The transition from funding to scaling is a delicate phase that requires a robust financial model. What if founders could create a financial model that provides insight into the business and supports scaling efforts? In part, it may improve funder-to-founder communication, ease growth tension, and accelerate growth. Here’s a simple outline: 

Principles

  1. Materiality: Focus on forecasting material items that significantly impact the business. Avoid getting lost in the minutiae. Instead, offer clarity on assumptions and rounding. Remember, you aim to forecast at a level that captures the material items that would “swing the needle” of growth, nothing more.
  2. Integrity & Consistency: Your forecast must be an extension of the past. Unaccounted-for changes in trends can undermine the credibility of your forecast. Ensure that revenue growth projections are proportionate to expense growth. Unrealistic projections are a red flag.
  3. Cash is King: Be vigilant about the timing of cash flow. Understand the variations in how different transactions affect your cash reserves. Accurate timing in forecasts is key to avoiding surprises.

Workbook Structure

Columns

  • Historical Financials: Include at least two years of historical data to identify trends.
  • Forecast: Project the next two to three years to outline the path to growth or profitability.
  • Budget: Document the original plan at the start of the year for reference.
  • Actual vs. Budget: Compare the current year’s actuals to the budget to measure progress.
  • Consolidated View: Have columns that bring Actual, Budget, and Forecast together for a comprehensive view.

Tabs

  • Financial Statements: Income Statement, Balance Sheet, and Cash Flow Statement must be included.
  • Dashboard: Create a dashboard for KPIs and a summary of performance metrics.
  • Revenue: Detail your revenue assumptions and the methodology behind your revenue forecast.
  • Expenses: Outline the costs associated with achieving the forecasted revenue.
  • Staffing: Detail all people-related expenses, including raises, bonuses, commissions, benefits, and taxes.
  • Inventory (For CPG): Manage an inventory sheet to track the movement and costs associated with inventory and suppliers.

Rows

  • Material Categories: Only include rows for material expenses and categories that have specific assumptions.
  • Income Statement Mapping: Ensure the income statement mirrors your chart of accounts.
  • Balance Sheet Detailing: Each major line item on the balance sheet should have a corresponding row.
  • Revenue Modeling: Use as many rows as needed to accurately reflect customer flow and product/service revenue.
  • Staffing Considerations: Reflect all staffing costs and their impact on cash flow accurately.
  • Inventory Management (For CPG): The timing of inventory-related transactions must be planned accurately for proper cash flow forecasting.

Workbook Exercise

  1. Fill in the Historical Financials: Enter the past financial data into the designated columns. Pay attention to any anomalies, and note the possible reasons.
  2. Forecasting Exercise: Based on the historical data, create a three-year forecast. Use the materiality principle to guide your projections.
  3. Budget Planning: Document your initial budget plan. How did you arrive at these numbers? Record your rationale and assumptions.
  4. Actual vs. Budget Analysis: Input current year data and compare it with the budget. Analyze variances and note any insights.
  5. Dashboard Configuration: Set up your dashboard. Decide which KPIs are most critical to your objectives and strategic goals and track them.
  6. Revenue Assumptions: Deep dive into the revenue tab. Define your ICP, pricing strategy, and sales cycle. Create a detailed customer and revenue flow model.
  7. Expense Allocation: In the expenses tab, outline the operational costs. Show how these support revenue generation.
  8. Staffing Plan: On the staffing tab, document all personnel costs and their timing. Demonstrate how this aligns with your human resources compliance and forecasted cash flow.
  9. Inventory Strategy (For CPG): If applicable, plan your inventory rows. Outline how supplier timings and inventory fluctuations affect cash.

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