Creating a Business Financial Plan Investors Will Love!

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Creating a Business Financial Plan that Investors Will Love!

Sirk RohPartner and CFOEarly Growth Financial Services

Steven OlsonPartner and CFOEarly Growth Financial Services

About Early Growth Financial Services

• Outsourced financial services firm that provides small to mid-sized companies with an integrated financial solution

• 4 platforms of services and support: transactional accounting, CFO, tax, and valuation

• Services include: AP/AR, financial forecasts, cash management, financial statements, monthly close, 409a valuations, corporate taxes, investor relations, fundraising support

• 300+ successfully funded clients nationwide• #5 Silicon Valley Business Journal Fastest Growing Private

Company Award 20132

Building Your Story with Numbers

“The point of financial projections is to tell a story with numbers—a story about opportunity, resource requirements, market forces, growth, milestone achievements, and profits.

Your job is to create a numerical framework that complements and reinforces the vision you’ve painted with words.” – Guy Kawasaki

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Presentation OverviewThe essentials of startup financial management

• What are investors looking for in your finances?

• What is a financial model?• Setting financial goals and objectives• Milestone funding• Bottom-up financial projections• Spend• Budgeting• Top-down projections• Cost assumptions• Reforecasting

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Why a 3-Year Financial Model?A comprehensive financial pictures serves as the road-map for your business

• Helps you understand your cash burn• Forces you to evaluate key

performance drivers• Validates your assumptions• Puts challenges into perspective• Iterative process continuously

improves your assumptions • Insight into your business model• Clarifies decision-making process

(short-term and long-term)• Gives you leverage of accurate

baseline valuation


What Goes Into a 3-Year Financial Model?Essential components to your model


Identify Major Objectives for Your CompanyAssess where you are and what you want to achieve

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Venture funding and negative cash burn

Positive cash burn andno venture funding

What do you want to accomplish with next raise?

What are the goals you want to achieve during this time period?

Process for Creating Your Financial ModelHow to approach the process and get buy-in

1. Go to stakeholders and members of executive team – what do they need to achieve objectives (revenue, product, market, strategic, etc.)?2. What is needed from a programmatic perspective?3. Compile information and discuss with CEO (maybe executive team): total amount requested relative to milestone4. Dialogue about wants and tradeoffs5. Use dialogue to create bottom-up forecasting budget


Bottom-Up Financial ProjectionForecast for realistic revenue potential


Spend for Bottom-Up ProjectionsConsider relevant operational costs

• Customer/Cost details• Human resource costs• Consultant and professional services• Research and development• Office and admin• Sales and marketing• Capital spending


Budgeting Use your budget to plan your actions


• Budgeting created on accrual basis: budgeting versus actual results

• Difference between cash and accrual is around capital expenditures

• Report budget by department and major cost drivers (expense categories and revenue categories)

• Plan actions: how quickly will this impact revenue and what will you be able to achieve based on spending

• Identify key variables • Identify key revenue assumptions• Run different scenarios

Budgeting ExerciseStart from a milestone perspective

• If company has been around for a while, look at historical costs

• What do you need to accomplish before you run out of money, or in a specific time period

• Ask budget owners what they need to accomplish goals

• Tradeoffs• Trending analysis• Trending initiative


Top-Down Projection?Not particularly useful, but necessary for investors to show market potential


ReforecastingYour financial plan is always evolving

• Don’t do a 5-year plan, at most 3-year

• Update your budget on a quarterly basis (at least)

• For investors budget on a quarterly basis for first year and then annually

• What’s realistic in terms of timeline and reforecasting on monthly or quarterly basis?


Thank You and Q&A


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www.earlygrowthfinancialservices.com

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http://www.earlygrowthfinancialservices.com/

Creating a Business Financial Plan Investors Will Love!

Economy & Finance

Transcript of Creating a Business Financial Plan Investors Will Love!