SaaS Business Plan Model - How to guide · 7 SaaS Business Plan Model This table sets out the...

SaaS Business Plan Model: How to guide

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SaaS Business Plan Model

Welcome to the SaaS Business Plan Model Hi and thanks for buying my SaaS Business Plan Model. Hopefully this means you are thinking about starting your own business. Welcome to the world of entrepreneurship! Founding and running a start up is one of the most exciting things you can ever do. I am sure you have a great idea for your new business but you need to figure out how to make money from your inspiration. Or maybe you have already got things started but you need to put together a business plan to help you attract funding. In these and many other business situations, you need a financial model for your business. The whole business of financial modeling is shrouded in mystique, obscure jargon and complexity. I know that many people find it a little scary. In fact I followed a recent discussion on LinkedIn where a very successful businesswoman confessed that she “felt a failure

even before she started” with her business plan model. This product is here to help. I have spent more than half my life working with finance and financial models. I have created a spreadsheet which guides you through every step and does all the complex stuff without you having to worry. It really is incredibly simple to use. You will be able to produce monthly forecasts, a business plan summary, a dashboard of key metrics and an investor proposition quickly and professionally. All you need to do is think about the real stuff in your business. The things you really know and understand. To make it even easier I have included a bunch of default options. These enable you to produce a quick estimate of the financial prospects for your business by entering just 8 simple pieces of information. That’s right just 8 easy steps and you will have a full five year forecast. Turn to page 6 if you want to try this option.

This guide is here to make it even simpler. It is a full, step by step explanation of everything you need to build the model. Many of the hints and tips in the guide are also included as comments in the model so you can easily keep track. So what are you waiting for – let’s get on and build your business plan financial model!

Introduction

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Who should use this model? This model and this guide are designed for a software as a service or SaaS businesses. There are 6 key business models for the software industry: SaaS, Usage, eCommerce, Marketplace, Advertiisng and Licence. I will be producing models for the other 5 in the near future. If you are planning to create a SaaS business this model is for you! In case you are not familiar, SaaS is defined as a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is also sometimes described as Pay as You Go software or On Demand Software. This model will work if you are building any kind of SaaS business. It will also work whether you are selling to consumers (B2C) or business (B2B) or even through businesses to consumers (B2B2C). SaaS businesses have developed very quickly in the

last 5 years. Most now use one of two approaches to entice customers. The Free Trial model allows customers to try the software before deciding whether to become a paying customer. The Freemium model allows users to have a basic version of the software for free but some users will pay for a version with extra features. This model is built mainly for the free trial approach because that is the most common. Over 45% of B2C SaaS businesses and over 70% of B2B SaaS businesses use free trials. You can adapt the model to work for a freemium business although this will be less intuitive than using it for a free trial model. This is explained in more detail in the notes under B: SaaS Inputs – Sales & Margins. I have tried to include as much as I can in the model and this Guide. If you still have questions or something is not clear then please get in touch [email protected]

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What it does This model allows you to input estimates of all the key figures that will determine the financial performance of your SaaS business. The model uses those figures to produce five year forecasts and dashboards which show the following:

• Performance Dashboard – This sheet shows the key numbers which both you and any potential investors need to evaluate the strength of your business.

• Investor Proposition – This sheet shows you the numbers needed to assess your business as an investment. You will need to include some data in the Equity Funding table at A20 to generate meaningful results in this sheet.

• Business Plan Summary – This sheet summarises your five year forecasts of profit or loss and cash flow. It is presented in a simple conventional format which can easily be

included in any business plan template.

• Monthly P&L Forecast – This sheet sets out the forecast Profit and Loss (P&L) Account for your business every month for each of five years. It is presented in a simple accounting format but not in full accordance with GAAP in the UK or any other country.

• Monthly Cash Flow Forecast – This sheet sets out the forecast cash flows for your business every month for each of five years. It is presented in a simple accounting format but not in full accordance with GAAP in the UK or any other country.

• Annual Balance Sheets – This sheet sets out the balance sheet at the end of each year of your financial forecast. It is presented in a simple accounting format but not in full accordance with GAAP in the UK or any other country.

You don’t need to worry about any of these sheets. The model will calculate all of the figures

and data in each tab. You simply need to use that information as you need for your business. You will never need to enter anything in these reporting sheets and you can copy and paste the outputs into any document you would like. Your work will be in completing the five input worksheets: A: General Information – Includes all the basic information which is used in various places. Everything from the name of your business to tax rates. This sheet also includes your plans for funding your business. B: SaaS Inputs – Sales & Margins – This is where you input everything you need to forecasts your revenues and also the direct costs for your business so that you will be able to see your forecast gross margins. C: SaaS Inputs – People – Paying people to do the work will be your biggest cost whether it is you and your co-founders, people you employ directly or outsourcing to specialists for help. This sheet captures inputs for all the options.

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D: SaaS Inputs – Costs – Good businesses make money, great businesses also plan for and manage their costs. This is where you will capture the inputs needed to forecast all the other costs in your business. E: SaaS Inputs – Set up – You may need to incur some expenses before your business gets up and running. You can capture these in this sheet and account for them in your forecasts. The model also has a couple of other worksheets where all the calculations take place. You will not be able to see these at any stage. If you are really interested in what happens under the hood, just let me know. Using this model This model is designed to calculate forecasts of future business performance based on user inputs and using commonly accepted accounting and financial techniques. There is no magic sauce which makes these forecasts any more likely to be accurate than forecasts or estimates produced any other way. Using this model will not make any specific financial outcome more likely and you

should not rely on the forecasts produced. The future is uncertain and the real outcome will certainly look different form the forecasts. The model uses commonly accepted accounting and financial techniques and the figures should therefore be credible and easy to explain to advisors and potential investors. The model does not calculate or present figures in accordance with generally accepted accounting practices (GAAP) in the UK, the USA or any other country. Your P&L Account, Cash Flow and Balance Sheet forecasts will be familiar but they will not comply with the GAAP or legal requirements of any individual country. The model offers a Default option for many of the figures and assumptions required. These default options are based on a number of credible sources (see table below) and generally reflect current UK economic conditions and circumstances. This does not mean they are right or appropriate for your business even if it is based in the UK. They are even less likely to apply if you are based elsewhere in the world and

some defaults, for example tax rates, will almost certainly be wrong. If you choose to use the defaults this will give you a rough working estimate quickly and easily. However, the lack of refinement will increase both the risk of your forecasts being wrong and the margin of error. This model is copyright of Sunstone Communication Ltd, a company registered in Scotland. All rights are reserved to Sunstone Communication Ltd and you cannot use this model unless licensed to do so by Sunstone Communication Ltd. It depends on Microsoft Excel which is a software product of Microsoft Corporation. All rights and intellectual property in Excel are reserved to Microsoft Corporation. You should not use this model without a licence to use Excel. Neither Sunstone Communication Ltd nor Microsoft Corporation accept any responsibility for the inputs, calculations, outputs or results produced by this model.

