Building a Start-Up Financial Model
A comprehensive financial model allows you to have good visibility into how your start-up’s financials will look down the line. Many early-stage businesses do not have a financial model in place, assume they do not need one at this point and are put off by the time it takes.
A financial model uses your business’ actual revenue and expenses to predict future financial performance. A good financial model gives start-ups the information they need to make strategic decisions and helps to convince investors to back the business. Financial modelling includes a broad range of formats and objectives, so it can be a challenge to start building a model that suits your business. We have outlined the best practises every start-up owner should know about to create a financial model for their business.
The Basics of Building a Start-Up Financial Model
Your financial model starts as a set of assumptions, before you can project your future performance. The data used to calculate financial projections should be educated guesses, informed by financial trends, contracts signed and customers in your pipeline.
All assumptions should be recorded in a specific tab and kept separate from tabs where you calculate your projections, allowing you to pull data from this tab. This will allow you to make any changes quickly, that will then be applied to all of your calculations.
Your Assumptions Tab
Your assumptions tab should include the following sections:
A prediction or estimate of your revenue over the next months and years. Look at your various revenue streams, your products, and your plans for acquiring new customers.
Operating Expenses Forecast (OPEX)
This should include a prediction of the ongoing costs of running your business. This may include the following.
- Office expense such as rent and office supplies.
- Wages, payroll taxes and benefits.
- Sales costs including travel and entertainment.
- Marketing costs, including design and content creation.
- R&D expenditure.
Capital Expenditure Forecast (CAPEX)
This should include an estimate of what you will spend acquiring or maintaining physical assets, such as machinery and buildings, that will have a long-term benefit for your business. Some financial models may include depreciation forecast along with CapEx forecasts.
Cost of Sales (COS) Forecast
This should include prediction of the amount it will cost you to provide your service. For example, this may include the cost of hosting an eCommerce website, hardware in your products and providing customer support.
Customer Acquisition Costs (CAC) Forecast
A prediction of the amount you will spend to acquire each new customer and grow your customer base. This consists of both fixed and variable costs, such as a portion of your sales and/or marketing team salaries (fixed) and cost of social media campaigns, for example, which drive leads to your product or service (variables).
Is Using A Financial Model Template the Right Move for a Start-up Business?
The general structure of financial modelling is the same for any business. However, because you will have distinct ways of revenue modelling and will incur different expenses, the finished financial model and the exact types of data included will be different for every business.
Custom Financial Modelling
It can be difficult for start-up businesses to build an effective start-up model, as your model needs to be highly customised in order to provide value to your business. Gallagher Keane can provide the support you need in relation to your business’ financial planning, creating a customized financial model for your business.
Gallagher Keane provide professional accounting, tax, and financial advice to many start-up businesses. This helps them make informed business decisions to reach their goals. Gallagher Keane provides cloud accounting services to clients, giving start-ups a modern accounting solution.
Get In Touch
If you are interested in finding out how we can help your business, please book a no obligation call.