Startup financial models are key for investors as well.They are needed to validate how much money an entrepreneur will need to start-up with, as well as how much the investor himself can potentially make on the investment.For example, you may add volume growth rates and number of salesmen to integrate a “What If” analyses into your model.
It pushes you to go back to your business model and revise it, in order to further develop it into a more successful instrument.
A bottoms up startup financial model: It is one with an existing 5-15 core assumptions about the business, that is most useful for firms considering specific product direction, distribution strategy, or partnership that can potentially be a big impulse for the company.
Your projections will act as an early warning system, helping you to plan for cash flow dips, identify financing needs and pinpoint the best timing for projects.
It also gives you a tool for monitoring your finances, allowing you to gauge your progress and quickly head off trouble. Create monthly financial projections by recording your anticipated income based on sales forecasts and anticipated expenses for labour, supplies , overhead, etc..
A financial plan is different from your financial statements.
Instead of looking at what’s already happened, you make projections for the coming months, forecasting income and outlays.
Although the projections do not need to be correct all times, the assumptions, however, are key.
The assumptions tell whether the entrepreneur has given some thought to the startup’s potential market share, its competitors, adoption rates, etc. Given the overall picture, the startup financial model enables you to depict the strengths and weaknesses of your assumptions.
For example, if a firm has a Saa S business model, then assumptions will differ between that of a Freemium business model.
Hence, the Saa S financial model will vary greatly to that of a Freemium financial model.