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Producing a good financial model for your business needs a lot of thinking and requires a lot of inputs – even with a well built model like this to rely on. When you come up with the idea, you may just want a decent working set of estimates to build a fell for the viability of your business idea. This model allows you to do just that – in just 8 simple steps. All that is needed is to click a few buttons to Yes or No so that the model relies on default information and then input a small number of key estimates. Here is how it works:

That really is all you need. The caveats about using defaults all apply in full measure to the forecasts this will produce but it will give you a coherent working set of forecasts to get started.

8 Simple Steps

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This table sets out the various colours, conventions and styles which are used throughout the model.

Referencing – The remainder of this guide is split into sections with one section for each input worksheet lettered A to E. Each section is numbered to show the part of the input worksheet which the notes cover. These references are reproduced in the worksheet so that you can easily check the relevant notes. For example, the Business Name field has the reference A1 beside it in the General Information input worksheet.

Guide to the model

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The model includes a number of default options. This table sets out the source of each default. Use this to explain to an advisor or potential investor if you have used defaults. Or just use it to decide whether the default is appropriate for your business.

Default sources

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The first input work sheet is called General Information. In this worksheet you will provide some basic facts and confirm or adjust some simple assumptions that affect many of the inputs and outputs of the whole model. Most of these are fairly self explanatory. Basic information 1. Business Name: Type the name of your business or company in this box and it will appear at the top of all the input worksheets and the forecasts and dashboards. Don’t worry if you decide to change your mind about the name. It can be changed at any time. 2. Principal Country of Operation: Type in the country where your business will be based. This is just for reference at the moment. Hopefully your business will go global but it will still have a home base. Again, you can change this at any time. 3. First month of operation: This field has a drop down list. Click on the month and year you intend your business to get started. Please use the

format in the box as this will enable the model to populate all of the date fields in your input worksheets, forecasts and dashboards. Note that this is when you will start working on your business. It is not the first month that your product will be on sale. We will capture that in the next field. 4. First month of sign ups: This field has a drop down list. Click on the month and year you intend that your product will be available for use. You can choose the same month as the First month of operation in 3 above. You must make a choice in this field. Please use the format in the box as this will ensure that your sales appear at the right dates in your forecasts and dashboards. The language here may seem a little odd but it is important. Many SaaS businesses offer a free trial period (we will address this in the next input worksheet) and therefore the date when customers first sign up for your product may be different from the date of your first paying customers. You don’t need to worry about

the difference. With this field and the free trial field, the model will work all this out for you. Note also that sign up here means the month and year when your product will be available to use. If you plan to use a simple sign up page as a marketing tool this is not the same thing. 5. Which currency will you use?: This field has a drop down list with three currencies: Pound Sterling, Dollar and Euro. Click on one of these if that is your currency and the model will automatically put the right symbols in all your input worksheets, forecasts and reports. If you need to use another currency then click other. You will also need to type the currency symbol in the next field and the model will then pick up this symbol. Note if you leave this field blank then no currency symbol will appear. 6. If other please enter symbol here: This is a blank field. Please enter the currency symbol you want to use if you are NOT using the Pound, Dollar or Euro. You

A: General Information

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must also click Other in the previous field for this to work. Note if you leave both this field and the previous field blank then no currency symbol will appear. 7. Which rounding option would you like for forecasts and dashboards?: All of the main input sheets and forecasts in the model are to the nearest currency unit (Pound, Dollar, Euro etc). There are no pennies or cents but otherwise full detail. Many people prefer to round their numbers especially in business plan summaries and similar documents. If you would like to do this simply check the option of Thousands or Millions. The symbols in the dashboards will change and the numbers will be rounded as appropriate. Economic assumptions table This is the bit that many people with no financial background find a bit scary. Don’t worry about it. I have made it as easy as possible for you. This provides your first chance to take advantage of the Default setting in the model. Simply select Yes in the first field and all the numbers will be completed for you. One big caveat. These numbers are based on the

current UK position. They will be pretty good defaults if your business is UK based but many of them will not apply in other countries. If you want some assumptions for other locations, follow the guidance or let me know. 8. Would you like to use defaults for the Economic assumptions table?: Simply click Yes and everything else is done for you. Click No and you can choose your own assumptions for each number. Model Assumptions and User Inputs These tables have two sections. The Model Assumptions section is on the Left and shows the numbers which are currently being used by the model. When you open the model these are set to the Default option and they will remain at this option if you click Yes to question 8. If you click No to question 8 these fields will become blank. Switch your attention to the User Inputs section on the Right. Input your assumptions into these fields and the Model Assumptions section will reflect your inputs. You can switch back to the Defaults just by changing you answer to question 8 at any time subject. Note: If you click No then the you must input your assumptions to the User

Inputs section of the table. You cannot just write them straight into the Model Assumptions section. 9. No of annual tax payments: First up the wonderful world of tax. These assumptions are about the tax levied on your business not about the personal tax you or your employees will have to pay on earning or even on that multi million pound exit. This field refers to the number of payments of tax your business must make every year. This is usually 1 or 2 (for small companies the UK is 1 for example) but the model allows for up to 4. The User Inputs section has a drop down so just check any number between 1 and 4. The model is also designed to make tax payments in arrears. This simply means that if you earn a profit one year, you will pay the tax on that profit the following year. If your business is not based in the UK, you will need to find out how many tax payments are required each year where you live. You can usually check this online at the website of your local tax authority. The large accounting firms (PwC, KPMG, Deloitte, Ernst & Young) websites often have easy to read local tax guides online as well. Remember you are looking for Company, Business or Corporate tax.

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10. Timing of tax payments: In virtually every country in the world tax is paid in set months of the year. In the UK tax is paid 9 months after the end of the financial year in which the profit is earned so for the year ending 31 December 2014 tax will be payable on 1 October 2015. The User Inputs section has drop downs for each payment so simply check the correct month for as many payments as you need up to the maximum of 4. If your business is not based in the UK, you will need to find out when tax payments are due. You can usually check this online at the website of your local tax authority. The large accounting firms (PwC, KPMG, Deloitte, Ernst & Young) websites often have easy to read local tax guides online as well. Remember you are looking for Company, Business or Corporate tax. Note: You MUST enter at least one month in the User Inputs table if you are not using the Defaults. Otherwise the model will not deduct tax payments in the cash flow and your numbers will be wrong. 11. Is your business registered for VAT?: This field refers to VAT as operated in the European Union (“EU”). VAT is a very complicated system and no model can cope with all the relevant

variables. However, it can have major pricing and cash flow implications so it is worth building in a working model. This will give your business plan credibility and realism. Use the bullet list below to decide whether to click Yes or No. This model works on some simple VAT defaults based on the UK system. All countries in the EU work on the same principles but details such as rates of VAT, timing of payments and which categories of goods and services are subject to VAT may differ. The model allows for most of these variations. However, it is restricted to one rate of VAT and will not cope with several different rates for different products. With this proviso, it should provide a realistic estimate of the VAT impact on financial forecasts for any EU country. If your business is based in an EU country then consider the following:

• If this is all too complicated or you are not yet ready to decide on your approach to VAT then just click No.

