Financial Modeling Basics for Startups

Video: What Should Go Into Your Startup’s Financial Model?

There are really five things. First of which, you do need three years worth of projections. Some folks will think, “Oh, maybe I just need one, or maybe I need five,” the answer is, keep it to three years.

Next up, do make sure that you have a three statement financial model. That means a PNL, a balance sheet, and a statement of cash flows. Some folks will just go straight to the income statement and then leave it as-is. But the real answer is, make sure that you have all three of those statements, tying back together.

Third, you are going to wanna make sure that you’re using your KPIs as your drivers. Those are things like your number of users, your cost to acquire a customer or your MRR. Those are the things again, that should really be making your financial model move.

Next up, do think about churn. Customers who wanna leave, you should account for that. It really just keeps your financial model a little bit more honest.

Last but not least, do make sure that you add in waterfalls. Waterfalls help keep your financial model dynamic because as you guys all know, things don’t always go to plan. So you need to make sure that your financial model isn’t completely broken when you’ve either exceeded your goals, or you’ve kinda fallen a little bit behind.

So again, it’s a three statement financial model, three years worth of projections, KPIs should be your drivers, do account for churn, and last but not least, the waterfalls.

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