---
title: "Financial planning for startups"
description: "Learn why financial planning is crucial for startup success, from milestone planning to fundraising strategy. Key insights from a founder's post-exit perspective."
categories: ["best practices"]
keywords: ["financial planning","startup financial strategy","venture capital","milestone planning","Theory Ventures","Tomasz Tunguz","startup fundraising","financial model","entrepreneurship","business planning"]
ai_summary: "Discover why financial planning is essential for startup success and how it aids in achieving milestones and fundraising."
date: 2012-11-21
lastmod: 2026-07-31
canonical_url: https://www.tomtunguz.com/financial-planning-for-startups/
author: "Tomasz Tunguz"
---

<p>Over lunch last week, I asked a Redpoint entrepreneur, who had recently sold his company, how his board could have been more helpful to him. His answer surprised me.</p>

<p>He wished the company had built a financial/operational plan sooner. </p>

<p>Building an financial plan is challenging and it is often perceived as a waste of time because the plan can be so inaccurate. Lots of entrepreneurs tell me their plans are just WAGs - wild assed guesses. And to some degree they are. </p>

<p>But, in the words of this entrepreneur, financial planning helped him sleep better at night - even if the plan was a guess. When I asked him why he felt better with a plan in place he outlined three reasons:</p>

<ol>
<li>
<strong>Reverse engineer the next round</strong> - For most of the life of a startup, the company is targeting a subsequent round of financing and working towards a milestone to underpin the financing. A financial plan helps to determine whether or not the milestones are achievable with the cash in the bank. </li>
<li>
<strong>Degrees of freedom</strong> - Can we hire another engineer? What if we spent $15k on this conference? What is the impact of hiring a VP of Sales? How does this accelerate our out-of-cash date? Does this accelerate our path to the milestone? A financial model helps explore different scenarios - the degrees of freedom a startup has to achieve milestones.<br>
</li>
<li>
<strong>All the arrows point in the same direction</strong> - The financial plan is a concise summary of the way a company <em>is likely</em> to be managed. It’s helpful for the board to help validate the plan compared to other startups' plans. The plan is also a great way to level set the management team on the plan for the business. </li>
</ol>
<p>The financial plan may never be accurate. But the accuracy of the plan isn’t the point - instead, the plan is a tool to communicate, explore scenarios and successfully manage the company to the next big milestone. </p>