• If you are registered or plan to register for VAT AND your product or service is subject to VAT then click Yes.

• If you are registered or plan to register for VAT but your product

or service is Zero rated or not subject to VAT ( for example Food, Books or Financial Services in the UK) then click No.

• If your business is in an EU country but you are not planning to register for VAT then click No.

• If you live in another country with VAT or similar then the same principles may work but you will need to check. You can usually check this online at the website of your local tax authority. The large accounting firms (PwC, KPMG, Deloitte, Ernst & Young) websites often have easy to read local tax guides online as well. Remember you are looking for Vat or value added tax or similar.

If your business is based in a country which uses a Sales Tax system, for example the USA, then you should click No. At present the model does not have the capability to apply Sales Tax. However, this should only have minor cash flow implications. 12. Do you pay VAT monthly or quarterly?: This field is only relevant if you answered Yes to question 11. Depending on which country your business is based in,

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VAT may be collected from you either monthly or quarterly. Quarterly is usual in the UK so this is the default. If you are not based in the UK you will need to check. You can usually check this online at the website of your local tax authority. The large accounting firms (PwC, KPMG, Deloitte, Ernst & Young) websites often have easy to read local tax guides online as well. Remember you are looking for VAT or value added tax or similar. 13. Interest rate: This field sets the interest rate which will be applied to any Loans or similar debt financing. Interest will appear in the P&L and Cash Flow as Financing Costs. The model allows you to vary the rate of interest for each year of your forecasts. Note: This is NOT the Central Bank Base Rate for the country where your business is based. Interest rates on business finance will be considerably higher than the base rate. The interest rate Default reflects current UK economic conditions and the considerable margins typically charged on loans to start ups in the UK. Both the base rate and the likely level of borrowing cost above base rate may vary in other countries. If you are likely to borrow money this can make a very big difference so it is

well worth checking. Unfortunately, you are likely to find a lot of different predictions and the range of options will become larger the further forward your forecast. Just find a credible source so that you can refer to this if need be. Central Banks will often give forecasts for at least the next year and if you add a few percentage points this will be realistic for investors. 14. Inflation rate: This field sets the annual rate of increase which will be applied to relevant elements of your cost base in the P&L and Cash Flow forecasts. Inflation is not applied to sales prices, direct costs, sales & marketing costs or wages as these are set separately. The model allows you to vary the rate of Inflation for each year of your forecasts. Inflation is even harder to predict than Interest rates and there are many developed countries which currently face the risk of Deflation. The default rate is based on current UK economic conditions. If your business is not based in the UK you will need to check. Central Banks will often give forecasts for at least the next year and this is regarded as the most reliable source. 15. Business tax rate: This field sets the rate of tax that will be used to calculate the tax due on business profits. In

the UK this is called Corporation Tax. The model does not allow for any form of tax planning. It applies a simple flat rate to the forecast profits. The model allows you to vary the rate of tax for each year of your forecasts. The Default is based on the current UK tax rate. If your business is not based in the UK you will need to check. You can usually check this online at the website of your local tax authority. The large accounting firms (PwC, KPMG, Deloitte, Ernst & Young) websites often have easy to read local tax guides online as well. Remember you are looking for Company, Business or Corporate tax. 16. VAT rate: This field sets the rate of VAT which will be used to calculate the VAT element of both sales and costs in the P&L and Cash Flow forecasts. It is only relevant if you answered Yes to question 11. The model allows you to vary the rate of VAT for each year of your forecasts. The Default is based on the current UK VAT rate. If your business is not based in the UK you will need to check. You can usually check this online at the website of your local tax authority. The large accounting firms (PwC, KPMG, Deloitte, Ernst & Young) websites often have easy to read local tax guides online as well. Remember you

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are looking for VAT, value added tax or similar. The model only allows for one rate of VAT to be applied in each year. 17. Employment tax rate: This field sets the rate of tax which will be applied in addition to wages and salaries. It refers to taxes levied on employers sometimes also called payroll taxes. It does not apply to taxes deducted from employee wages as these are the liability of the employee. In the UK this tax is known as Employers’ National Insurance (“NI”). The model allows you to vary the rate of tax for each year of your forecasts. The Default is based on the current UK Employers’ NI rate. If your business is not based in the UK you will need to check. You can usually check this online at the website of your local tax authority. The large accounting firms (PwC, KPMG, Deloitte, Ernst & Young) websites often have easy to read local tax guides online as well. Remember you are looking for employment taxes, payroll taxes or similar. Funding table So far we have covered a bunch of essential but quite technical information. Mostly it is the stuff you can’t control but you need to know in order to arrive at a realistic set of

projections. The Funding table deals with some big choices and options. Where does the money come from? How much of your business are you prepared to sell to outside investors? These are wide and varied choices and for this reason there are no defaults in this section. It is possible to generate a perfectly usable forecast without anything in this section. It will just show an unfunded deficit. You should do this first in any case as it will help you figure out how much money you need. I strongly recommend that you complete this table last. Fill in the other General Information and all the other input worksheets then come back to the Funding table. Nothing in the table is needed unless you are considering potential outside investment. You can leave the table blank as long as you like but remember that the Investor Proposition Dashboard will also be incomplete. Unless you are very lucky, you will also need some money at some stage to get your business off the ground. This table will help you think out your options in terms of sources of money, timing of investment and implications for your finances. Once populated, the Funding table will also automatically

generate a basic Investor Proposition which you can include in your pitch when the time comes. 18. What percentage of your business do you intend to sell?: This field sets the percentage of the Equity in your business that you will offer to outside investors. Simply input the figure. There is no right answer to this question. In summary you need to think about the shareholding you and your founders would like to retain, the shareholding a later stage VC will request (about 30%) and the pool of equity you want to have available to incentivize your team. Note: The value of your business in the Investment Proposition Dashboard will be driven off this figure and the answer to question 18. Traditional valuation models such as profit or revenue multiples are not practical for start ups because of the level of uncertainty. 19. How much money do you plan to raise?: This field sets the total value of external equity investment that you would like for your business. It does not include other sources of funding or equity investment made by the founding team or their friends and family. 20. Equity funding: This field captures all of the funds for

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your business from shareholders or other equity investors. There are no financing or other costs associated with this type of funding. If you are offering a funding instrument that attracts interest you will need to include this in the Borrowing section below. The first line in the table is Initial Equity investment. In this field enter the figure which you intend to launch the business with whether from your own funds, other founders or friends and family. Don’t worry about the date. For simplicity the model puts these funds into the business on day one. It doesn’t matter for business planning purposes if it might take you a few weeks to actually pull this together. The remaining lines allow you to spread external equity investment raised over up to 3 rounds. Simply enter the amount and the date on which you plan to raise the funds in one or more lines. There is an automatic field at the bottom called Total external equity check. This confirms that the total amount entered in response to question 18 has been allocated to Equity rounds. This box should be zero otherwise the model will show imbalances. Note: You must enter some information in this table if you

want to generate meaningful output in the Investor Proposition dashboard. 21. Borrowing: This table allows you to enter up to 5 loans as part funding for your business. The table is only to be used for loans. The model does not assume a variable funding facility such as an overdraft. In my experience all types of borrowing are currently very difficult to obtain for any business and the only option is some type of loan funding at a fixed cost. This table at least offers you the option of evaluating loan financing. The table allows the following elements for each loan:

• The date on which you plan to draw down the loan.

