Why So Many Startups Struggle With Finance (And How To Fix It)
Why So Many Startups Struggle With Finance (And How To Fix It)
When we speak with founders, there’s usually one moment in the conversation when they pause, laugh a little, and admit:
"Honestly, I’m basically acting as the CFO right now… and I have no idea what I’m doing."
It’s not surprising. In the early days of building a company, finance often takes a backseat to product, sales, and growth. But the result is that many startups reach a breaking point where financial management turns from an inconvenience into a real liability.
After analysing 50 recent sales conversations with founders and leadership teams, we saw the same pains surface again and again. And while the exact details vary, the underlying story is clear: most startups lack financial clarity, which makes running the business feel like flying blind.
Here are the top problems we uncovered, and why they matter.
1. Weak or Underperforming Finance Function
In most early-stage companies, the “finance team” is either:
- the founder/CEO juggling spreadsheets late at night
- an operations manager who inherited the job or
- an external bookkeeper who keeps the lights on but adds little strategic value
The result? Mistakes, poor processes, and no one looking ahead. Founders know their finance isn’t keeping pace with their growth, and that creates both operational risks and blind spots in decision-making.
2. Unreliable or Non-Existent Reporting
One of the most common frustrations: the numbers can’t be trusted.
We heard stories of:
- monthly reports that arrive weeks late (if at all)
- payroll and commission numbers that come out wrong
- no consolidated reporting across markets
- management accounts that simply don’t exist
Without trustworthy data, leadership ends up making calls based on gut feeling. That might be fine for intuition on product or hiring, but dangerous when it comes to cash, margins, and runway.
3. Budgeting, Forecasting, and Cash Flow Discipline
It’s shocking how many startups still “manage cash flow” by refreshing their bank balance.
We spoke to founders who thought they had 12 months of runway… only to discover it was closer to six. Others had no departmental budgets, or forecasts that broke down after the first few months.
This is the kind of gap that turns into a survival issue fast, especially when customer payments slip or market conditions tighten.
4. Manual, Inefficient Systems
Almost every conversation touched on the same theme: finance processes stuck together with duct tape.
- Spreadsheets for everything
- Tools like Xero or QuickBooks set up poorly
- Data manually copied between CRM, billing, and accounting systems
It’s not just inefficient. It creates errors, wastes hours, and leaves founders firefighting instead of building.
5. Cash Collection and Bad Debt
This one surprised us with how destructive it can be.
Several founders mentioned late payments or outright bad debt piling up. In one case, nearly £400k. That’s not just an operational hassle, it’s existential.
When invoices are chased inconsistently, or when there’s no clear visibility of when sales actually convert to cash, liquidity becomes unstable. And cash is the oxygen of any startup.
The Bigger Picture
All of these issues connect to the same root cause: finance is seen as admin, not as a strategic driver.
That mindset means reporting is reactive, processes remain manual, and leadership makes critical calls without clarity. It’s why so many founders described their experience as “flying blind.”
But the companies that thrive, and raise capital successfully, usually do the opposite. They build financial discipline early. They put systems and processes in place. They create clarity around cash, profitability, and growth.
It’s not glamorous. But it’s the difference between being in control and being surprised.
Closing Thoughts
Startups don’t fail because their founders aren’t working hard enough. They fail because they run out of clarity, and then they run out of cash.
The good news? These problems are solvable. With the right systems, proactive guidance, and a finance function that scales with you, founders can stop worrying about survival and focus on building.
At Scaleup Finance, we’ve worked with more than 300 startups to make that shift. And whether it’s through our CFO services or Nume, our new AI CFO, our goal is simple: help you see clearly, act confidently, and grow sustainably.
When we speak with founders, there’s usually one moment in the conversation when they pause, laugh a little, and admit:
"Honestly, I’m basically acting as the CFO right now… and I have no idea what I’m doing."
It’s not surprising. In the early days of building a company, finance often takes a backseat to product, sales, and growth. But the result is that many startups reach a breaking point where financial management turns from an inconvenience into a real liability.
After analysing 50 recent sales conversations with founders and leadership teams, we saw the same pains surface again and again. And while the exact details vary, the underlying story is clear: most startups lack financial clarity, which makes running the business feel like flying blind.
Here are the top problems we uncovered, and why they matter.
1. Weak or Underperforming Finance Function
In most early-stage companies, the “finance team” is either:
- the founder/CEO juggling spreadsheets late at night
- an operations manager who inherited the job or
- an external bookkeeper who keeps the lights on but adds little strategic value
The result? Mistakes, poor processes, and no one looking ahead. Founders know their finance isn’t keeping pace with their growth, and that creates both operational risks and blind spots in decision-making.
2. Unreliable or Non-Existent Reporting
One of the most common frustrations: the numbers can’t be trusted.
We heard stories of:
- monthly reports that arrive weeks late (if at all)
- payroll and commission numbers that come out wrong
- no consolidated reporting across markets
- management accounts that simply don’t exist
Without trustworthy data, leadership ends up making calls based on gut feeling. That might be fine for intuition on product or hiring, but dangerous when it comes to cash, margins, and runway.
3. Budgeting, Forecasting, and Cash Flow Discipline
It’s shocking how many startups still “manage cash flow” by refreshing their bank balance.
We spoke to founders who thought they had 12 months of runway… only to discover it was closer to six. Others had no departmental budgets, or forecasts that broke down after the first few months.
