- Financial Models should be Excel-based and presented on a monthly basis with up-to-date actual / historical figures (ideally from past 2 years, if company has been in operation that long) and at least 2 years of forecasts
- Financial Models should include all three, core financial statements:
- Income / P&L Statement – demonstrates to investors the nature of the company's revenues & expenses and thus gives insights into profitability and the long-term viability of the business
- Cashflow Statement – demonstrates to investors the company's sources and uses of cash and the expected rate of cash burn should they invest
- Balance Sheet – demonstrates to investors the current and projected “book value” of the business, which is critical to making an educated investment decision
- Financial Models should include the following core KPIs:
- Revenue – demonstrates to investors the scale of the business and traction with paying customers over time, which is used to evaluate the company's investment potential
- EBITDA – demonstrates to investors the company's short-term operational efficiency, which is a more accurate reflection of operating profitability since EBITDA margin ignores the impacts of non-operating factors such as interest expenses, taxes, or intangible assets
- Total Costs – demonstrates to investors the total expenses incurred in business operations
- Total Staff Costs – demonstrates to investors the total expenditure incurred for staff time used to deliver goods and services
- Cash Receipts From The Sale Of Goods Or Rendering Of Services – demonstrates to investors how much cash the company generates from its core business operations
- Cash Payments To Suppliers And Employees – demonstrates to investors how much the company spends on day-to-day operations and allows them to better understand how the company intends to spend their cash should they invest
- Net Cashflow – demonstrates to investors the company's financial viability, as a consistent positive net cash flow is an excellent indicator of the business's potential to succeed
- Gross Runway – demonstrates to investors how many months the company can keep operating before it runs out of money. Investors generally want to see 12 – 18 months of runway, allowing time for essential projects to finish before additional funding is required
- Total Assets – demonstrates to investors the tangible “book value” of the company and the ratio of assets to bank debt (as applicable)
- Cash & Cash Equivalents (Closing Balance) – demonstrates to investors the liquidity of the business and addresses whether the company has sufficient cash and cash equivalents to meet urgent liabilities when they fall due
- Total Equity (as applicable) – demonstrates to investors the capacity of the company to finance future growth and expansion, as well as give investors a sense of how well the company generates cash
- Team Size – demonstrates to investors the scale of the company's human capital resources and needs
- Total Users (as applicable)– demonstrates to investors how large the company's client base is and gives a sense of how much of the target market has been captured
Financial Model Guidance