When it comes to financial modeling, presentation is important. A financial model is more than just a spread reality check full of numbers. It is a powerful tool that tells the story of your company, reveals its potential and demonstrates its profitability. When talking to investors, your startup’s financial model can help you communicate your company’s value proposition, guide negotiations, and get the financing you need to grow.
Given that venture capital is significantly rarer today than a solid financing model is all the more important. According to Crunchbase, even the rush to finance AI startups in the second quarter was not enough to pull the global VC out of the doldrums.
As a start-up consultant, I assist my clients in mergers and acquisitions consulting, fundraising strategy, pitch presentations, financial modeling, valuation analysis and much more. I have witnessed the challenges that startup founders face when they do not follow a simple rule: consider their financial models from an investor’s point of view.
Focus on key performance indicators (KPIs)
In your financial modeling, it is important to find the right balance in the middle including enough information to get a complete picture of the financial health of your startup and not overwhelming investors with excessive details. Zoom in on the key indicators, called key Performance indicators (KPIs), which show the progress and potential of your startup. It may seem obvious at the strategic level, but startup founders are often stuck in the details.
I once worked with a startup that developed an innovative e-commerce platform. He was preparing to woo investors for his next round of financing and had created a financial model so extremely detailed that the main KPIs were difficult to find. I helped the founders to identify, prioritize and integrate the key KPIs of their startup into the financial model. Here’s how to find the right balance:
Understanding your business and your industry
First, develop a deep understanding of your business model, your industry and the factors that promote growth and profitability. This knowledge will help you identify the specific metrics that investors are likely to focus on when evaluating the potential of your startup. For example, a software-as-a-service (SaaS) startup could prioritize metrics such as monthly recurring revenue (MRR) and customer acquisition costs (CAC), while a retail company could focus on metrics such as average transaction value and inventory turnover. In the matter of the e-commerce start-up, we found that the measures of customer acquisition cost, lifetime value and monthly average users had to be at the forefront.
Align KPIs with strategic objectives
Make sure to highlight the KPIs that most clearly reflect the general strategic objectives and the growth plan of your startup. For example, if your main goal is to quickly expand your customer base, you can prioritize KPIs such as the number of new customers, the cost of customer acquisition and the lifetime value of the customer. If your goal is to improve operational efficiency, you can focus on KPIs linked to cost control, such as total margin and operating costs as a percentage of sales. The aforementioned ecommerce startup I worked with knew how much money they needed to make in sales to break even, but not how it affected the type and number of customers they needed. We have created a dashboard that tracks the number of customers for each sales channel to ensure that the startup stays on target.
Make KPIs clear and clear
Make sure that the KPIs you choose are easy for investors to find and understand in your financial model. Consider creating a dedicated KPI dashboard or tab that presents these metrics in a visually appealing and easy-to-read format, using graphs, charts, and tables as appropriate. You can also include KPIs in your financial statements or in a separate analysis section. Wherever you are, always make sure that they are clearly labeled and easy to interpret.
I helped the E-commerce startup create a dedicated dashboard that highlights key metrics and makes it much easier for investors to see the startup’s performance and potential at a glance. In the end, the company was able to obtain the desired financing. The investors specifically mentioned how the clear presentation of the KPIs helped them to superior understand the company and gave them confidence to invest.