• The amount of the loan.

• The date on which you will start making repayments.

• The number of months over which the loan will be repaid.

Interest will accrue on the loans at the rate set in the Economic assumptions table. All interest charges and repayments are calculated automatically based on the information provided. 22. Other sources of funding: Governments, charities, incubators and corporations offer a wide

variety of grants and other awards such as pitching competitions. If you believe your business is or will be eligible for such funding include the amounts in this table. These amounts will flow into your cash balances but will not be included in the P&L account. The model also assumes that no such funding will be repayable and it will not attract interest, dividends or any other form of payment to the provider of the funds.

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OK you have now entered the most important general information. The next worksheet deals with the first SaaS specific elements of your business plan. You are going to use this worksheet to calculate the forecast sales and margins for your new business idea. There are a number of points in the worksheet where you can choose to use the default option to make things simpler for you. You can’t opt for defaults in everything – you have to make some choices for yourself. You also need to spend a little time on this worksheet. This is where the commercial power of your ideas will be captured and these assumptions will probably be the focus of many questions that advisors or potential investors ask you. Where defaults are available, the tables are split into two sections. The Model Assumptions section is on the Left and shows the numbers which are currently being used by the model. When you open the model these are set to the Default option and they will remain at this option if you

click Yes to question 3, 8, 11 or 16. If you click No to question 3, 8, 11 or 16 these fields will become blank. Switch your attention to the User Inputs section on the Right. Input your assumptions into these fields and the Model Assumptions section will reflect your inputs. You can switch back to the Defaults just by changing you answer to question 8 at any time. Sales table Throughout this table, the model assumes that if your business is registered for VAT (that is you clicked Yes to question A:11) sales are subject to VAT. This means any price you enter will automatically be reduced by the amount of VAT included for the revenue line in the P&L Account. forecast The full amount is included in the Cash Flow forecast. For example, assume you are applying UK VAT of 20% to the prices in the subscription table at point 10. A price of £10 will be the gross cash amount which feeds the calculation in the Cash Flow forecast. The price for the P&L

Account forecast will be £10 x (100%/120%) = £8.33. The difference of £1.67 will feed into the calculation of VAT payable or refunded in the Cash Flow forecast. 1. Would you like to set a target number of paying customers?: This is your first choice. This field allows you to simply set a target number of paying customers that you plan to reach at the end of each year. If you choose this option then the model will ignore all of the rest of the Sales table. Whether you click yes or no in field 3 below will make no difference. All sales will be calculated from this number. The model Defaults are based on the most common SaaS approach to customer acquisition which is a combination of organic search and advertising through social media and search engines. If you plan to acquire customers by other methods, for example direct selling then you should click Yes to this question. 2. Total expected number of paying customers: This field sets the forecast number of

B: SaaS Inputs – Sales & Margins

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paying customers at the end of each year for the model. If you clicked Yes to question 1 above you must enter a number for each year. If you do not enter a number then the model will show Zero sales for that year. If you clicked No to question 1 above then leave this field blank. The model will show you the forecast number of paying customers based on the rest of the Sales table in the forecasts and dashboards. 3. Would you like to use defaults for the Sales table?: This field allows you to automatically choose default options for Monthly Churn, Acquisition cost per sign up and Conversion rate in the Sales table. The default options in this table are based on industry research and my experience of SaaS early stage companies. You are free to choose other options. If you choose higher figures for Conversion rate or lower figures for Monthly Churn and Acquisition cost per sign up, you may be challenged by expert advisors or potential investors. I would advise that you have a good plan to show how you will achieve better results than the industry average. On the other hand no-one wants to invest in the average so this may be a

strength if you have thought through your answers. There is no default option for Monthly marketing budget. 4. Acquisition cost per sign up: This field sets the cost of acquiring a new sign up by advertising through search engines or social media. The default option is based on UK prices and experience in the UK market. The default may not be appropriate for other countries. Note: This is the cost of persuading someone to sign up for a free trial. The model will calculate the cost of acquiring a paying customer separately. The default assumption in the model is that you will build your SaaS business on a free trial model. However, approximately 15% of SaaS businesses, mainly B2C, adopt a freemium model. If you intend to adopt this model, the acquisition cost per sign up may be lower than the default. In my experience, freemium businesses also require much higher spend in 5 below to build up an adequate base of free users and therefore attract enough paying customers. This is because conversion rates – see 6 below – are lower and churn – see 7 below – is higher. 5. Monthly sign up budget: This field set the amount you

will spend on advertising intended to persuade people to sign up each month. You must set an amount in this field otherwise the model will show zero customers and zero revenue. It is possible to acquire customers organically by gaining search engine rankings which highlight your site or app. However, this is a very slow process. No matter what others may tell you, it is not a realistic option to get a business off the ground unless you have a large number of existing on line followers. If you believe you can acquire significant numbers of sign ups organically then the way to deal with this in the model is to have a higher conversion rate. This will have the effect of making each customer cheaper to acquire but you will not be able to set the customer acquisition cost to zero. No potential investor would believe this and you should be honest with yourself about the cash costs involved in this important category. The default assumption in the model is that you will build your SaaS business on a free trial model. However, approximately 15% of SaaS businesses, mainly B2C, adopt a freemium model. If you intend to adopt this model, the acquisition cost per sign up – see 4 above - may be lower than the default.

