Startup Financial Models 101

Money matters! Every idea needs finances to shape up into a full fledged business.

Financial models have an expiry date, as soon as you start your business they are bound to change. Startup Financial Model is difficult to design and require thorough research and is very time consuming.

Do you have time to waste on such a thing? Are they that much important?

Planning your finance doesn’t just imply knowing how much money is required, but also defining a projected cash flow statement, a strong revenue model, sales projection and expenditure model. And all this is included in a Financial Model.
Though, a startup financial model is not a thing that most entrepreneurs pay attention to, but it is as important as designing your business plan.
Why?

• No financial model means no financial support
• Assess financial feasibility of your project
• Focus on key profitability areas
• Help in Understanding Cash requirements
• Exploring the Market Scenario
• Risk Assessment

First of all, you need to decide upon what type of finance is right for you- Debt or Equity and after you have done so, you need to plan and formulate a Startup Financial Model.

Things that need to be considered in Planning Finance

Capital

Capital term includes both initial and working capital. What you need to analyze is how much capital is required in your start up. Take out a sheet of paper and make a list that defines the how much expenditure the business can incur, include every cost that you can possibly think of.

Working Capital

Though working capital is a type of capital, but it deserves special attention. Working capital is the money needed to fund your day to day operations. You need to anticipate how much working capital you would be needed to smoothly conduct operations in the normal course of business.

Projected Cash Flow Statement

A cash flow statement will tell you the essential tasks that you would need to conduct while the business is in operation. Like paying employee’s salaries, bills etc. Projecting cash flows for a start up is a guessing game, but it is important to do so. Though, the data may not be accurate and precise, but it will give you a fair idea on how things are going to work.

Revenue Model

A business idea cannot be successful until and unless it is backed by a strong revenue model. A revenue model basically defines the ways on how you are going to earn from your business. Make sure that you define this model very clearly and carefully, you need to analyze what sells!

Anticipate Expenditure

Most importantly, while defining finances you need to contemplate the expenses you are going to incur when you start your business. Make a list, which includes pre-incorporation expenses and post-incorporation expenses.

Pre-incorporation expenses are the expenses which are incurred by a start-up before it comes into operations. Expenses like registration expenses are included in this. And every expense that a start-up incurs after coming into operation is Post-incorporation expenses, like manufacturing expenses.

To design an Effective Financial Model you need to define all the above aspects. You need to keep a very keen eye while anticipating expenses and planning all the other aspects. Keep in mind all the aspects and design a financial model for your start-up.

What’s new??

Now-a-days, many tools are coming up in online market that can help you design an effective financial model.
Websites like www.startupfinancialmodel.com give you a way to design a useful financial model. Other tools for capital budgeting, valuation models are also available online.

StartupChimp’s Take
Financial models are necessary for every business. If proper and adequate tools and methodologies are used in formulating the model, then your Startup Financial Model would not only help you getting finances for your business, but would also help you in proper risk assessment, revenue projection and optimization of your resources.