This is the kind of gap that turns into a survival issue fast, especially when customer payments slip or market conditions tighten.
4. Manual, Inefficient Systems
Almost every conversation touched on the same theme: finance processes stuck together with duct tape.
- Spreadsheets for everything
- Tools like Xero or QuickBooks set up poorly
- Data manually copied between CRM, billing, and accounting systems
It’s not just inefficient. It creates errors, wastes hours, and leaves founders firefighting instead of building.
5. Cash Collection and Bad Debt
This one surprised us with how destructive it can be.
Several founders mentioned late payments or outright bad debt piling up. In one case, nearly £400k. That’s not just an operational hassle, it’s existential.
When invoices are chased inconsistently, or when there’s no clear visibility of when sales actually convert to cash, liquidity becomes unstable. And cash is the oxygen of any startup.
The Bigger Picture
All of these issues connect to the same root cause: finance is seen as admin, not as a strategic driver.
That mindset means reporting is reactive, processes remain manual, and leadership makes critical calls without clarity. It’s why so many founders described their experience as “flying blind.”
But the companies that thrive, and raise capital successfully, usually do the opposite. They build financial discipline early. They put systems and processes in place. They create clarity around cash, profitability, and growth.
It’s not glamorous. But it’s the difference between being in control and being surprised.
Closing Thoughts
Startups don’t fail because their founders aren’t working hard enough. They fail because they run out of clarity, and then they run out of cash.
The good news? These problems are solvable. With the right systems, proactive guidance, and a finance function that scales with you, founders can stop worrying about survival and focus on building.
At Scaleup Finance, we’ve worked with more than 300 startups to make that shift. And whether it’s through our CFO services or Nume, our new AI CFO, our goal is simple: help you see clearly, act confidently, and grow sustainably.
FAQs
All the answers you need for all the questions you’ve got.
(But also TL;DR)
How should a startup business prepare its budget?
To prepare a budget for your startup, begin by listing all potential expenses you anticipate in starting and operating your business. Next, organise these expenses into categories. After that, estimate your monthly revenue and calculate the total costs required to start and run your business.
What are the key steps to creating an effective budget?
Step 1: Determine and track your income sources.
Step 2: Make a list of your cost. Include both fixed and variable costs.
Step 3: Set achievable financial goals.
Step 4: Develop a plan to meet those goals.
Step 5: Put everything together to build your budget.
Step 6: Regularly review and revise your forecast to ensure it remains effective.
What does capital budgeting entail for a startup?
Capital budgeting for a startup involves allocating a set amount of funds for specific purposes, such as purchasing new equipment or expanding business operations. This process is crucial as it supports making strategic investments that are expected to yield long-term benefits for the startup.
FAQs
All the answers you need for all the questions you’ve got.
(But also TL;DR)
How can a startup forecast its cash flow?
To forecast cash flow for a startup, follow these steps:
Step 1: Create a sales forecast by estimating the revenue your products or services will generate over the forecast period.
Step 2: Develop a profit and loss forecast to understand your expected expenses and income.
Step 3: Prepare your cash flow forecast, which involves calculating expected cash inflows and outflows. This can often be done for longer-term by using assumptions around payment terms to forecast a Balance Sheet, and using the movements in Balance Sheet and Net Profit/Loss to calculate the cashflow.
Step 4: Consider ways of improving cash flow by improving your invoicing methods, considering short-term borrowing, and negotiate better payment terms to manage cash flow effectively.
What is the most accurate method to forecast cash flow?
The most accurate method for forecasting cash flow in the short-term is the direct method, which utilises actual cash flow data. In contrast, the indirect method is better suited for longer term forecasting using projected balance sheet movements and income statements to estimate future cash flows.
How is cash flow calculated?
Cash flow is calculated by deducting cash outflows from cash inflows over a specific period. This calculation alongside forecasts of future cash flow helps determine if there is sufficient money available to sustain business.
How do you project cash flow over three years?
To project cash flow over a three-year period, undertake the following steps:
Step 1: Collect historical financial data.
Step 2: Identify all expected cash inflows, which could include revenue, investment, grant income, etc.
Step 3: Estimate all anticipated cash outflows including expenses, suppliers that need to be paid, investments into assets, debt repayments, etc.
Step 4: Calculate the net cash flow by subtracting outflows from inflows.
Step 5: Consider your cash reserves and explore financing options if needed.
Step 6: Regularly review and adjust your projections to ensure accuracy and relevance.
FAQs
All the answers you need for all the questions you’ve got.
(But also TL;DR)
When should a startup consider hiring a CFO?
A startup should think about hiring a Chief Financial Officer (CFO) when it begins to experience rapid growth, finds it challenging to manage finances, or needs to navigate complex investment scenarios. A seasoned financial professional can provide the necessary expertise to handle these challenges effectively.
What are the indicators that my business might need CFO support?
You might need to hire a CFO or consider outsourcing this role if you notice any of the following signs: a decrease in gross profit margins despite increasing revenue, uncontrolled business growth, lack of cash reserves despite having a financially successful year, or a halt in business growth.
Does my startup really need a full-time CFO?
Recruiting a full-time CFO is an expensive hire. Given budget constraints and the need to prove the viability of your business idea, founders will often need to prioritise investing into building and commercialising their product. That's where CFO services for startups are a cost-effective solution for founders looking to take their financial management to the next level.
