- Learn core concepts to entrepreneurial financial literacy
- Create a forecast and budget for your startup
- Choose a pricing strategy best for your business
- Discover key metrics to track your venture’s financial health
Financial literacy is the ability to understand and manage money effectively to support financial goals. It is more than just keeping track of numbers; it means making informed decisions that determine whether a business grows or struggles. Understanding these concepts allow for entrepreneurs to plan for uncertainty, grow sustainably, and communicate confidently with partners, investors, and customers.
At the same time, access to financial knowledge and resources is not equal. Around the world, women entrepreneurs often face barriers such as limited access to credit, fewer networking opportunities, and lower representation in investment spaces. By taking the steps to strengthen your financial literacy, you are also taking the steps to close these gaps.
In this lesson, we will cover the key elements of financial literacy that every entrepreneur should understand in order to make informed decisions to strengthen their ventures.
Understanding Financial Foundations
Before you can manage your venture’s finances, it is important to understand how money moves in and out of your business. These core concepts form the foundation for every financial decision you will make as an entrepreneur.
1. Income
The actual money that comes into your business over a period of time, from sales, services, or other sources. Tracking income helps you understand where your revenue comes from and how it changes over time.
2. Expenses
The money your business spends to operate, such as materials, rent, salaries, or marketing. Monitoring expenses helps identify where costs can be reduced or optimized.
3. Fixed Costs
Costs that stay the same regardless of production or sales levels, such as rent, insurance, or subscriptions. These help you plan for predictable monthly spending.
4. Variable Costs
Costs that change depending on how much you produce or sell, such as materials, packaging, or shipping. These rise and fall with business activity and can be adjusted as you grow.
5. Revenue
The total amount your business earns from all sales or services before subtracting costs. Revenue reflects your business’s earning potential and sales performance.
6. Profit
The amount remaining after all expenses are subtracted from revenue. Profit shows whether your business model is financially sustainable and how efficiently you manage costs.
7. Cash Flow
The movement of money in and out of your business over time. Positive cash flow means your business has more money coming in than going out, while negative cash flow means the opposite. Understanding cash flow helps you plan for short-term needs and avoid financial surprises.
8. Break-even Point
The point at which your total revenue equals your total costs. Reaching the break-even point means your business is covering its expenses and can start generating profit. This metric helps you understand the viability of your pricing and cost structure.
These key concepts will become the building blocks for the rest of our financial learnings. Let’s see how to apply them to your business.
Managing Flow Of Money
Budgeting
A budget is a plan that outlines how your business expects to earn and spend money over a specific period, such as a month, quarter, or year. The purpose of a budget is to guide decisions and allocate resources effectively, ensuring that essential costs are covered and that you can focus your spending where it will have the most impact.
Budgets help you answer questions such as:
- How much can I spend on producing my product or delivering my service?
- How much should I invest in marketing, tools, or hiring?
- Will I have enough money to cover costs at different stages of my project?
For a simplified sample budget of a start-up, take a peek at Activity 1.
For entrepreneurs, budgeting is not just about controlling costs. It is about making strategic choices. It provides a clear picture of what resources are available and allows you to prioritize spending that drives growth or supports your MVP.
Keep this section in the back of your mind as you continue through the lesson. You’ll be creating your own budget after learning some more key elements.
Understanding Expenses for Startups
Expenses are the costs your business incurs to operate and deliver your product or service. Many new entrepreneurs underestimate the range of expenses involved in launching a startup or MVP. Keeping accurate records from the start is crucial to know whether your business can cover costs, make smart decisions, and remain financially viable. Let’s go over some potential expenses now.
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Major Expense Categories
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What’s Included in it
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Typical Cost Type
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Product or Service Costs
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Materials, manufacturing, packaging, or resources directly used to build and deliver your product or service, including development, hosting, APIs, or cloud infrastructure.
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Variable - if you build more units of a product or have more users on your platform, you need more materials, cloud resources, or APIs. Hence, they are mostly variable.
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Marketing and Advertising
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Digital advertising, social media campaigns, app store or platform promotion, and software or tools for tracking customer engagement and marketing performance.
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Variable - Marketing spend can be adjusted based on campaigns, goals, or available funds. You could spend nothing in one month or ramp up quickly for a product launch. The cost moves with activity, so it’s variable.
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Software and Tools
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Development platforms, collaboration software, cloud services, and technology resources needed to build, run, and scale your product or MVP. Website development and domain hosting could also fall under this category.
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Mostly Fixed - Many core software subscriptions or development platforms cost the same regardless of usage (e.g., project management software, cloud hosting with a flat monthly plan). Some tools might scale with usage, but most startup software costs are predictable.
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Professional Services
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Legal, accounting, intellectual property support, cybersecurity consulting, or technical expertise for product compliance and scaling.
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Mostly Fixed - Legal, accounting, or consulting retainers are often set fees and don’t fluctuate with production or sales. They are usually planned ahead of time, so they behave like fixed costs.
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Office or Workspace
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Rent, utilities, coworking memberships, or home office expenses.
