I’m a CPA and interim CFO for 800+ startups (some of which are hardware startups) and I’ve helped many of my companies build financial models that have gotten the thumbs up from top VC firms and the pickiest of investors/board members.
While you may be able to start with a template, keep in mind that your business is unique, and therefore your model should be as well. 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.
Vanessa Kruze, a seasoned CPA, has an impressive track record prior to establishing Kruze Consulting. Her experience includes pivotal roles at Deloitte Tax and as a controller for a substantial startup with over 120 employees and $20 million in revenue. Under her leadership, Kruze Consulting has emerged as a distinguished CPA firm, recognized on the Inc 5000 list for five consecutive years, illustrating rapid growth and success in the competitive accounting landscape. Vanessa's unique approach, combining deep industry knowledge with advanced automation and software solutions, has positioned her firm as a leader in providing comprehensive accounting services to startups across the United States.
