two hour financial model
DESCRIPTION
Two Hour Financial Model is an excel-based template and series of videos that will help you learn to create a financial model quickly. For students, entrepreneurs, CFOs, and business owners. Checkout our website and Udemy video series.TRANSCRIPT
TwoHourFinancialModel.com
Best practicesof financial modeling
for startups
TwoHourFinancialModel.com
Why build a financial model?
TwoHourFinancialModel.com
To communicate your business
TwoHourFinancialModel.com
Businesses take, need and make $$$
TwoHourFinancialModel.com
$$$ is counted with numbersnot words, or pictures
TwoHourFinancialModel.com
To develop a clear understanding and thought process
TwoHourFinancialModel.com
To evaluate and make major decisions about your business
TwoHourFinancialModel.com
It’s not that* hard
TwoHourFinancialModel.com
Your model will be wrong
TwoHourFinancialModel.com
But you will learn something valuable
TwoHourFinancialModel.com
Focus on:
Process (esp. revenue)Major assumptionsKey driversCash (near-term budget, balance, etc.)
TwoHourFinancialModel.com
Budget vs. Model
(or both)
TwoHourFinancialModel.com
Budget
Next 6-24 months
What you plan to spend with your
funds
Syncs to meaningful achievements
(product, customers, revenue)
“The Plan”
TwoHourFinancialModel.com
Model
Longer term
Much less certainty
Shows the realm of possibilities
Helps you identify impactful key
metrics and drivers
TwoHourFinancialModel.com
How good is “good enough”?
TwoHourFinancialModel.com
The checklist:
Easy to follow - by somebody else Bottom-up revenue forecast Unit economics Positive cash balance at all times All major assumptions verified with data Simple, understandable charts & graphs Pass a sniff test
TwoHourFinancialModel.com
Unit economics
What is the key unit of revenue?
Ex: Revenue per User (web model)– Revenue sources:
• Subscription upgrades (product tiers)• Ads, Data, Other non-paying sources
– Costs• Acquisition• Service & retention• COGS
TwoHourFinancialModel.com
Revenue forecasts
Bottom-up
Sales per customer or channel (B2B)
Funnels, customer acquisition costs
Viral growth (with math)
DO THIS
Top-down
X% of market size
Good for sniff testing, not for forecasts
Use to check your bottom-up forecasts,
not to project
TwoHourFinancialModel.com
Verify key inputs
Ideal = sync key metrics to what you have achieved, and scale over time
Next best = benchmark to other people’s key metrics
Focus mostly on the metrics you think will be the drivers of your business
TwoHourFinancialModel.com
Link to more benchmarking resources: http://www.springexcel.com/benchmarking-model-inputs.html
TwoHourFinancialModel.com
Scenarios (advanced)
What are the high, med. and low outcomes based on a range of expectations?
Which levers have a large impact on growth and profits (e.g. viral growth coefficient, churn, customer acquisition costs)
Use to help develop targets and stretch goals for your key metrics
TwoHourFinancialModel.com
Formatting matters
TwoHourFinancialModel.com
Your presentation materials: Know your audience KISS Show the basics of your budget & milestones. This is
what you are expected to be able to control. Maybe show your long-term projections (have in
backup slides for sure) Be able to explain each the details and key
assumptions, when asked Many VC investors rarely want audit your model. But
they might, so be ready. Corporate investors usually will.
TwoHourFinancialModel.com
Sniff test
Does everything seem reasonable?– If no, why?– Double-check,
make changes– Discuss with
advisers before presenting to investors
– Listen to feedback
TwoHourFinancialModel.com
Additional Reading
SpringExcel.com/Resources.html
TwoHourFinancialModel.com
2-hour Financial
Model