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In my experience, freemium businesses also require much higher spend in this field to build up an adequate base of free users and therefore attract enough paying customers. This is because conversion rates – see 6 below – are lower and churn – see 7 below – is higher. 6. Conversion rate: This field sets the rate at which sign ups will be converted into paying customers each month. The default is based on industry experience of free trial based SaaS companies. If you click No for question 3, you must enter a number in the User Inputs section or the model will show zero revenues. Conversion rates vary significantly. If you believe you can achieve higher conversion rates over time then feel free to include this in the model. However, make sure you know what unique value you will offer or marketing approach you will adopt to support this. The default assumption in the model is that you will build your SaaS business on a free trial model. However, approximately 15% of SaaS businesses, mainly B2C, adopt a freemium model. If you plan to adopt this business model conversion rates are likely to be much lower and you should not use the defaults. Conversion rates of less than 1% are standard

for freemium businesses and hence such businesses require higher marketing spend to attract a much larger sign up base. 7. Monthly Churn: This field sets the number of paying customers that you will lose each month. The default option is 1% based on current industry experience. Churn rates do vary a bit. If you believe you can achieve lower churn rates over time then feel free to include this in the model. However, make sure you know what unique value you will offer or marketing approach you will adopt to support this. The default assumption in the model is that you will build your SaaS business on a free trial model. However, approximately 15% of SaaS businesses, mainly B2C, adopt a freemium model. In my experience, these models have a much higher churn rate. Subscription table This table sets the pricing for your SaaS product. There are a number of default options. You should use these if you have not been able to carry out any market research. If you have been able to test pricing levels or at least research the pricing your competitors are using, then this information will be more

reliable than the defaults and you should click No to questions 8 and 11 then complete the User Inputs sections. The table is split into two smaller tables. The first deals with the pricing of subscription plans and the second with the mix between different levels of pricing. You can choose the defaults for one or both of these factors. 8. Would you like to use the defaults for subscription pricing?: This field allows you to automatically choose the pricing levels for up to 5 SaaS subscription plans. The number of levels is your choice, there is no default. The defaults are based on industry experience across a number of cloud based B2B SaaS products in the UK market. The levels which prevail in other countries may be different. Different types of product or different target markets may also have very different levels. 9. Number of subscription plans: This field allows you to choose how many different subscriptions plans you will offer up to a maximum of 5. You must enter at least 1 or the revenues in the model will be zero. SaaS companies typically offer a number of different versions of the software with more features and,

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sometimes, greater volumes as the price increases. There is no default for this field but most SaaS companies currently offer 3-5 different plans. The maximum allowed by the model is 5. 10. Pricing: This sub table allows you to set the prices for each subscription plan up to a maximum of 5 pricing levels. If you have clicked Yes to question 8 the table will be filled automatically with the default prices. If you have clicked No to question 8 you will need to complete the User Inputs section of this sub table. You can only use the number of lines in the table set by your answer to question 9. 11. Would you like to use the defaults for subscription mix?: This field allows you to choose the default subscription mix. The mix is the percentage of paying customers who choose each subscription level. The default is set to be an even spread between each pricing plan. If you click Yes to this question the model will create an even split between each subscription level. For example if you choose 3 subscription levels then one third of paying customers will be assumed to have chosen each of the three subscriptions.

The default here is somewhat arbitrary. The mix of paying customers who choose different levels of subscription varies widely so there is no real industry standard. Use the default if you would like to get a quick and usable view of your potential revenues. If you have any market research or marketing plans to rebalance the mix towards one or more subscription levels then click No for this question. If you click No for this question you will need to fill in the User Inputs section of the table. You must enter at least one percentage otherwise the model will show zero revenues. You should also ensure the total allocated adds up to 100% otherwise the model will effectively treat some customers as paying nothing for your product. Similarly if the total is more than 100% the model will create more paying customers than you have actually forecast. The model shows you the total so you can check if 100% has been allocated. 12. Other sales questions: This sub table covers some other options for forecasting sales. You may choose to ignore these or use them if you believe they will help you model your business more realistically. 13. Do you expect seasonal variation in sign ups?: This

field allows you to decide whether your level of sign ups will grow steadily throughout each year or whether there is one season of the year during which the level of sign ups will be much higher. This only affects the monthly P&L and Cash Flow forecasts, every other output remains the same. The monthly forecasts assume a gradual growth of sales each year. If you choose Yes for this question, this growth will be adjusted so that an extra 10% of sales arise in two seasonal months and all other months are correspondingly reduced. 14. If Yes which season has the most sign ups?: If you click Yes to question 13, this field allows you to choose which season your business will have higher sales. There is a drop down list with four seasons which allocate higher sales as follows:

• Spring – March and April

• Summer – July and August

• Autumn – September and October

• Christmas – November and December

15: Will you offer a free trial?: This field allows you to set the number of days for any free trial period you have for your software. You can choose to leave this field blank.

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Currently most B2B SaaS companies offer a free trial period to new sign ups. Most often this is 7, 14 or 30 days. The model allows you to set any number of days up to a maximum of 31. The main effect of this is to postpone earning revenue from paying customers by one month if you choose 30 or 31 days. Direct costs Direct costs are also known as cost of goods sold. The regular definition is “The inventory cost of goods sold by a business during any given period.” In a SaaS company this would usually by zero since there is no inventory. Accounting convention is to include a number of costs which are directly related to delivering the software service to you customers. These are explained in more detail below. There is a default option to simplify the process and also a couple of different options for user inputs. With the exception of the Money User Inputs sub table, the model assumes that that if your business is registered for VAT (that is if you answered Yes to question A:11) then direct costs are subject to VAT. For example, if you use a direct cost percentage of 50%

and the total revenues for the month in the Cash Flow forecast (that is including VAT) are £100 then the direct costs for the month including VAT will be £50 and this will be the amount deducted in the Cash Flow forecast. Using the current rate of UK VAT, the amount deducted in the P&L Account forecast will be reduced and will be £50 x (100%/120%) = £41.67. The difference of £8.33 will be deducted in calculating the VAT payment or refund in the Cash Flow forecast. 16. Would you like to use defaults for direct costs?: This field allows you to choose whether to use a default level of direct costs. If you choose Yes for this option, the model will apply a percentage for direct costs. This percentage is low in the early years and rises as your business matures. The default percentage is based on publicly available analysis of direct costs at quoted SaaS companies. Most of these companies are listed in the US. If you choose Yes, the Model Assumptions section of the table will be filled in automatically. The model also assumes that if your business is registered for VAT (that is if you answered Yes to question A:11) then direct costs are subject to VAT.

If you choose No for this option you will have two choices for setting the level of direct costs as explained in 17 below. 17. If No would you like to use a percentage or estimate the money costs?: If you click No for question 16, this field allows you to choose whether to set your own percentage for direct costs or to make an estimate of the money costs. If you choose Percentage then you need to complete the Percentage User Inputs section of the table to the right of the Model Assumptions section. You must enter a percentage in each field otherwise the model will show zero direct costs. The model for Percentage also assumes that if your business is registered for VAT (that is if you answered Yes to question A:11) then direct costs are subject to VAT. If you choose Money then you need to complete the Money User Inputs section of the table which is underneath the Model Assumptions section. In this case, the Model Assumptions section will show 0% and the model will calculate based on your entries into the User Inputs section. The Money User Inputs option allows you to estimate the

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most common elements of Direct Costs associated with a SaaS business. If you choose this option, you will be setting an estimated cost per month for these elements in each year of the forecast. To help you, we have described each of these elements below. This is also the first table which allows you to choose whether a specific category of expenditure is subject to VAT. To the Left of each category in the sub table you will see a V. This indicates that the category of expense is subject to VAT. If you believe a category of expense is not subject to VAT, simply delete the V and the model will automatically exclude it from the VAT calculation. The various categories of direct costs for which you can choose to set a money value are:

• Monthly Hosting Cost – SaaS companies operate in the cloud and this field is for the cost of cloud hosting services to support your paying customer base. This is likely to be the main, perhaps the only direct cost for many SaaS companies and will tend to increase as the paying customer base grows. The model allows to fix a cost each year

because this increase is usually not a direct linear correlation with paying customer numbers.

