The most common mistakes startups make with their finances and how they can prevent them.

1. PITFALLS
STARTUP FINANCE
AND HOW TO AVOID THEM

2. Early Stage
Pitfalls
• What #s?
• How often?
• Low Expenses
Later Stage
Pitfalls
• Outsourcing
• Hiring too quickly
• Raising while low

3. Pitfall #1
Not knowing what
to look at

4. Know This:
• Bank Balance
• Money coming in
• Money going out
Calculate This:
• Burn
• Runway
• Growth Rate
• Default Alive?

5. Burn : $
Money out - Money in
July 2019
Expenses = $25K
Revenue = $10K
$25K - $10K = $15K

6. Runway : # of months
Bank Balance / Avg Burn
July 2019
Balance = $150K
Burn = $15K
$150K / $15K = 10 months

7. Growth Rate : %
July 2019 Revenue = $10K
August 2019 Revenue = $12K
($12K - $10K) / $10K = 0.2 = 20%
Money In (Month 1)
Money In (Month 2) - Money in (Month 1)

8. Default Alive : Boolean (Y/N)
If expenses = constant
If revenue growth = continues
Do you have enough cash
to reach profitability?

9. http://growth.tlb.org

10. http://paulgraham.com/aord.html

11. Pitfall #2
Not looking often
enough

12. How often should you look at
your numbers?
• Every quarter
• Every month
• Every week

13. When someone asks,
you should know
your numbers.

14. Pitfall #3
Under-Representing
Expenses

15. Expenses do not remain constant
• Undervaluing your own time
• Hiring people doesn’t just
cost their salary
• Assuming paid acquisition
remains constant

16. Don’t ignore to make
runway look better.

17. Pitfall #4
Out-sourcing
responsibility

18. Who is responsible for your
numbers?
• Bookkeeper
• Accountant
• CFO
• CEO

19. Everyone is responsible
for the numbers.

20. Pitfall #5
Scaling too quickly

21. Every hire is an
investment.
Are you getting ROI?

22. The best startups do
more with less.

23. You should avoid
hiring until PMF.

24. More employees do
not help you
reach PMF.

25. Pitfall #6
Letting runway get
too low before
fundraising

26. Assume you’ll never
raise money again.

27. Seed stage money is
to help you reach
PMF.

28. Series A and beyond
expect sustained
growth.

29. Your runway gives
you leverage.

31. https://blog.ycombinator.com/advice-startups-running-out-of-money/

32. How to not run out of money
• Know your cash balance and runway at all times.
• Understand how your expenses are going
to increase over time.
• Understand that a high ratio of
revenue : employees is a better metric
than # of employees.
• Assume you’ll never raise again,
so have a plan for reaching profitability

33. Thanks!
Kirsty Nathoo
CFO, Y Combinator