Financial Modeling for StartupsIt’s not that difficult…
– Financial Consultant
“Financial modelling is performed by trained professionals, don’t try this at home!”
Finance for Non-Finance People
Some Basics FirstGross Merchandise
Value(All goods sold)
Commission (Portion of it coming as income)
Service Income Service Income
Other Income Other Income
Turnover Revenue
BS and P&LAssets Liabilities
Tangibles Payables (Rent, Wage, etc.)
Cash Debt
Payments Recievable
Accounts Payable
Profit and Loss Statement
Income
Expenditure
Profit/Loss
– My Experience
“Banks worry about Balance Sheet, Investors worry about Profit & Loss Statement”
Expenses (It is easier!)• You know what you are going
to spend (At least better than what you are going to get)
• The first month is the easiest to project
• After that reality will spoil the party
• Many expenses can be foreseen
• Ideally break each thing down to separate sheets
Expenses
Rental Expenses
Salary Expenses
Electricity, Water, Transport,
Communication,
Admin, Marketing, Sales,
etc.Logistics/Servers/
Hardware Buying
Salary ExpensesMonth 1 Month 2
DeveloperAvg. Salary(Increment)
DesignerAvg. Salary
SalespeopleAvg. Salary
MarketingAvg. Salary
Investment• Initial investment may need to
be made or may have already been made
• Capital Expenses are all the things that you may have bought or need to buy. Computers, vehicles, etc.
• Working Capital is what we put under expenses. Expenses that the company cannot generate as revenue.
Investment
Capital Expenses
Working Capital
Advances
Business Model Canvas
Revenue Model
Income
• Based on the Revenue Model project the various income streams
Advertising Income
Sales Income
Exclusive Tie-Ups
Projecting Sales is Hard (even for established companies!)
Month 1 Month 2 Month 3
Sales Income
Growth Rate
Advertising Income
Growth Rate
Projecting Income• You need some data to accumulate before you can
project
• As the founder you know your sales best
• When you say 1000 users in a month, its 33 per day. Can you personally sell it to as many?
• The Market is hard to predict! Once you get a grasp of demand, projecting is easier, but still not accurate
Financial ModelIncome Stream Year 1 Year 2 Year 3 Year 4 Year 5
Revenue 1,81,40,936 7,71,17,523 21,12,02,880 78,28,42,475 1,66,25,08,512
Transaction Income 18,14,094 77,11,752 2,11,20,288 7,82,84,247 16,62,50,851
Other Income 0 0 0 0 0
Total Income 18,14,094 77,11,752 2,11,20,288 7,82,84,247 16,62,50,851
Expenses
Rental Expenses 72,000 1,20,000 6,00,000 9,00,000 12,00,000
Server Expenses 72,000 1,44,000 2,88,000 5,76,000 11,52,000
Salary Expenses 12,25,000 42,00,000 1,20,15,000 2,23,56,000 3,09,67,200
Marketing Expenses 1,20,000 2,40,000 7,20,000 21,60,000 43,20,000
Elec & Water Expenses 24,000 24,000 96,000 1,44,000 2,16,000
Communication Expenses 60,000 1,20,000 3,60,000 7,20,000 14,40,000
Travel Expenses 1,20,000 2,40,000 7,20,000 14,40,000 57,60,000
Compliance Expenses 48,000 48,000 72,000 1,08,000 1,62,000
Administrative Expenses 24,000 1,20,000 4,80,000 7,20,000 10,80,000
Miscillaneous Expenses 24,000 1,20,000 4,80,000 7,20,000 10,80,000
Gateway Expenses 6,34,933 15,42,350 42,24,058 1,56,56,849 3,32,50,170
Total Expenses 24,23,933 69,18,350 2,00,55,058 4,55,00,849 8,06,27,370
Profit/Loss 6,09,839 7,93,402 10,65,230 3,27,83,398 8,56,23,481
Valuation• If I am investing 1 Crore in your company, how
much equity should I take?
• How much do I want the 1 Crore to become?
• Every investor has a minimum return that he/she is seeking from an investment
• Let us say 10 Crores…
Valuation• Let us say that you are doing a revenue run rate of
‘X’ today
• In the next 5 years what do I as an investor feel is achievable?
• Based on the ‘Revenue’, ‘Revenue Growth’ and perhaps ‘Profits’ that I feel is possible in the next 5 years, I have an achievable valuation in mind
• Let us say that is 100 Crores
Valuation
• For my 10 Crore exit I would need to have 10% of the company at that time of exit
• I also need to consider the further rounds of funding and dilution which may occur
• I may ask anything between 10% and 15% based on the above factor
Reach me at:
Twitter: @viveksrn
LinkedIn: in.linkedin.com/in/viveksrn
www.vsprudenceadvisors.com
www.viveksrinivasan.com