• Monthly communications cost per paying customer – Some SaaS companies include a communications cost in the subscription package, for example for paying customers to send SMS to their customers. Include the cost per paying customer per month here and the model will calculate the total.

• Other direct third party costs eg embedded software – As SaaS becomes more complex, many products include software from third parties or access to third party data. This is usually charged per paying customer and the monthly amount per paying customer should be included here.

• Support costs – Many SaaS products also require ongoing support. This can be call centres, field engineers or other direct support. This field is based on an amount per paying customer per month.

• Implementation costs – Ideally a SaaS

product should be implemented easily and with no support. However, in B2B SaaS, new customers may require support for initial setup and configuration. This field is based on an amount per new paying customer as this is a one off cost.

• Other direct costs – Use this field for any other costs that vary directly with the number of paying customers.

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People will be the biggest cost for your SaaS business. The costs of building, refining and maintaining your product will all be made up of the time of developers. Sales, marketing and service for your product will either be automated or delivered by people. You need to reward your people properly and calculating the true cost of employing people is not straightforward so planning for these costs can be quite a complex task. As result this worksheet is the next most complex and important after B: SaaS Input – Sales & Margins. Although there are quite a lot of fields for you to consider the worksheet should still be fairly simple and I have offered you default options wherever this is practical. Note: Nothing is allocated in this worksheet or anywhere else in the model for the cost of share options offered to directors or employees. There is an accounting cost associated with such options but there are no cash costs. It is not normal practice in my

experience to attempt to calculate these accounting entries in a business plan or forecast. Most of the numbers in this worksheet appear under Directors Salaries & Expenses or Wages & Salaries in the P&L Account forecasts and Cash Flow forecasts unless outsourced. Outsourced costs are shown on a separate line in the P&L Account forecasts and Cash Flow forecasts with the exception of any outsourced Sales & Marketing costs. Outsourced Sales & Marketing costs are included in the Sales & Marketing line of the P&L Account forecasts and Cash Flow forecasts. Outsourcing This table deals with the option of outsourcing business functions and planning for the associated costs. 1. Would you like to outsource certain key functions?: The first question you have to answer is whether you want to employ people or to outsource to experts in

various fields. There are good third party services available to carry out most business functions and these can be accessed at reasonable cost from anywhere in the world. In the early stages, many start ups rely on the skills of the founders to do what they do best and outsource the rest. 2. Outsource (column): The fields in this column allow you to choose whether you would like to outsource each of the business functions listed. The model offers you the option to choose outsourcing for one or more of four business functions: Technical, Sales & Marketing, Customer Service, Operations & Administration. The definitions of these business functions are set out below. If you click Yes to any of these functions, the model will automatically use the outsource costs which you set and will not allow you to create any wage or salary costs for these functions. If you click Yes for all these functions then the only other parts of this worksheet that you will need to complete will be in the Directors sub table.

C: SaaS Inputs – People

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If you click No then you will need to decide how many employees you need for that function and how much those employees will cost you. 3. Defaults (column): Only click Yes in this column if you clicked Yes in any field of the Outsource column in 2 above. The fields in this column allow you to choose the default costs for outsourcing any of the business functions in this sub table. The defaults in this sub table are based on current experience in the UK market which includes reaching offshore for some support. If you are based in a different country the default values may not be appropriate. For each business function, the defaults are calculated with a minimum monthly charge regardless of sales. However, once forecast revenues rise above a certain level the default switches to a percentage of sales to reflect the increasing costs incurred as the business grows. All figures are monthly costs. 4. User Inputs: If you click Yes in the Outsource column for any business functions and click No because you do not want to use the default values, you will need to enter your estimate of these costs in each field of the User Inputs sub table. The sub table has a

line for each business function and a column for each year of the forecast. If you click Yes in any line and leave any column in that line blank you will record zero costs for that business function in that year. The Model Assumptions sub table will show the actual figures being used in the forecasts whether these are defaults or User Inputs. 5. Business Function: This column is a list of business functions which you can choose to outsource. If you do outsource a business function you also need to decide whether it is subject to VAT. To the Left of each category in the sub table you will see a V. This indicates that the category of expense is subject to VAT. If you believe a category of expense is not subject to VAT, simply delete the V and the model will automatically exclude it from the calculation. The business functions which you can choose to outsource are defined as: Technical – All work related to the design, development, build, bug fixing, improvement and maintenance of your software products. Includes source code, APIs, databases, user experience, mobile apps and all other software elements.

Sales & Marketing – Activity and work related to generating sales leads, closing sales and improving market presence. Includes market research, copy writing, blog posts, social media work, search engine optimization, direct sales calls, sales introductions and sales pitches. Customer Service – All work related to supporting and assisting paying customers after they have purchased their first product or service from your business. Includes online support, e-mail support, call centre support and field support. Operations & Administration – All other activities related to the running of your business including office management, performance measurement and reporting, staff management, company administration and legal and regulatory filings. NOTE: Does NOT include basic book keeping services. As these are always required they are included in the worksheet D: SaaS Inputs – Costs. Directors’ Salaries & Expenses This table deals with estimating all of the costs associated with people directly employed in your business. This includes founders, other executive directors, non executive

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directors and all levels of staff. To make your planning clearer the table includes four sections. On the right hand side, there are two sub tables dealing with Directors’ Salaries and Employee Wages & Salaries. There are default options to help with both these tables. On the left hand side, there is a Monthly Summary Table which will allow you to see a break down of all Wages & Salaries costs as you build them up. This should help you understand the implications of your choices. There is a final section on the left hand side which allows you to allocate amounts for various potential employee and director benefits if you plan to offer these. As noted above, this does not include share options. 6. Would you like to use default Director Salaries?: This field allows you to choose the default amounts for director salaries. These defaults are based on current salaries drawn by directors in early stage companies in Edinburgh and Glasgow. The amounts may vary considerably in other countries and even within the UK where London salaries are much higher. Clicking Yes will set the salaries of founders/executive directors and non executive directors separately in the two

sections of the table.. The salaries set here are basic salaries. Payroll taxes, benefits and bonuses are calculated elsewhere in this worksheet. It will also give you an option to use defaults for the number of Founders/ executive Directors and Non executive directors but you do not have to use this. Using the default salaries will set the same salary level for each year of the forecast. If you click No then you will need to input some values for directors salaries for each year of the forecasts in the User Inputs sub table on the right hand side of the worksheet. If you don’t enter a value for any year then there will be zero costs for Directors in that year. 7. Would you like to use default wage levels?: This field allows you to choose the default annual basic wage amounts for up to 13 different roles in your business. These defaults are based on current salaries in early stage companies in Edinburgh and Glasgow. The amounts may vary considerably in other countries and even within the UK where London salaries are much higher. Note: The model has default wages for employees but no default numbers of employees. If you plan to employ other people you need to include the numbers in the table. The model will then

handle all the related calculations for you. If you click Yes the model will use default annual wages for 13 role levels. The salaries set here are basic salaries. Payroll taxes, benefits and bonuses are calculated elsewhere in this worksheet. If you click No then you will need to enter an annual wage for each role that you want to use. If you do not enter an annual wage for a role level then any employees at that role level will be calculated to have zero costs. 8. Directors: This table shows the amounts forecast for basic annual salaries for Founders/ Executive Directors and separately for Non Executive Directors. If you clicked Yes in answer to question 6 above the table will be populated with the Default salaries in the Model Default column. You also have the option to use a default number of directors. There is no Default Yes/No button for this option. In the Model Default column there is a line for Number under Founders & Executive Director’s Salary and another line for Number under Non Executive Director’s Fee. These numbers will show the default number for each group of directors unless you choose to enter a number in this line in the User Inputs section of

