Calculating your startup's use of funds is crucial for planning and securing investment. Here's a step-by-step guide:

👨🏼‍💻Determine the time period

Early stage is around 18 months (or shorter), sometimes startups will do 24 months (something we call an ‘additional runway’). Make sure that this funding round will get you to big milestones (such as signing customers, product-market fit, some level of traction). That makes the next round of funding a lot easier.

📘 List key expenses

Be sure to account for every big expense to come up with an accurate estimate of your funding needs. Here is what to include:

• Salaries and wages: Compensation for your team.

• Marketing and advertising: Costs for customer acquisition and brand awareness.

• Product development: Expenses related to building and improving your product, including R&D.

• Rent and utilities: Office space and associated expenses like electricity, internet, and water.

• Legal and accounting fees: Costs for professional services, including legal compliance and financial auditing.

• Operational expenses: Day-to-day running costs, such as office supplies, software subscriptions, and equipment.

• Travel and entertainment: Expenses for business travel, client meetings, and employee events.

• Insurance: Coverage for business liabilities, health insurance for employees, and other relevant policies.

• Technology costs: Hosting services, software licenses, and hardware purchases.

• Manufacturing costs: For physical products, include production and supply chain expenses.

• Customer support and success: Costs associated with maintaining and improving customer satisfaction.

• Miscellaneous: Any other costs unrelated to purchasing products for resale, payment to suppliers or employees, or the preparation of goods for sale.

🪸 Calculate the cash flow gap

Draw up an 18-month cash timeline, projecting your cash inflows and outflows. Identify the accumulated gap between your expected cash inflows and outflows: this gap is your funding need. 

👽 Don’t forget working capital

Make sure you allow for capital to fund cash flow, especially if you run a business where the cash cycle is considerable.