STARTUP FINANCIALS

Startup Financials

Required component of a business plan Helps answer questions about Revenue,

Expenses, and Profit Shows growth of the firm and profitability

Cash balance in each time period How much capital will be required now and

later. Required by investors Keeps you honest on your business model Active document!

No Cash, No Startup – Harsha Purasinghe

Components of a Financial Plan

Time Period (1-3 years for software startup) Revenue Profits! Sources of Cash

Funding (angel, venture, or self) Uses of Cash

Marketing Product Development Administrative Expenses (fees, salaries) Operational Costs (commissions, partnerships)

Cash balance per term/period Assumptions

Key Terms

Cost of Goods Sold (CoGS): Total cost of good sold by a company. Includes production and labor costs. Does not include sales and administrative expenses (indirect expenses)

Selling, General, & Administrative (SG&A): sum of all direct and indirect selling expenses and all general and administrative expenses of a company

Cost of Customer Acquisition (CoCA): indicates all the sales and marketing costs required to get a new customer

Assumptions

Pricing – e.g. $0.99 per app download Development cost Cost of Goods Sold (CoGS) SG&A Expenses CoCA Customers in the 1st, 2nd,….nth month Funding Needed Expected Growth

Changes to Cost Metrics

Lower the CoGS, the more the profit. Create your product with limited resources

CoCA will gradually go down: getting the first customer is hard but it gets progressively easier.

SG&A should be kept as low as possible. Usually remains constant in a product lifetime

MicroImage - Time & Reporting

Headcount: Starting Cash: Development Time: Testing Time: Operating Cost: Unit Price: Sales Volume: Other Costs: Customer Service, Sales, Marketing

580,000

6 Months4 months

25,000/month80,000/license

6 licenses for first customer

Sample Financial Plan/Budget

Revenue/Sales

Cash on handUses of Cash- Administrative- Operating

Expenses- Development

Cost

SG&A Expenses

Cash balance per period

Sample Financial Projection

Startup, seed funding

Growth, Return on Investment

VC Term

Return on Investment (ROI): Measure used to evaluate the efficiency of an investment. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

(Gain from Investment – Cost of Investment)

Cost of InvestmentROI =

Always mention the ROI when asking for funding from an investor

Key Items to Note About Financial Statements

Numbers must be correct! Validate your assumptions against a base-

case Have a rational around your assumptions

Be realistic about sales and your growth Consider all costs and expenditures (even

food, drink, family etc.)

Financial Statements are a key component. Any mistake and you will be dismissed by

the investors!