Finance Basics for a New Business
Where to start, what to track, and what to do each week and month. The foundations most founders skip and fix later at significant cost.
Before anything else, get these in place
- 01Open a dedicated business bank account
Separate personal and business finances from day one. Commingling funds creates tax problems, legal risk, and unusable books.
- 02Set up appropriate accounting software
For many smaller businesses, platforms such as Xero or QuickBooks are sufficient to start. Connect your bank account so transactions flow in automatically. Starting late means months of catch-up.
- 03Register the business properly
Get the right structure before you take money or sign contracts. Ltd, LLC, and sole trader each have different tax and liability implications. The wrong choice is expensive to unwind.
- 04Know your VAT or sales tax threshold
You must register once you cross a revenue threshold. Late registration creates back-dated liability. Know the number before you approach it.
- 05Put written payment terms on every invoice
State the due date, late payment terms, and bank details, so there is a clear record of when and how you expect to be paid.
- 06Build a simple cash flow tracker
A spreadsheet of expected cash in and out over the next 8 to 13 weeks, updated weekly. It can identify potential shortfalls early enough to act.
What they are, what they tell you
- Profit & Loss
- Revenue minus costs over a period. Shows whether the business is making or losing money: revenue, cost of goods sold, gross profit, operating expenses, then EBITDA and net profit at the bottom. Run monthly. Your business report card.
- Balance Sheet
- A snapshot of what the business owns, owes, and is worth at a point in time. Assets (cash, receivables, equipment), liabilities (payables, loans, accruals), and equity. It always balances: Assets = Liabilities + Equity.
- Cash Flow Statement
- Where cash came from and where it went, split into operating, investing, and financing. The most important statement for an early-stage business.
A business can report a profit and still run short of cash. Understanding the difference between earnings and cash flow is one of the most important financial disciplines for an early-stage business.
Know the numbers that drive your business
The right metrics are the ones that explain how your business makes money, uses cash, and creates value.
| Metric | Formula | Why it matters |
|---|---|---|
| Revenue | Total income from sales | Track it month over month to see whether you are growing, holding, or declining. |
| Gross margin | (Revenue − COGS) / Revenue | What is left after delivery. A low margin leaves no room for growth, headcount, or mistakes. |
| Cash balance | Cash in bank today | The single most important number for an early-stage business. Know it at all times. |
| Receivable days | (AR balance / Revenue) × 30 | How long customers take to pay. Reducing it is often the fastest cash improvement available. |
| Operating profit / EBITDA | Revenue − operating costs | The clearest measure of what the core operation generates. |
| Burn rate | Monthly cash out − cash in | For businesses investing ahead of revenue. Know both net and gross burn. |
| Runway | Cash balance / monthly net burn | Below six months, fundraising or cost action becomes urgent. |
| CAC | Sales & marketing spend / new customers | Where acquisition is a significant cost driver. Watch it against revenue per customer. |
| LTV, ARR, MRR | Varies by model | For subscription and repeat-purchase businesses. Measures how durable revenue is. |
| Contribution margin | (Revenue − variable costs) / Revenue | The economics of each incremental unit of revenue. |
There is no universal KPI set. Pick the metrics that explain how your business makes money, uses cash, and creates value.
Weekly, monthly, and quarterly habits that keep the business in control
| Rhythm | Routine | What it involves |
|---|---|---|
| Weekly | Update your cash flow tracker | Log actual inflows and outflows. Adjust forward weeks. Twenty minutes a week prevents most cash surprises. |
| Weekly | Review outstanding invoices | Follow up overdue invoices consistently. The longer an invoice ages, the harder it is to collect. |
| Weekly | Confirm payables going out | Know what you owe and when it leaves. Late payments damage supplier relationships. |
| Weekly | Check your cash position | Know the balance and net burn. If either moved materially, understand why. |
| Monthly | Close the books | Reconcile all bank accounts and code all transactions to an agreed timetable. |
| Monthly | Review your P&L | Actual vs. last month and budget. Decide whether big variances are one-off or structural. |
| Monthly | Review key metrics | Track direction as well as the number, and agree actions where needed. |
| Monthly | Send a management summary | One page: revenue, costs, cash, and what changed. Build the habit before investors ask. |
| Quarterly | Reforecast the full year | Update the budget with actuals and adjust headcount and spend to what is happening. |
| Quarterly | Audit subscriptions and costs | Cancel anything unused. A quarterly sweep almost always finds savings. |
| Annually | File tax returns | Know the deadlines in each jurisdiction. Late filing triggers penalties. |
| Annually | Review your pricing | Most founders under-price in year one. Costs change. Rates should too. |
How finance support should evolve
What works on day one will not be sufficient as complexity grows.
| Capability | When it becomes necessary |
|---|---|
| Bookkeeping & accounting | From the start. Transactions recorded, accounts reconciled, books reliable. |
| Tax & compliance | As regulatory obligations arise. Specialist external support is often right initially. |
| Financial control | When transaction volume, entities, reporting, or team complexity make informal processes unreliable. |
| Planning & analysis | When management needs budgets, forecasts, unit economics, and better performance insight. |
| CFO capability | When financial decisions become strategic: fundraising, expansion, debt, M&A, board and investor requirements. |
The trigger for expanding finance capability is complexity and decision need, rather than revenue.