Early Growth Financial Services<\/a>, stopped by WeWork Fulton Center to share some tips on how to build a financial plan that investors will love.<\/p>\nHe suggests drafting a three-year financial model for your business.<\/p>\n
Why a three-year financial model?<\/h3>\n
The process of creating a financial model is not only a valuable tool to present to your potential investors, but also forces you to make certain business decisions that you might have been ignoring. What are your objectives? What will your costs be?<\/p>\n
Outlining a specific model will allow everyone in your company to work toward the same goal based on the plan that was agreed upon. \u201cIt gives you a roadmap,\u201d David says. \u201cYou need to have an understanding of where you\u2019re going and whether or not that path is obtainable.\u201d<\/p>\n
So, what goes into a three-year financial model?<\/h3>\n
Identify objectives<\/strong><\/p>\nThe first thing you should do when creating your financial model is identify the major objectives of your company. David says you need to ask, \u201cBased on what we\u2019re trying to achieve in the next three years, what are the resources that we need, and what do we need to spend in order to get there?\u201d<\/p>\n
Develop a strategy<\/strong><\/p>\nThere are many different models available to help you create a strategy. There is a \u201ctop-down\u201d model, which looks at the overall size of the market, more of a macro approach. Then, there is a \u201cbottom-up\u201d model, which is a detailed forecast of what your business does from the ground up, including your expenses. David suggests adopting a \u201cBottom-up\u201d model because it includes raw data, which investors love to see in a pitch.<\/p>\n
Build your story with numbers<\/strong><\/p>\nThe revenue projection number you present in your financial model should tell a story of what\u2019s happening within your company. Don\u2019t just pick any random number. David says he sees this often with early-stage startups. \u201cYou want to make sure you truly understand the components of your projections,\u201d he says. \u201cWhatever the metric is, you need to understand what the revenue is dependent on and what the contingencies are for revenue in order to build up your model.\u201d<\/p>\n
What to do if you don\u2019t have revenue<\/h3>\n
If you do have revenue, you know what your revenue looks like historically, so you have an idea of what it will look like in the future. However, in the situation where you don\u2019t have any yet, you need to present other numbers to investors that will display the potential of your company. \u201cThese days, more and more investors are looking for at least a pathway to revenue when they\u2019re looking at investments,\u201d David says.<\/p>\n
He suggests taking a look at your competitors so that you have an understanding of what your potential revenue is. You should also include information on user growth and number of customers, and if you\u2019re planning to do advertising, include that as a future projection because advertising generates revenue.<\/p>\n
Integrate the model into your everyday business<\/h3>\n
After you develop your three-year financial model, don\u2019t just toss it aside. \u201cContinue to use your budget to plan your actions,\u201d David advises. \u201cYou don\u2019t want to just create a financial plan, you want to run your business by your financial plan so that spending is in line and timing is in line.\u201d<\/p>\n
Because we\u2019re working in startups, he says, change is inevitable. Along the way, if you realize that you aren\u2019t meeting financial goals, revenue targets, or sales objectives, then you need to rethink your financial forecast.<\/p>\n","protected":false},"excerpt":{"rendered":"
Funding might have the word \u201cfun\u201d in it, but that doesn\u2019t mean that securing investors or raising funds is an enjoyable or easy process. Pitching your business idea to venture capitalists is an art form, and recently, David Ehrenberg, founder and CEO of Early Growth Financial Services, stopped by WeWork Fulton Center to share some […]<\/p>\n","protected":false},"author":1208,"featured_media":8149,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[43902],"tags":[],"class_list":["post-8141","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-professional-development"],"acf":[],"yoast_head":"\n
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