Where can web startups learn about financial modeling that accounts for the important metrics and costs?

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Kruze Consulting Startup Q&A Author
Vanessa Kruze
Founder, CPA

When it comes to learning about financial modeling, I’ve outlined some key points below. While you may be able to start with a template, keep in mind that your business is unique, and therefore your metrics and costs will be as well. You won’t need to start from scratch if you’re working with a professional (whether that be your VC firm, your CFO, or a seasoned angel investor/advisor in your industry): they’ll know the important metrics and average costs. Here are some common points that you’ll want to include in your financial model:

  • 3 Years of Projections. Occasionally investors will ask for more/less, but start with 3 years.
  • 3 Statement Model.Include a Profit & Loss Statement, Balance Sheet, and Statement of Cash Flows. Each should balance and tie back to each other (this gets tricky).
  • Your KPI’s should be your Drivers. Every company has a dashboard of metrics that they track growth and success by. A few examples include number of users, customers, margin, customer acquisition cost, Twitter followers, website traffic, etc. Look to the past and show that there is a correlation between X (could be # of Sales Reps) and Y (could be your revenue), then use this as a driver towards the future projections.
  • Churn. Customers will leave. Account for this.
  • Waterfalls. Your financial model should be dynamic. Waterfalls show how you actually performed against your projection and then resets the future accordingly.

Don’t show an investor a financial model that shows smooth growth “up and to the right.” No company’s growth is without bumps. These models take a lot of time to build and are highly personalized, so it really is best to consult with a professional. If you’re planning on raising $3M+ you should come prepared with a well thought out financial model.

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