Sample Financial Model

Description
Most entrepreneurs forget about the finance aspect of their business, and as a result, they underestimate their cost realities and investor expectations. However it is important to keep in mind that, in reality, it’s like taking a long drive with no destination in mind. Chances are, you won’t enjoy success from the trip.

When it comes to a financial model, in most cases, it is merely a Microsoft Excel spread sheet loaded with your cost and revenue projections for your startup; starting now and extending at least five years into the future. To increase its value, a few variables can be added – like product volume growth rate and number of salesmen – for “what if” analyses.

Why do we need it then?
For you to make decisions and manage the business – as well as recording a whole lot of information we couldn’t possibly store all in our heads– to decide whether and when the business is going to be profitable given rational projections of costs and income (these assumptions are referred to as your business model). Secondarily, potential investors will require it to validate how much money you need to get started as well as how much return they can expect on their investment.

But when would it be needed? The financial model should be running before you incorporate the business and build prototype products (would you start driving your car on a long trip before you knew where you were going?). Without knowing your objective, try not to approach potential investors until your model is working – investors are not very tolerant towards startups that have no financial plan.

How do we start using it? Download the free sample model that I built for a specific startup, with elements suggested by angel investors and venture capitalists, ready to be customized to your business.

With the results of the model, you can have financial projections that allow you to see areas of strength and weakness in your proposed business model, enabling you to make critical changes that will allow your business to run more successfully.

- Marty