Your Financial Model Playbook

I get asked this question more often than I would like:

“What does the financial model include?”

In today’s issue I want to answer this question.

In my experience with clients, they might do a decent job in building a pitch deck—not perfect, but it’s clear they understand what it is and online sources give them a direction.

But financials? Never. There seems to be a big confusion about how to do them and what to include.

Here’s what your financial model should include:

First, Revenue Projections. Forecast your expected revenue over the next few years. Investors want to see the potential growth of your business clearly laid out.
Next, the Profit & Loss Statement. Summarize your income, expenses, and net profit. This gives a snapshot of your financial health.
The Cash Flow Statement is crucial. Show how cash is expected to flow in and out of your business. It’s all about liquidity.
A Balance Sheet provides a snapshot of your company’s assets, liabilities, and equity, offering a clear picture of your financial position.
Don’t forget Unit Economics. Highlight key metrics like Customer Acquisition Cost (CAC) and Lifetime Value (LTV). This shows your efficiency in acquiring and retaining customers.
Break-even Analysis indicates when your company is expected to become profitable. Investors need to know when they might start seeing returns.
Explain how you plan to utilize the investment you’re seeking in the Use of Funds section. Transparency here builds trust.
Estimate how long the funding will last before you need another round in the Runway. It’s all about planning ahead.
Detail the key assumptions driving your financial forecasts in Financial Assumptions. This includes market conditions, pricing strategies, and growth expectations.
Finally, identify the metrics you will track to measure success in Key Performance Indicators (KPIs). This shows you’re focused on measurable goals.

By including these elements in your financial model, you’ll ensure that investors have a clear understanding of your financial health and future potential.

Remember, transparency and clarity are crucial when presenting your financials. This not only builds confidence but also aligns expectations between you and your potential investors.