want to make money by investing in you. Now, if you are desperate for the money, then they have all the cards. They can dictate the terms. They can dictate everything. If you're doing well enough without them, and it's something called do for our life. Default alive is that even if you didn't take external investment, you'd be able to make profit and be able to sustain yourself. So if you're default alive, then when an investor comes in with some terms, which may be a bit off, you can say no because you don't need the money.

5:50You can take the money because you want to grow faster. So what you want to do when you're looking at the early stage of your company and your finances is how do you get to the point where you want to raise, not where you need to raise? And there's exceptions to this, for example, biotech, example, deep tech, where there's massive cost of R &D. Even then, you might be able to use grants and other types of funding to avoid taking on the external investment. And then you have greater strength. And this is the bit that might mess with your mind a bit, right? Is most small businesses or traditional businesses, they're all about how do you make profit whereas a startup you can actually delay making that profit a bit because you're focusing on growth and it's from say Peter Thiel explains really well on zero to one that book and the idea behind a startup is if you can grow fast enough you become almost a monopoly or one of the top players in the market and then eventually you're able to just print money because you've gotten such strong position example this include Amazon, Uber, Facebook for example so i can't remember the exact numbers to my head but i know it's in the in like my book starts with outsiders is these companies were able to were they delayed making profit for like 10 years even because they were getting so much venture capital that when they did start making profit you can now see how much they're worth how much profit they're making today but they wouldn't been able to do that if they slowed down growth and didn't take the losses in the early years that was basically funded by venture capital.

7:18So you've got three different potential growth targets. You've got user growth, which is, so users and customers. Users are people who use your product but don't necessarily pay. Customers are people who pay for your product. So if you look at social media, most of us are users of the product. We're not actually customers. We're not paying for anything, right? So the more users you have, it could be that the more valuable you are to customers. It could be you want to grow users because the more users you have, then the greater network effects you have. And then when you do switch to monetization later, if some of it can burn, you can then make quite a lot of money.

7:54Revenue growth. So this is actually looking at how much money can you make, even if it's not necessarily profitable. Because if you keep growing revenue, obviously paying customers are more validation than free customers, free users, for obvious reasons, right? The more somebody is willing to pay for a product, it must mean they pretty much like it. And then finally is profit growth. So profit growth is always the end goal really, is that you want a company that's making profits, that's paying you well, that's getting you rich. But sometimes in startup land, you can actually delay profit for quite a long time because you're focusing on the other types of growth.

8:28So here's some of the key metrics that matter and it does vary depending what type of business you have. So you've got bank balance, burn rate, runway, customer acquisition cost and lifetime customer value. Here's the basic explanations. So bank balance is how much cash is in your account right now. You need to know what's in your bank account because when your bills are getting, need to be paid, can you actually pay them or not? Burn rate is, this is especially relevant when you are making a loss each month. If you are making profits every month, then burn rate is kind of irrelevant. But for venture-backed startups or investor-backed startups, then you're looking at the average expected monthly expenses minus the average monthly expected revenue.

9:09And that burn rate is, let's say, you're spending 200k if you're only making 100k, you're burning 100k every year, every month. And that tells you how much you have left. So Runway is obviously then looking at how much do you have versus how much you're spending every month. And then you can work out how long you have left before you need external capital or for something to change in the business. Customer acquisition cost or CAC is a cost of gaining one customer. So this is a really important metric when you're looking at different acquisition channels or different distribution channels. You need to understand how much is it costing you to gain a customer through that method.

9:44Then lifetime customer value, LTV, is average total value of new customer. Let's say you spend five pounds on Instagram ads and that gets you one customer and that customer is worth£20 lifetime value, then you're making four times return on every pound you spend. Let's say you can work it out. So you increase the value of each customer. So now you're still spending£5, but actually each customer is now worth£50. You get a 10x, right? So that multiplier there is really important for your business when looking at how you spend your marketing money to make sure you're making the best return possible.

