Sometimes founders can’t help but wonder: How do I present financials for a startup with no revenue? It isn’t an easy job, primarily when these numbers are commonly used to attract potential investors. There are, however, ways to effectively build upon models and projections to give a realistic idea of what revenue can look like for a promising new business. And startups and starting companies can legitimately turn to these for successful fundraising. Just consider all the variables that come into play on a specific product or service!
Find the best financial model for a startup
To find the best financial model for a company, we must think of quality data. To present those, after that, we need to make sure our projections show valuable estimates. And what we show needs to tailor investor interests with just the right information they need to move forward with their funding. Let’s go a bit deeper into this, shall we?
What’s a startup financial model, and how does it work?
A startup’s financial model is a management tool for educated decisions and a summary, at the same time, of a company’s revenue and expenses.
These models let a business track Key Performance Indicators (KPIs), such as gross and net margin, to forecast future performance. And they rely on historical data and other critical metrics.
In fact, a standardized set of variables feeds our financial model templates. And most executives use them. Customer cost of acquisition is one of those variables, for example.
What are financial models good for?
Planning finances is vital for any type of company. In the end, we want to make sure we’re creating an economically stable business, whatever it is. However, for a startup, other peculiarities make it even more crucial to have a solid financial model. And the reason for that is how much they’re needed during the initial critical stages of startup fundraising.
We also need to be ready for all sorts of different kinds of situations that might come up as we seek to make our startups grow. And planned financial models can help gear incidentals.
To learn more and get more detailed info on startup financials, here’s a review of the full financials of Slidebean for our most important year. It’s one when we raised our first $250,000 and grew subscriptions by 800%.
What kind of financials do startups usually present?
Like we said, a thought-out financial model needs to at least include reasonable projections on a business’s future. Yet, it should also hold a structured, understandable, and dynamic spreadsheet.
Startups tend to rely on two main models for this:
1. Top-down forecasting
This kind of approach refers to industry estimates that are first taken as reference and then narrowed down into sections that match a company well. The TAM SAM SOM model helps with it, and there are 3 levels to that.
The first is the Total Available Market (TAM). Then there’s the Serviceable Available Market (SAM). And, finally, there’s the Serviceable Obtainable Market (SOM), which stands for what you expect to obtain at the end when you also consider the competition.
Once the above levels are figured out, the rest of the crucial variables are introduced. And those are all those needed to create the product or service the new company has in mind. After that, figure out profitability.
This type of forecast can be most useful for companies that already know how much they need to fundraise. And that’s also a valid question. Figure out what your required figure is before fundraising. Doing so will help clarify business needs. It also makes for a perfect final slide to any successful startup pitch deck.
2. Bottom-up forecasting
The second type of approach relies on the market a bit less. It’s built on company data rather. And projections are made based on that.
A problem startups might run into with this approach is how little optimism might come through when they address potential investors. But it can be perfect for companies that seek partnerships or need to follow a specific direction.
Presenting startup financials
Here are the 4 primary considerations for whenever you present a financial plan or a company’s economic stance:
Make assumptions and be clear about them. Even though there’s no revenue for your company yet, you can always rely on rational calculations. And, in making those projections, let people know where you’re making assumptions.
You can use them on anything from conversion rates and pricing validation to historic sales, for example. There are many more. Yet, whichever you include, make sure they’ll make sense in the end. Your assumptions will need to stand behind any figures you present.
Work on revealing spreadsheets. Most spreadsheets come with commonalities on financial models. There are revenue projections, cost of goods sold, and operating expenses. Yet, there’s also personnel to think about, investment in assets, and financing, for example. We’ll stick to those as the most common ones. Others can be helpful, too, such as working capital, depreciation, taxes, and valuation.
Prepare well by thinking of different possible outcomes. Don’t just build upon a base plan. On the contrary, conceive worst-case and best-case scenarios, too.
Having these will also show how well you’ve considered contingency plans. And they can be a sign your business is ready for many of the diverse possibilities that’ll come its way.
4. Your slides:
A bonus aspect to our primary considerations list for pitching a startup with no revenue is to create stunning slides that display whatever data you have most appealingly. Make sure all of the material you show is top level. Professional consulting and design services can certainly help with that at an affordable rate.
And focus on creating an impression. It’s even better if your pitch conveys your company brand and culture. Make it as close to a unique depiction of your business as you can.
Freelance and Remote Web Content Writer is the current hat under which Ang keeps on the global move. Writing blogs, website content and (especially) Facebook ads for diverse small businesses, entrepreneurs and international parties is part of the common work under Ang's belt. Otherwise, you'll see Ang riding a motorcycle on their vegan way out of theater rehearsal.