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Fixed - These expenses generally stay the same regardless of business activity. These are classic fixed costs.
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Employee or Contractor Costs
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Salaries, wages, or payments to freelancers supporting your project.
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Mixed - Salaries for full-time employees are fixed, but freelancers or contractors can be variable depending on workload or projects.
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Miscellaneous
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Shipping, travel, insurance, permits, or unexpected costs that may arise.
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Mixed
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Let’s see how to use this information to predict future performance and guide decisions with financial forecasting.
Financial Forecasting
Financial forecasting is the practice of estimating your startup’s future revenue, expenses, and cash flow. It uses past data, market research, and realistic assumptions to predict outcomes, helping you plan, make decisions, and communicate your business’s potential to investors or lenders.
For founders, forecasting provides a roadmap for growth and helps anticipate challenges before they become problems. For investors, it shows when the business may cover its expenses, reach profitability, and maintain healthy cash flow.
1 Sales Forecast
A financial forecast usually starts with a sales forecast, which predicts how much revenue you expect over a period of time (often broken down monthly for the first year and quarterly for the following years). Without historical sales data, entrepreneurs may rely on market research, industry trends, and reasonable assumptions to help fill in the blanks.
For example, if you are launching a new wearable health device, you might estimate how many patients and doctors could adopt it, then multiply by the expected price per unit.
2 Expense Forecast
Next comes the expense forecast. Reference the earlier section on Startup Expenses for common major expense categories. In a forecast, the key is to anticipate how costs may grow with your business, such as hiring additional team members or expanding infrastructure. Keeping forecasts aligned with real data allows you to adjust spending, pricing, and scaling strategies.
Cash Flow Projection
This tracks the timing of money moving in and out of your business. Even a profitable company can fail if it runs out of cash, so forecasting cash flow ensures you have enough funds to pay bills, payroll, and other obligations. As your startup grows and you collect real data, updating your forecasts will allow you to make better decisions and refine your assumptions.
Example: Monthly Forecast for a Startup MVP:
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Category
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Forecasted Amount
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Actual Amount
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Cash Flow Implication
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Sample Actions
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|---|---|---|---|---|
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Revenue
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$2,500
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$2,400
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Slight shortfall reduces cash on hand
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Test new pricing tiers or A/B test app features to improve conversions
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Hosting/ Infrastructure
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$1,000
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$1,200
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Extra spending
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Reduce cloud usage or review third-party service costs
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Marketing & Advertising
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$500
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$400
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Slight savings, helps offset shortfall
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Focus ad spend on the most effective channel this month
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Software & Tools
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$200
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$200
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Stable cost, predictable cash outflow
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Costs are stable; no action needed
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Miscellaneous
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$300
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$350
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Unexpected costs reduce cash buffer
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Keep a small buffer for unexpected expenses
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Net Cash Flow
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$500
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$250
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Remaining funds after covering costs
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Monitor cash closely; delay non-essential purchases if needed
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By comparing forecasted amounts to actuals, founders can see where the business deviates from expectations and take action to stay on track. For example, if cloud costs are higher than expected, you might optimize your usage or negotiate better rates. If revenue is slightly below forecast, you might run a small promotion or adjust marketing focus.
Financial forecasting is a living process. Revisiting forecasts regularly, testing assumptions, and planning for best case, worst case, and base case scenarios will help you navigate uncertainty.
Break Even Point
Understanding your break-even point is crucial for planning timelines, pricing, and investment needs. For instance, if your fixed costs are $5,000 per month, your product price is $50, and your variable cost per product is $30…
you would need to sell 250 units each month to reach break-even.
Knowing this helps you set realistic sales targets and evaluate funding requirements.
Check out this handy calculator to help visualize your break even point. You may need to continue the rest of this lesson to use it, but it’s a good resource to have.
Pricing Strategy
Pricing is one of the most important financial decisions a startup can make. The price of a product does more than show how much money customers will pay. It also affects how your business earns revenue, how customers view the value of your product, and how long your business can stay sustainable.
Goals When Setting a Price
Cover Your Costs
Your price needs to make sure your business can stay operational. This means covering all fixed and variable costs while leaving room for profit.
For example, if your productivity app costs $10 per user per month for servers, development, and support, your price must be higher than this to stay sustainable.
Reflect the Value to Customers
Your price should communicate how valuable your product or service is to your target audience. Customers are often willing to pay more if they believe your product solves an important problem.
In our productivity app example, teams save time and avoid missed deadlines, so pricing it at $20 per user per month reflects the value they receive.
Stay Competitive in the Market
Even if your product has strong value, it still exists in a market with other options. Setting a price too high compared to similar products may discourage potential customers, while pricing too low can make it hard to cover costs and may create the perception that your product is lower quality.
If competitors charge $15–$25 per user per month, setting your app at $20 keeps you competitive while signaling strong value.
Support Growth and Flexibility
Your price should also leave room for your business to grow and adapt. When you’re new to the market, a good approach is to research a few competitors, then position your price in the middle or slightly below theirs. Starting lower allows you to attract early customers and gather feedback, and you can always raise prices later as your product matures. Testing with early adopters will help you understand what the market is willing to pay and refine your pricing over time.