10:21So business models, startups are often different to more traditional business models. So I'll race through these and then obviously look into further depth of the ones that are relevant for you. Subscription models. So this is looking at where you're paying for a particular service. And this is like say Netflix, for example. SaaS, which is software as a service. So it's similar to subscription, but it's more where you're paying for access to a particular software rather than necessarily the direct benefit you might be getting from Netflix. They're very similar. enterprise so enterprise there which is spotting correctly i think enterprise is when you have larger contracts which usually customized so this is say if you're working with e2b and for large organizations where each individual customer will have a different like set of needs and requirements pay as you go best example of this is say your cloud service providers the more data you use, then the more you pay.

11:19Advertising. So this is looking at the social media channels, for example, of they're using advertising to monetize their users. Transactional. So this is generally fintechs. So when transactions going through that platform, they take a commission on that. Marketplaces. So Airbnb, for example, they're matching hosts with people who want to go on holiday and they take a cut on that. So it's like a commission. So it's usually a commission-based model. E-commerce, so this is your D2C, say direct to consumer, where you're selling through say Shopify or wherever you're selling and you're just making money through that way.

11:57Razor and Blade, so I like the name of this. Razor and Blade is where you sell a service, you sell initial product and then you make money on subscriptions afterwards. So I've used the magic example again, they sell the mirror and then they also make money on the subscription that people are paying for fitness services. And then deep tech and biotech can really vary because of how much longer usually it takes to get to market. So if it's a biotech, for example, it could be you're selling to governments and a more enterprise style model, or it could be that you're licensing. There's deep tech and biotech are a world into themselves, right?

12:34Okay, they're looking at major costs. So you are a major cost, right? Because eventually, unless you're filthy rich, you're going to need to pay yourself and pay yourself properly. And one of the challenges too is that if you don't pay yourself properly, then at some point you're going to have to replace yourself with a CEO or somebody else in the leadership team. And you can then be underestimating how much your time is worth. And then when you try to hire for that role, you realize it makes you an economical employees, significant cost obviously, and then outsourcing too. So when you look at outsourcing versus employees.

13:10Generally, as a startup, you want to be careful of initially going straight for employees if you don't have the infrastructure set up, because you need to make sure you're on top of the rules and regulations, on top of the laws. And also, while there are still laws for outsourcing, generally, the contracts can be more flexible. Whereas with employees, you need to make sure that you're meeting so many different government requirements. So make sure you seek advice on that particular area there if you do go for employees. And when you're outsourcing as well, make sure you're using standard contracts that are industry available.

13:42Advisors at the early stages, advise as much as you can. You need to be very careful unless you have existing money because they can be very expensive and at the beginning you might be better served by trying to find mentors or trying to join free programs. For example we run a free incubator and free accelerator and you might be able to get a lot of access through those instead. Then you've got your tech costs, so it's all your subscriptions, so we pay for a million different things. Office space, we have an office, obviously where I'm recording from, but it doesn't mean that every startup does, and you need to understand your own requirements and what works for you to decide whether or not you need an office.

14:20For me, I nap too much, so if I don't have an office, I'm more likely to work from bed, and that's dangerous for me. Marketing expenses, so this is where we look to the customer acquisition costs, for example, and then you have your standard things of legal, compliance and tax. So do make sure you think about tax because you don't want to be spending money that you find out is actually owed to the tax man and then you're screwed. So that's that overview there and what you want to be looking at is looking at making sure that you understand how much you're spending, where that money is going to and then also looking at where's the revenue coming from, how you're going to make money in the future and can you survive without funding or would funding actually be a really big asset to your company because it could enable you to grow faster but what you want to make sure is that you don't just default to I need external funding because I can't grow otherwise nothing's going to happen like how do you make money because if you can't figure out a way to make money without needing external funding then that's a red flag as well for investors so figure out is there some ways you can make money which helps you to grow your startup or are you at the point where really your full attention needs to be on the opportunity you're going for and external funding is going to be the bit that pushes you forward and enables you to get where you want to be.

15:35So this was the fourth in our incubator async series so you can watch your other episodes through the links in the comments and so on. If you wanted to do the assignments connected to this program you can either wait for the next full incubator cohort and we're just going to do these sometime throughout the year. I'm not going to commit to anything right now. Or if you want more immediate feedback or to go through the program right now, you can pay for that access as well through the link in the comments. Take care and see you next time.