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the table on the right hand side. If you enter a value in either Number line for any year, the model will automatically discard the Default number. It will still retain the default salary or fee. If you enter a number for one year on either line, you must enter a number for every year in which you forecast there will be directors in that category. If you clicked No in answer to question 6 above you will need to enter a salary or fee for each year in the User Inputs sub table on the right hand side for each year in which you forecast there will be directors in either category. You will also need to enter the number of directors you forecast will serve in each category for each year. If you leave either salary or number blank for any year then the model will show zero costs for that category of director for that year. 9. Employees: This sub table allows you to calculate all employee costs by entering a combination of annual basic wage and numbers at each role level. The wages set here are basic wages. Payroll taxes, benefits and bonuses are calculated elsewhere in this worksheet. The 13 role levels comprise three different levels (Lead, Senior and Junior) for each of the four main business

functions defined under 5 above – Technical, Sales & Marketing, Customer Service, Operations & Administration – plus a role level for interns. You do not need to use these exact titles and structure in your business but it should give you enough flexibility for pretty much any business plan. You can enter a number of employees for each level for each year of the forecast. You can use as many or as few role levels as you choose and enter any number of employees in each year. If you do not enter an annual wage for a role level either by default or by User Input then any employees at that level will have zero costs. You need only set one figure for the annual wage at each role level. Increases in annual wages will be dealt with in the Base Inputs table on the left hand side. 10. Monthly Summary Table: This table shows the total breakdown of monthly Directors’ Salaries & Expenses and monthly Wages & Salaries. The totals in each section will appear in the P&L Account forecasts and Cash Flow forecasts. All figures in this table are calculated so you should not need to enter anything in the table. 11. Base Inputs: This table captures the basis for calculating all aspects of

Director and Employee costs other than basic annual wages and salaries. 12. Increase in wages: This field allows you to set a percentage annual increase in employee wages for the duration of the forecast. This percentage will not be applied to Directors’ Salaries which are set individually for each year. There is no option to apply a fixed figure for this input, only a percentage increase. You are free to leave this field blank in which case basic annual wages at each role level will remain fixed for the duration of the forecast. 13. Training costs: This field allows you to set a training cost for each Director and Employee. You can set either a fixed amount per annum per person or a percentage of base annual wage or salary. 14. Pension contribution: This field allows you to set a pension contribution for each Director and Employee. You should only use it if the company will be paying a pension contribution. There is no option to set a fixed amount, only a percentage of base annual wage or salary. 15. Medical Insurance: This field allows you to set the amount of any medical insurance contribution on behalf of each Director and Employee. You can set a fixed

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value per person or a percentage of annual wage or salary. 16. Other benefits: There are three free fields to calculate any other benefits you wish to offer to each Director and Employee. You may wish to include an estimated annual bonus for example. You can set a fixed value per person or a percentage of annual wage or salary. 17. Directors’ Personal Expenses: This field allows you to set an amount for personal expenses incurred by Directors’. You can set a fixed value per person or a percentage of annual salary. Expenses incurred by employees will be picked up under the relevant cost categories in the worksheet D: SaaS Inputs – Costs.

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You will use this worksheet to capture all the other costs of running your business including the cost of purchasing assets such as laptops and furniture. The worksheet is flexible and fairly straightforward. Most fields can be filled by default and there is only one area (Sales & Marketing) where you will need to enter a figure for each year. There are several cost tables in this worksheet. There is no obligation to include cost in any line of those tables. Your business will undoubtedly have some categories where you do not expect to incur costs. VAT If your business is registered for VAT (that is you answered Yes to question A: 11) you will need to decide which costs are subject to VAT. To the Left of each category in the all tables you will see a V. This indicates that the category of expense is subject to VAT. If you believe a category of expense is not subject to VAT, simply delete the V and the model will automatically

exclude it from the calculation. If you believe a category of expense has been excluded which should be included, simply type a V in the relevant field. The model is set up with VAT applied according to current UK rules. These may differ in other countries. If your business is not registered for VAT (that is you answered No to question A: 11) the model will ignore this column. 1. Sales & Marketing: This table is used to capture the amount of all types of expenditure used to market your business or increase sales other than direct wages and salaries of sales employees. There are no defaults in this table. You need to decide how much you are able to spend to drive the growth of your business. However, if you have completed worksheets A-C there are a couple of lines which will already be filled in. These are Sign up advertising and Outsource costs. There is no need to add any other amount

if these capture everything you plan to spend. If you do want to add spend in any other category, you need to enter an amount for each year of the forecast in the relevant field of the table. The categories of spend set out in this table are: Sign up advertising - Direct advertising using search engines (eg Google Adwords) or social media (eg Facebook, Twitter, LinkedIn). The values in this category are set in worksheet B: SaaS Inputs – Sales & Margins. SEO Consultancy - Third party advice and expertise to improve search engine and social media rankings. Other Advertising - Traditional advertising including print, radio, TV and sponsorship. Community Management - Third party advice and support to manage online communities. Public Relations (PR) - Third party advice and support to

D: SaaS Inputs – Costs

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achieve public recognition in press and other publicity. Events & Networking - Attendance and participation in conferences, exhibitions and other promotional events. Outsource costs - Cost associated with outsourcing sales & marketing to a third party. The values in this field will be set in worksheet C: SaaS Inputs – People if you choose to outsource this business function. Other – Include any additional sales & marketing costs you wish to plan for here. Other costs 2. Would you like to use cost defaults?: This field allows you to choose if you would like to use the default options for all common remaining cost categories. There is a further option called 1by1 which allows you to opt for the default or not in each relevant line of the table. The default costs are based on current UK experience and may not be relevant in other countries. If you click Yes the model will calculate costs based on either an amount per employee or a flat amount. The model includes default costs for all the common categories of cost used by a SaaS business. You can easily tell which categories are regarded as common

because the relevant lines are coloured Grey. No default costs are included for some other categories of cost which are not generally included in business plans, for example Consulting. The lines for these categories are coloured Light Brown. If you do plan to spend money in these categories, simply input the amount in the column for your first year of trading and the model will calculate for each subsequent year using the Inflation Rate set in A: 14. If you click 1by1 you will need to select Yes or No where applicable to tell the model whether you want to use the default cost for each line. You will need to enter a cost amount for the first year of trading in any case where you have clicked No and you expect to incur costs. The model will calculate for each subsequent year using the Inflation Rate set in A: 14. The 1by1 option gives you the choice to vary just a few cost lines or to exclude a cost line if you do not expect to incur any costs in that category. For example, the model includes Rent but you may have access to a rent free option such as a start up incubator so select 1by1, opt for No in the rent line and leave the field blank.