For example, starting with a $15–$20 plan for your productivity app lets you attract early users and gather feedback. You can later introduce team packages or premium features, or adjust pricing as you learn what customers value most, without raising the base price too quickly.
Common Pricing Strategies
Once you understand your goals, you can choose a pricing strategy that fits your product and business. Most pricing fits into the Software-as-a-Service model, where users pay a continuing fee to use the app or service. Here are a few common approaches:
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Pricing Model
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What It Is
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When To Use
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Example
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|---|---|---|---|
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Price-Per-Seat
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Each user, or “seat”, pays a fixed fee, usually monthly or annually. Revenue scales predictably as the number of active users grows.
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Common for software or services where each person using the product adds value such as with productivity, or workflow tools.
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A team collaboration app charges $15 per user per month. A team of 10 pays $150 total. All paid users get access to project boards, file sharing, and automated task reminders.
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Tiered Pricing
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Multiple subscription plans are offered with different feature sets or usage limits at each level. Advanced functionality, additional user seats, or premium support may be gated by higher tiers.
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Works well when your product serves diverse customer needs and usage patterns.
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An AI office assistant offers a Basic plan at $20 per month with simple task automation, a Professional plan at $50 per month with multi-user scheduling and email drafting, and an Enterprise plan at $100 per month with unlimited users, advanced analytics, and dedicated support.
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Pay-As-You-Go Pricing
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Customers are billed based on how much they use the product, rather than a flat subscription. Usage metrics might include API calls, storage, or active users.
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Ideal for businesses where usage can fluctuate or scale dramatically, allowing customers to pay only for what they consume.
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A cloud database service charges $0.05 per GB stored per month. A customer storing 2 TB of data pays $100 monthly, while a smaller user storing 200 GB pays $10.
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There isn’t a one-size-fits-all pricing model. To choose the best strategy for your product, consider things like how much it costs to create and deliver, how much value it provides to customers, and how often it will be used. Pricing is rarely perfect on the first try. Regardless of the strategy chosen, businesses should test different price points, monitor customer response, and adjust as needed.
Also remember to constantly monitor the market and competitors to make sure your price aligns with customer expectations. Often, the best approach combines models, such as a subscription plan with tiered pricing, to reach different customer segments effectively. Experiment and see what works best for you.
Bonus: Calculating a Cost-Plus Price
Cost-Plus Pricing provides a straightforward method to set a price that covers costs and ensures profit. The calculation uses a simple formula:
Price = C + (C × M)
C represents total costs (fixed and variable).
M is the desired profit margin expressed as a decimal (for example, 50% = 0.5).
Using the formula:
- Add up all predictable costs associated with producing and delivering the product. This is C.
- Choose a profit margin. Base this on industry norms, market competition, and the value provided to customers. This is M.
Example:
A subscription-based productivity app has total monthly costs of $10 per user, and the business chooses a profit margin of 40%.
C = $10
M = 0.4 (or 40%)
C + (C × M) = Profit
$10 + ($10 × 0.4) = $14
So, the price set is $14 per month
ACTIVITY 1
Creating a Budget
Estimated Time: 60 minutes
In this activity, we’ll combine the key concepts you’ve learned so far into a practical tool that helps you make informed decisions.
Budgets aren’t just about tracking numbers. They help you plan ahead, make strategic choices about where to spend your money, and spot potential challenges before they become problems. By creating a budget, you can see how much money your MVP might bring in, how much it will cost to launch and run, and whether you’re likely to end up with a positive cash flow.
Fill in the following template for your startup’s budget:
Remember, your first budget is only a starting point. Treat it as a living document that will evolve as you gather more information, refine your MVP, and learn from real-world data.
The spreadsheet template is designed for beginners, so you don’t need to have actual revenue yet, just make your best estimates based on what you know. It is also a relatively simple format for a budget. Businesses can choose to utilize more detailed, multi-faceted budgets to better keep track of profits and plan for their futures.
REFLECTION
Take a moment to think critically about the decisions you made in this lesson and how they might apply to your startup:
Additional Resources
ILO Global Programme on Financial Education: This resource provides guidance to help people make informed financial decisions and improve financial behavior. The site offers an overview of publicly available financial education training materials from around the world, organized by topic and region.
Personal Finance
While we covered the basics of entrepreneurial/business finance in this lesson, personal finance knowledge is also important. Here are some free resources to further your education about it:
- Next Gen Personal Finance
- A free curriculum covering core concepts of personal finance, such as types of insurance and personal budgeting. While some topics are specific to the United States, a vast majority of concepts can be applicable to anyone.
- OER Commons
- A collection of free educational resources. You can search for materials focused on personal finance and have access to a multitude of books and learning materials.
- UIL Gender Talks: Gendered informal learning in times of inflation and economic crisis
- A virtual symposium that explores how lifelong learning initiatives can help individuals navigate economic challenges, with a focus on gender. Discussions cover the impact of inflation and economic crises on women and highlight key skills needed to make informed financial and economic decisions.
