6 Tips to Calculate Your Startup Funding Needs

The process of building a startup goes through many stages, but what’s shared across all founders is the ambition to see their business grow and succeed.

All startups need a strong business plan, and central to that plan is a clear and realistic funding estimate. This isn’t just for your own clarity, it shows potential funders that you’re organised, financially aware, and capable of managing capital.

Funding planning includes expenses like staff salaries, operations, product development, marketing, legal costs, and technology. Think of it as the foundation for all future decisions.

In this article, we break down how to calculate your startup funding needs using a step-by-step approach.

1. Define Your Startup’s Stage and Goals

The amount of funding you need will depend heavily on the stage your startup is in, whether you’re pre-revenue, just launched, or already scaling. Start by clarifying what you’re trying to achieve with this round of funding.

Ask yourself:

• Are you building a prototype?
• Do you need to hire staff?
• Is this funding round about growth or survival?

Your goals will determine both the type and amount of funding you need. For example, a pre-seed startup may only need enough for a Minimum Viable Product (MVP), while a Series A startup might require millions for team expansion and market acquisition.

It’s crucial to tailor your funding calculation to your business. As tempting as it might be, don’t copy another startup’s funding model. What worked for a SaaS company won’t work for a local retail platform.

2. List Out All Business Expenses in Detail

Calculate what your startup needs to spend money on. Break this into initial setup costs and ongoing monthly expenses.

Examples of setup costs include the following:

• Product development or manufacturing
• Equipment or software
• Legal and licensing fees
• Branding and initial marketing

Examples of ongoing expenses:

• Staff salaries
• Rent or remote work tools
• Marketing and ad spend
• Cloud services, web hosting
• Utilities and insurance
• Admin and accounting support

It’s also crucial to consider your cash flow when calculating costs. Demonstrating good cash flow management in your strategy can show funders that you are financially conscious.

3. Forecast Revenue

Businesses need to master the art of revenue forecasting. A common mistake entrepreneurs make is being overly optimistic about how fast revenue will come in. Investors will usually cut your forecasts in half during due diligence, so it’s best to apply that filter yourself from the start.

Forecast revenue using industry benchmarks, pilot data, or similar businesses. Remember, if you haven’t made any sales yet, it’s okay to project low, but back up your assumptions. To explain the assumptions behind the figures, you can consider factors like market size, target audience reach, pricing strategy, marketing efforts, and anticipated conversion rates.

Ensure your forecast includes the following:

• Month-by-month revenue estimates for at least 12 months
• Sales volume goals
• Customer acquisition costs (CAC)
• Expected conversion rates

4. Calculate Your Burn Rate

Burn rate is the amount of money you’re spending each month before generating sustainable revenue. Understanding this helps you see how long your current or projected funding will last.

To calculate your burn rate, use this formula:
Monthly expenses – Monthly revenue = Burn Rate

If you’re spending R100 000 per month and generating R30 000 in revenue, your burn rate is R70 000. If you’ve raised R700 000, you have a 10-month runway because R70 000 x 10 = R700 000.

VCs aren’t merely interested in your business model, they want to see that you’re conscious in your financial planning. A startup with a 12-month runway is seen as more fundable than one with 3 months and no contingency plan.

5. Include a Contingency Buffer

Always include a 10–20% buffer for unexpected costs. Things can take longer and cost more than planned.

You might need this buffer for:

• Supplier delays
• Legal disputes
• Team churn
• Emergency hardware or software upgrades

6. Present Your Funding Needs Clearly

Once you’ve calculated your funding needs, the final step is to communicate them clearly in your pitch deck or funding application.

Make sure you include:

• A clear and detailed breakdown of how the funds will be used
• How long will the funding last
• Your revenue projections and breakeven timeline
• Your contingency plan if targets aren’t met

Avoid vague requests like “we’re raising R1 million to grow.” Instead say: “We’re raising R1 million to build our sales team (R400 thousand), launch a digital marketing campaign (R300 thousand), and support product development (R300 thousand), which will give us an 18-month runway to reach breakeven.”