In the early years of starting a company, personal finances and business success are often linked. Founders and entrepreneurs should ensure they have funds available to support themselves during the time before their company begins to generate revenue—otherwise, they might be forced to split time between building and sourcing capital. 

Founders may find it daunting to shore up personal finances while simultaneously building their company. Fortunately, founders can figure out their finances before they start their company—so they can ensure they are prepared for their entrepreneurial endeavor. Here is a step-by-step startup financial planning guide for founders to use as they embark on their entrepreneurial journey.

1. Evaluate current finances and financial plans

Before entrepreneurs make a full-time commitment to their business idea, they should dig into their current finances. 

• Examine expenses: Founders' income can fluctuate, so it's smart to consider how to reduce monthly spending if one’s income dips unexpectedly. For instance, track spending on dining out, entertainment and other discretionary costs to know which levers to pull to reduce spending if needed. 
• Assess debts: Founders should evaluate and make a financial plan to address their debts if they leave their primary job to commit to a startup full-time. An updated, more conservative budget should anticipate potentially reduced or less-consistent income while the founder bootstraps their startup.
• Build an emergency fund: This fund is a cash reserve to use for unexpected expenses, such as car repairs or medical bills. The longer founders can defer their own compensation, the more resources they can devote to their business.

2. Invest personal funds into your startup

Many founders rely on various funding sources to develop early prototypes. They may tap into their own savings, raise money from friends and family or seek grants to develop a minimal viable product (MVP). These early funds help founders gain traction before approaching investors. And to potential investors, a founder’s willingness to commit his or her own money can signal commitment and passion for their idea.

However, entrepreneurs should be strategic about how they allocate their own funds to their ventures. Drawing funds from retirement accounts like 401(k)s or IRAs can trigger early-withdrawal penalties and reduces those accounts’ compound growth. Similarly, borrowing on high-interest credit cards to fund a startup can add to capital costs and eat into profitability. 

3. Develop a prototype while still employed

As founders foray into the entrepreneurial world, a regular paycheck represents security. That’s why many founders keep their primary income source, spending nights and weekends developing their business idea, until it’s feasible to transition to full-time entrepreneurship.

Founders must give themselves time to understand the problem they want to solve and how they will solve it, the total addressable market for their product or service and how they can interest potential customers before making the move from a steady paycheck to uncertain compensation. A day job can give founders financial stability while developing their idea into a fine-tuned prototype or pitch deck they can present to investors.  

4. Investigate suitable funding options

Once confident their startup business solves a compelling problem, founders can explore financing options from professional investors, such as angels, incubators, accelerators and venture capital firms. Securing funding, especially for first-time founders, is not an easy task. J.P. Morgan offers Capital Connect, a platform that brings together entrepreneurs, limited partners and venture capitalists to help them find new opportunities and complete deals. 

While it’s a common belief that startups raise significant capital through friends and family rounds or by participating in incubators or accelerators before their seed round, data shows that’s not always the case.

Seed funding accounted for more than 80% of the pre-Series A funding raised by startups that reached their Series A round in 2023, according to PitchBook. Grants and angel investors also played a notable role, while crowdfunding and incubators/accelerators made up a slim portion of the overall funding mix.