Financial Modeling for Startups
The world of entrepreneurship is fascinating, but also extremely treacherous. Even when startup founders have the greatest business ideas, it is always a matter of convincing potential investors that with time and money the startup can become a successful company.
However, feedback and orders are often not enough to prove a company’s potential, because investors are looking for hard evidence that points to a bright future. This is where financial planning comes into play.
Financial planning consists of analysing current customer demand, feedback and many other aspects of the business to deliver a financial forecast for the startup’s operations over the next 3 to 5 years.
More specifically, when investors evaluate a business idea, they look at two aspects in particular: the start-up’s earnings potential and the founder’s ability to identify potential problems and lead the company to success.
So if you create a financial model tailormade to your company, you can impress investors by showing that you understand the business, that you know the path to the goal and that you recognise the potential pitfalls along the way and know how to avoid them.
I will personally be your sparring partner throughout the process, from pitching the idea to preparing how to respond to investors when presenting the startup.
My financial modeling proces
I have been building tailormade financial plans for startups for many years. Over time, my experience has taught me that taking the short route and using a prefabricated template not only leads to poor results, but can also be counterproductive.
All businesses, especially startups, are significantly different from each other. So, if you adopt a generic template, you might not be able to highlight your company’s strengths. And when an investor is assessing the founder’s skills to run the business, an impersonal, generic and unenthusiastic template may immediately put them off any investment idea.
This is why, over the years, I have developed my own financial modelling process to ensure the highest quality and most informative financial plans for a startup. The process starts with a meeting where we discuss your expectations and set a few targets for the startup.
Then we will review your startup’s business model together. This step, in conjunction with the targets and expectations, is critical to setting the tone of the entire financial plan. The goal is to find a path to success.
After these two steps, we start building the model. First, we set all the necessary assumptions for the model and then build the model in iterations, following my own modular approach. This type of approach consists in splitting the whole financial plan into smaller sections for maximum personalisation and flexibility as, that way, you can easily decide how detailed you want each section to be.
But the modular approach also has another very important advantage. Over time, I have built and perfected the structure and starting point of each module, so that when building the whole financial plan, I already have a solid starting point on which to build and personalize further.
So the modular approach not only allows me to create a bespoke model, but also significantly reduces the cost and time required to complete it.
The final step of the process, once the financial model has been created, is to discuss it together and generate valuable insights and reports that can be helpful in presenting the business.
The Unique Aspects of Financial Models for Startups
Since startups are special business entities going through a unique stage of the company’s life cycle, a financial model for a startup requires some unique aspects to create a valuable and informative plan.
For example, in our tailormade financial models for startups, we dive deep into the roots of revenues and the drivers of expenses to ensure that not a dollar is wasted at this crucial stage of the business.
Secondly, because of the explosive growth startups often face, I always include scale-up elements that match the startup’s key drivers, forecasting future growth and allowing founders to prepare in advance and maximise the momentum of the business.
Additionally, because capital is a scarce resource in the startup phase, I also include a detailed 12-month plan for the use of funds and a cap table simulation. Thanks to these features, founders can have more confidence in their ability to keep the company afloat and manage the startup through early planning and simulations.
Finally, two other cornerstones of my models for startups are a Discount Cash Flow (DCF) model and a Terminal Resale Value model. These additional documents are extremely insightful for both founders and investors to determine the current value of the business at a given point in time.
Thanks to my modular approach, I can build tailormade financial models for startups at a competitive price. However, depending on the modules and features chosen by the startup and the level of detail required, prices can range from €500 to €2000.
There are many different features to choose from and of which you can customise the level of detail and/or time horizon.
For example, the financial statements always include a balance sheet, an income statement and a cash flow statement. However, you can customise the financial forecast and choose a time horizon of up to 60 months.
The same level of customisation applies to the valuation of the business, the detailed plan for the use of funds and the final insight and reports. In particular, if you wish, I can provide you with ad hoc charts and summaries that you can present directly to your investors.
Finally, I also offer online workshops and video calls to ensure that you master the models and that all your targets and expectations are satisfied.
If you would like more information, please do not hesitate to contact me. We will then talk on the phone together and decide what steps you need to take to build the best tailormade financial plan for your startup.
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