Financial Modeling for Startups: Explained - Startups 101

Intro (0s)

• A financial model is more than a spreadsheet; it's a tool for inputting data and generating critical business insights.
• It answers vital questions like how much runway a company has, how much to raise from investors, and company valuation.
• It's important for startups not to just input revenue goals but to understand revenue as an effect of various business activities, using driver-based modeling.
• Founders must avoid making overly simplistic or unfounded assumptions in their financial models.

Canvas (2m24s)

• Financial models begin on a canvas rather than a spreadsheet.
• The color-coded system helps differentiate categories: Green for revenue, Red for Costs, Blue for SG&A, and Yellow for CAPEX.
• Links to spreadsheet templates with this color coding are provided in the video.
• Within these categories, items like rent, subscriptions, and headcount can be budgeted for accurately.
• SG&A can be estimated based on per-user costs such as GSuite subscriptions or co-working space fees.

The Good Stuff (3m50s)

• Revenue should be the output, not the input, of the financial model, driven by marketing and sales efforts.
• Assumptions in the financial model should be grounded in reality, like industry-standard costs per click or install.
• Organic Traffic is the only driver not directly proportional to an expense and must be modeled based on reasonableness and potential caps on traffic growth.
• Other types of costs, such as a sales team or marketing budget, are blue boxes representing SG&A expenses that drive revenue.
• Realistic assumptions for conversion rates and the efficiency of marketing spend are crucial to model accuracy.
• Financial models should be simple to manage, respond to business needs, and grow in complexity as needed.
• The primary goal is for the model to be useful, not perfect, reflecting actual business trends.

The Effect (8m44s)

• eCommerce platforms can estimate revenue by multiplying the expected number of monthly orders by the average order size and margin.
• For SaaS companies, average revenue per account (ARPU) assists in estimating monthly recurring revenue (MRR).
• Churn needs to be included as it represents the customers that are lost every month.
• For realistic estimates, companies should use real user data or industry benchmarks as inputs for their financial models.
• Direct costs such as server and infrastructure costs should be tied to MRR or the number of active customers.
• Driver-based modeling allows for the estimation of additional expenses, such as predicting the need for a new customer support agent for every 1,000 active customers.
• The financial model should incorporate all expenses and critical metrics and evolve based on the company’s live data.

Financial Modeling Workshop (8m44s)

• Slidebean offers a Financial Modeling Workshop, designed to help businesses build a financial model.
• The workshop provides a blank model, guidance from a senior analyst, and a team to add new functionalities to the spreadsheet.
• Customers will participate in sessions that help them build their business model and, by the second month, start adding revenue lines.
• The approach is designed to educate entrepreneurs on building and managing their financial models.
• Links are provided for booking the workshop or for further inquiries.