How to write a Start-ups Financial Model

Following are the Steps to writing a successful Financial Model for the Startups..

Determine the KPIs for your company

These are numerical factors and assumptions that you will be able to track key performance indicators. If you can't track how you perform against them Then It becomes Useless.
Use industry standard KPIs as a starting point. { key performance indicator}

• Revenue growth
• Revenue per client
• Profit margin
• Client retention rate
• Customer satisfaction

Start with revenue

Your startup’s revenue is a crucial factor in a potential investor’s investment decision so your model must clearly demonstrate key revenue drivers. Be sure to include:

• Every source of revenue for your business.
• Detailed revenues for each relevant client/customer or revenue type, with the appropriate drivers for the calculation, for example Number of clients, % increase in number of clients, Revenue per client, % increase in revenue per client or Total revenue.

Project headcount needs

• For most startups. Human resource is the biggest expense until unless market kicks in!
• We need to Assess how many people will we need, to achieve your goals, and how much will each cost? Need to Hire the best resources for the work done Efficiently and Fast.
• Make Sure to Hire the Experienced to guide the subordinates they have more experience which will help's the Startup to grow Fast.

Estimate Overheads

• Overheads like Marketing and Branding Some businesses are driven by marketing - marketing spend may be the key driver to revenue growth
• If a company undertakes to promote the buying or selling of a product or service. they will use Marketing as an Effective tool, Marketing includes advertising, selling, and delivering products to consumers or other businesses.
  EX: CRED, Dream 11, BYJU’S.
• Some of the Common Overheads for Every business are Rent, Accounting and Legal Expenses, Administrative Costs, and Insurance.

Working capital Management

Working Capital Can Impact a Startup’s Cash Flow

In the early days of a startup, projecting cash flow is relatively simple, because it’s a one-way street. Payroll, R&D, rent and maybe some legal costs.

Working Capital = It Is the difference between current assets and current liabilities on a company's balance sheet. But it is a different context for most of most startups it is the difference between when a startup gets paid by clients vs. Upto how long it has to pay its expenses

Conclusion:

Final Step for any Financial Modelling

Review your projections

1. Take a look at the summary. Does it make sense? Whether the model telling the story that you envisioned?
2. Make a look at all the areas where we are Lacking and where we are ahead of any other Startup.
3. Choose a company from the Market which is leading, make It as a benchmark and try to achieve the Benchmarks.