Chapter 9 - Financial Modelling
IN THIS LESSON
How to Make Accurate Projections
When it comes to financial projections, accurate is always a stretch. If you watched the financial modelling live class, then you know that the most you can hope for is a rational and reasonable model that paints your company in a good light.
Some tips to keep in mind to help you:
Keep checking ratios for your trends. If they are too volatile or decline over time, you may have to fix them. They also should not be unreasonably high, such as a 60% net margin.
Your financial projections are not the only way to sell your company. You can include KPIs that showcase your ability to capture market share or other success metrics instead of cash.
Always keep in mind that a company needs to generate at least topliner growth. To be considered a viable business, topline growth is what investors throw cash at in the hope that additional capital makes growth happen quicker.
Don’t be afraid to use extreme growth numbers as a start-up. The goal is reasonable and rational, meaning you can explain why you can achieve those goals. Modesty has no place in your model; confidence does.
The valuation is for you to check your numbers. Get in the head of potential investors; your valuation is not to be shared.
Don’t give outsiders your spreadsheet. Put your numbers into a table in a slide deck and then print it as a PDF.
When talking investors while still at an early stage in your company’s journey, remember not to spend too much time dwelling on projections. Some investors will be very numbers focused, but these don’t make the best early-stage investors. The projections are there as a way of turning your story and roadmap into something tangible, but it’s your story that is ultimately more important, not a specific number.
Do tons of research. Understand your industry. Understand your space. For private, young companies, comparison analysis is one of the most common and useful tools. It gives you a place to start that is indisputable, while also allowing you to explain your differences and add credibility to your own story.
The models themselves might not include the investment capital you raise, but you should plot out your expected raises and runway so that investors understand that path. It can be tricky to do a financial model that stands on its own and incorporate an ask, but it all comes down to the story. The easiest is to say that with these capital raises, we can meet these goals (in case prior results fall short in providing cash, the investment capital helps) or exceed them with the money we raise.