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September 7, 2016 | 5-minute read (853 words)
“The point of financial projections is to tell a story with numbers – a story about opportunity, resource requirements, market forces, growth, milestone achievements, and profits.
Your job is to create a numerical framework that complements and reinforces the vision you’ve painted with words”
– Guy Kawasaki
If you’re a startup you want investors to be interested in your business. Accelerating growth of your business is key - and having investor support goes along way towards achieving that growth. But what is the best way to tell your startup story using your financials?
What goes into organizing and presenting a cohesive plan around those numbers can seem overwhelming. All sorts of questions such as what are my objectives? How do I best involve my team? How far should the plan ideally forecast for? And how often should it be updated?
We sat down in a recent webinar to talk with EGFS Consultant CFO Alaa Ismail on what goes into that and what questions he answers daily. We work with roughly 1 out of 5 of the venture-backed startups nationwide providing services such as creating financial plans, providing outsourced CFO support, valuation and preparation for 409A.
https://www.youtube.com/watch?v=IhO5Ehif8mIAlaa: “Your financial model is the numerical representative of your vision, the verbal vision that you present your investors, so this financial model needs to be consistent with that vision and highlight the key points of your operating plan”
A comprehensive financial picture serves as the road-map for your business.
Alaa: “The first point that we have here is that it helps you understand your cash burn that is very critical not only to you but to your investors want to know how long your cash will last and when is the next inflection point that they will either need to get outside funding or re-up funding if needed.
They also want to understand at what point you're going to be generating cash”
“Another thing that a financial model really helps is to crystallize your operating plan in numbers, it really helps you evaluate what are the key performance drivers? At what point will revenue grow?
A financial model really helps you see how that all these items kind of gel and how you will be judged in your performance”
Alaa: “It is iterative, it is evolving and it's a breathing document. You will continuously improve on your assumptions, it's key that this model be part of your team's goals and it's not something that the CEO is sitting with his finance person with alone”
In defining your starting point, the major objectives, asses where you are and what you want to achieve.
Alaa: “The major objective is to figure out what you need to get there from a financial point of view. How much money do you need? How much money are you going to make? How much money do I need to raise?
What's my cash burn on going to be? At what points do I need to raise additional funds?”
“If you're generating revenue start with your sales folks, the people that are generating revenue. Your revenue pipeline is really important especially in bottom-up modeling”
Alaa:“Having a really good budgeting process on an accrual basis helps you identify if your revenue assumptions are in line, and it helps you create different scenarios by adjusting all these variables. It becomes a really great operational tool”
For more on the topic: When Was the Last Time You Thought About Cash Burn?
Not particularly useful, but necessary for investors to show market potential
For additional coverage see: Bottom-Up vs Top-Down Forecasting: Realistic Financial Planning
Accounting
Finance
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