So you want to build a startup, and you’re trying to figure out how much money you need? Or maybe you already took the plunge, speaking to investors and want to be ready for that inevitable question - can you send me your financial plan? Here are a few things to consider.
How much detail should I put in the financial model?
Before you open up a spreadsheet, download your bank transactions, and find yourself drowning in a mass of facts and figures, we suggest you ask yourself - what am I trying to achieve here?
A common tendency is to jump-in, start listing out all our stuff - expected revenue streams, people costs, contractor spend, IT subscriptions, travel - let me stop there - Do you need to go that far into the details? Probably not. Try this instead!
Start with a high-level plan based on sensible assumptions.
How do you do this? Well, most of the time you would be well served with a high level assumption based model - plug in a few simple assumptions and you’ll get a pretty decent estimate. It’s normally more accurate than building bottom up (creating a list of every item you’ll spend money on and adding it up ) - because when we build bottom up we forget to include things, sometimes big things, so our perfect plan is out-of-date almost the moment we finish it. So what now?
This is what great CFOs (Chief Financial Officers) do - they have a really strong grasp on the typical metrics and ratios, and use benchmarks to check if things are roughly the right shape. But you’re a startup, so what if you don’t have a CFO?
We have a great high level plan that you can try.
Financial modelling is a key component for a successful business. So what is it? A financial model is made up of past performance variables, such as expenses, profits etc; which help predict the future financial performance of your business.
Typically, the majority of small businesses and early stage startups are unable to afford to employ a financial team to do this for them. This leaves them resorting to using spreadsheets, which can be complicated and messy - not to mention time consuming - to create their model. What’s the alternative?
Blox was created to empower ambitious leaders to make better, faster decisions, without spreadsheets. It is the all-you-need-financial-modelling-programme, created with you in mind to provide a space for detailed - yet simple - financial planning and analysis, allowing you to plan for the future and make decisions for your business, with confidence, stress free.
Why do I need a financial model?
A financial model is a tool. An essential tool to help you make smart, informed decisions allowing you to ensure the viability of your business’ future.
You will be able to determine your future revenue, profits, expenses and other important variables and make appropriate changes where necessary.
When do I need a financial model?
A financial model is important, not only for yourself, but for your business’ financial prospects as well. Any investor, bank or loan company will want to see your financial model to determine whether or not they will invest in your business.
You will be able to use your financial model to accurately forecast and effectively budget. Not only that, the model will allow for your business to be valued and can help you raise capital. So it’s vital to have a strong model. And that’s what we are here for.
What should I include in our financial model?
Here is what you should include in your financial model and a brief explanation why:
R&D Burn Rate.
The Research & Development (R&D) burn rate is the rate at which your business spends its available capital over time. It is the rate of negative cash flow and it is a key component in helping you determine whether or not your business is self-sustaining.
The burn rate will help you determine how much revenue you need in order to maintain a successful business. Definitely a key point to consider.
It is important to have this information in your financial model as it is something that investors will look at when considering investing in your business, as well as banks and lenders. It is also crucial for the business itself to understand in order for them to manage their cash well.
Customer / User Acquisition Assumptions.
Customer acquisition is the process a company takes to acquire new customers. But it doesn’t end there. It leads to a means of retaining those customers and creating customer loyalty. So being able to understand that data is a vital part of creating and maintaining a successful business.
Including this information in your financial model will help you see trends and understand what is, and what isn’t working. Allowing you to make improvements where needed or invest further in areas that are working well.
Revenue forecast is an educated prediction of your business’ future revenue over a period of time. It looks at past and present data of sales. Being able to predict your business’ future revenue is an important factor.
Investors play particular interest in this aspect of your financial model as it tells them what potential your business has to make profit. It also helps you see how changes made now can impact your future revenue and which are the most effective in providing a more secure and certain future for your business.
Knowing what is being spent in terms of general expenses in your business is also important to consider. Knowing where the money is going and how effective it is being spent in that way can make all the difference.
Including this in your business’ financial model will help you to budget effectively and not over spend.
In conclusion, a financial model is a valuable tool for any business. It can help you make informed decisions about your finances, forecast your revenue and expenses, track your cash flow, and identify areas where you can improve your financial performance. There are many different ways to create a financial model, and the specific content of your model will vary depending on your specific business needs. However, there are some general things that should be included in any financial model. These include a revenue forecast, expenses forecast, cash flow forecast, balance sheet, and profit and loss statement. Once you have created your financial model, it is important to review it regularly and make adjustments as needed. This will help you ensure that your business is on track to achieve its financial goals.
If you are looking for a simple-yet-powerful solution, Blox offers a marketplace of pre-made, expert-built models that can be easily customised to fit your specific business needs with little time, and no spreadsheet-expertise. There is a growing variety of models to choose from, including SaaS Financial Modelling, Workforce Planning, Marketing Planning, and Subscription Revenue Forecasting, and they each come with a variety of features that can help you make better financial decisions, and focus on what really matters; growing your business.
Get started with Blox for free, no credit-card required, at https://app.blox.so/signup