3. Per Employee Costs: The cost categories in this table will vary according to the number of founders/ executive directors and full time employees you have forecast. For each cost category, this worksheet will show an amount per head per month. If you clicked Yes in 2 above, the Model Assumptions sub table on the left hand side will show the default amounts per head per month. If you clicked 1by1 in 2 above, you will have the choice of the default option in each cost line using the left hand column of the table. If you clicked No in 2 above, you will need to include an estimated amount of cost per head per month for any category of cost in which you expect to spend money in the User Inputs sub table on the right hand side. Any field you leave blank will result in zero costs for that category. This may be right for some categories of cost. The categories of cost in this table are: Entertainment - 100% business - Expenses incurred on entertainment by the business that for income tax purposes are fully deductible. Mobile Phones - Cost of mobile phones used by directors and employees. Includes voice & data.

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Rent - Payments made to lease a building or area such as a desk or work station. Travel – National - Expenses incurred from any domestic business travel. Travel – International - Expenses incurred from any international business travel. Capital This section deals with per employee expenditure which will be classified as fixed assets and depreciated over 3 years rather than charged directly to the P&L Account forecast. IT and Communications Equipment - Purchase of hardware such as PCs, Tablets, printers and other IT goods. 4. General Overheads – This table lists all categories of costs which are included in Overheads in the P&L Account forecasts and Cash Flow forecasts. The table includes those categories of cost which are set by the Per Employee Costs table in 3 above. These are calculated by the model so cannot be altered in this table. The relevant lines are coloured Light Blue in the table.

The table shows forecast costs for all five years of the forecasts. However, only those in the column for year 1 are set by the defaults or the User Inputs. All other are calculated using the inflation rate set in A:14. If you clicked Yes in 2 above the table will include a default amount for every category of cost for which a default has been set in the Model Assumptions sub table on the left hand side. You will still be free to enter costs in those categories for which no default has been set but these amounts should be entered in the User Inputs sub table on the right hand side. If you clicked 1by1 in 2 above the table will not automatically include defaults but you can click Yes for any line that you would like to use the default costs in the Defaults column on the left of the table. You will still be free to enter costs in those categories for which no default has been set or where you have not chosen to use the default but these amounts should be entered in the User Inputs sub table on the right hand side. Any field left blank will result in zero costs being allocated to that category in your forecasts. If you clicked No in 2 above you will need to enter a value in the User Inputs sub table on the right hand side for any category in which you expect to incur costs. Any field left

blank will result in zero costs being allocated to that category in your forecasts. The categories of cost included in this table are: Audit & Accountancy fees - Expenses incurred relating to accounting and audit fees. Bank Fees - Fees charged by your bank for transactions regarding your bank account(s). Cleaning - Expenses incurred for cleaning business property. Consulting - Payments made to external consultants. Charitable and Political Donations - Payments made to charities or political organisations or events. Entertainment - 100% business - Expenses incurred on entertainment by the business that for income tax purposes are fully deductible. Entertainment – 0% - Expenses incurred on entertainment by the business that for income tax purposes are not fully deductible. Postage, Freight & Courier - Expenses incurred by the entity on postage, freight & courier costs. General Expenses - Expenses incurred that relate

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to the general running of the business. Insurance - Expenses incurred for insuring the business' assets. Internet connection - Cost of fixed line connection to premises including voice and data. Cost of mobiles is included under Mobiles and cost of call centre etc is included with Sales & marketing. Legal Expenses - Expenses incurred on any legal matters. Light, Power, Heating - Expenses incurred for lighting, power or heating the business premises. Mobile Phones - Cost of mobile phones used by directors and employees. Includes voice & data. Motor Vehicle Expenses - Expenses incurred on the running of business motor vehicles. Operating Lease Payments - Expenses incurred on operating expenses such as office rental and vehicle leases (excludes hire purchase agreements). Printing & Stationery - Expenses incurred on printing and stationery. Software - Expenses incurred on software or computer consumables. Includes SaaS

services purchased eg e-mail or analytics. Rent - Payments made to lease a building or area such as a desk or work station. Repairs & Maintenance - Expenses incurred on a damaged or run down asset that will bring the asset back to its original condition. Subscriptions - Expenses incurred by the business in relation to subscriptions, such as magazines and professional bodies. SaaS Subscriptions should be included under software. Travel – National - Expenses incurred from any domestic business travel. Travel – International - Expenses incurred from any international business travel. There are also five lines for other expenses should you choose to include categories that are not in the standard table. 5. Capital: This section deals with expenditure which will be classified as fixed assets and depreciated over 3 years rather than charged directly to the P&L Account forecast. The line for IT and Communications Equipment will be filled automatically from the Per Employee Costs table in 3 above. This is the only default option. The other

lines in this table can only be completed by user inputs. Any other assets which you intend to purchase should be entered directly into this table ( there is no separate User Inputs sub table) in the year in which you plan to purchase them. All assets will be depreciated straight line over a standard 3 year period. This model is not designed to cope with asset based businesses, for example purchase of property. The categories of capital expenditure in the table are: IT and Communications Equipment - Purchase of hardware such as PCs, Tablets, printers and other IT goods. Furniture & Fittings - Purchase of office furniture, office equipment and other fixtures and fittings. Other Assets - Purchase of any other goods which will be used by the business for more than one year.

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This is a very simple worksheet with no defaults or options. You may incur some business related costs before your business starts operations, for example paying for this business model! Any costs incurred prior to the date set in A: 3 First month of operation should be entered into this worksheet. All costs entered into this worksheet will be charged as a one off in the first month of the P&L Account forecasts and Cash Flow forecasts. If your business is registered for VAT (that is you answered Yes to question A: 11) you will need to decide which costs are subject to VAT. To the Left of each category in the all tables you will see a V. This indicates that the category of expense is subject to VAT. If you believe a category of expense is not subject to VAT, simply delete the V and the model will automatically exclude it from the calculation. If you believe a category of expense has been excluded which should be included, simply type a V in the relevant field. The model is set up with VAT applied according to current UK rules.

These may differ in other countries. If your business is not registered for VAT (that is you answered No to question A: 11) the model will ignore this column. All categories of cost included in this worksheet are subject to the same definitions set out in the notes for worksheet D: SaaS Inputs – Costs.

E: SaaS Inputs – Set up costs

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