(This is the second of three blog posts on financial models for startups. Yesterday I wrote about best practices in spreadsheet design.)
I couldn’t find a good template financial model online, so I decided to create one.
We started with a sanitized version of a financial model I had developed for startups I have run. I gave it to Rodi Blokh, founder of New Prospect Ventures, who dramatically improved and formalized my model to be suitable for publication. Rodi (Haas MBA ’13) is a former corporate banker at Bank of America Merrill Lynch and has extensive financial modeling experience. He did a great job refining this and making it user-friendly. He builds custom financial models for clients and is reachable at New Prospect Ventures.
This is designed to be a simple end-to-end financial model for an early-stage startup. The model outputs standard financial statements and key operating metrics based on a wide range of user inputs, and is highly customizable and entirely transparent.
Unfortunately, most financial models are built for established businesses, and therefore force assumptions (like terminal growth) and calculations (EBITDA multiples come to mind) that a startup has no need for. The model seeks to serve as a robust option for entrepreneurs that wish to analyze the operating side of their business, but does not constrict against pivots and technological disruptions.
The Income Statement sheet allows you to model expenses and revenues as they occur. Unlike the Cash Flow Statement, which records movement of actual cash, the Income Statement records and projects items like depreciation, which see no physical cash flowing each year, but are accounted for over multiple years.
The Balance Sheet takes a snapshot of your company at an instant in time; the assets on hand when it is produced do not necessarily correlate to dates before or after. Here you will see listed assets, liabilities, and equity.
The Cash Flow Statement, for a startup, will often prove particularly important, as it will tell you whether or not you can do the essential tasks like pay employees and bills.
We included a Discounted Cash Flow Valuation tab for the sake of completeness, but it’s irrelevant for most startups. Projecting cash flows for a startup is a guessing game. Startups really see their valuation determined by a negotiation between them and investors, not a DCF.
The final tab, Funding Rounds, will assist you assessing options for raising capital. A key point here is that future capital raises will dilute current shareholders, so this model will allow you to see what a final equity share percentage will be after your desired funding stages. More on this in a later blog post.