Financial forecasting for startups in 10 slides

10 slides that highlight what really matters in startup financial projections and forecasts - and why investors care

1. Financial Projections 10 slides to explain what really matters David JW Bailey MERRYNS LLP

2. What is all this for? Avoiding problems Paying bills on time (including tax) Working out what investment you need to succeed (forecast with and without investment) Working out what this investment is worth to you Working out what you can afford to pay for that investment Dividends Interest

3. What matters Cash That’s pretty much all that matters in a growth business Growth Risk Creation of assets

4. Forecast - simple Element Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 1,000 2,000 3,000 4,000 5,000 Cost of Sales 500 1,000 1,500 2,000 2,500 Gross Profit 500 1,000 1,500 2,000 2,500 Costs 450 650 750 850 950 EBITDA 50 350 750 1,150 1,550 Free cash (150) 550 1,500 2,850 Nice steady growth, opening one new branch a year, reinvesting cash to grow, clearly sustainable

5. In the forecast pack Forecast Profit and Loss Balance Sheet Cash Flow Statement Equity capital table Forecast enterprise (or project) value Deviations from forecast Historic management accounts External financial and economic information for context Narrative to tell the story

6. Why isn’t profit the same as cash? Operating activities and working capital Debtors Creditors Stock and WIP VAT, NI and PAYE Returns on investments, servicing of finance and equity dividends paid Taxation Capital expenditure and financial investment Fixed assets, and other acquisitions and disposals Management of liquid resources & Financing

7. How to forecast Make your model work from EXTERNAL DRIVERS Know your sales funnel and sales drivers Link them to internal processes and activity Know your internal assumptions, cost and drivers Build up from real activities P.S. You can also forecast individual products, investment in equipment …

8. What are others looking for Revenue, margins, reinvestment, cashflow Trends Growth rates Some key ratios Margins Liquidity ratios Returns on investments Ability to pay dividends Ability to pay interest on loans Resilience ratios

9. So, do we need a big spreadsheet? Please, don’t. Use prebuilt forecasting tools Xero Sage Quickbooks Or pay someone else to do it for you

10. Walk before you run As you get better at this, look at proper ‘grown up’ models Sensitivity analysis Scenario analysis @RISK Monte Carlo Simulations Production and stock modelling Timing and variances in timing

11. Forecast - complex