fundraising series (part one): building your financials

Building Your Financials:Creating Your 3-Year

Financial Plan

David Ehrenberg, CEO

Early Growth Financial Services

Financial Plan

About Early Growth Financial Services

• Outsourced financial services firmproviding finance, accounting, valuation,and tax services for early-stagecompanies

• Extensive experience working withcompanies at all stages of developmentcompanies at all stages of development

• 180+ successfully funded clientsthroughout CA, NYC, Boston, and Seattle

• Services include: transactionalaccounting, strategic financial guidance,taxes, CFO services, 409a valuation,corporate governance, and more.

www.earlygrowthfinancialservices.com2

David EhrenbergFounder and CEO – Early Growth Financial Services

• Founded Early Growth Financial Servicesin 2008

• Startup mentor with a passion for helpingearly-stage companies to build, establish,and manage their infrastructure, processes,and proceduresand procedures

• Specialize in venture funding, debtfinancing, strategic planning, corporatestrategy, business and financial plans, and creatingcompany infrastructure

• CPA, MBA from University of Washington, BS Accountingand Finance from Georgetown University


Presentation OverviewThe essentials of startup financial management

• What is a financial model?

• Process for creating a financialmodel

• Goals, objectives, and milestones

• Bottom-up financial projections

• Spend

• Budgeting

• Top-down projections

• Cost assumptions

• Reforecasting


Why a 3-Year Financial Model?A comprehensive financial pictures serves as the road-mapfor your business

• Helps you understand your cash burn

• Forces you to evaluate keyperformance drivers

• Validates your assumptions

Puts challenges into perspective• Puts challenges into perspective

• Iterative process continuouslyimproves your assumptions

• Insight into your business model

• Clarifies decision-making process(short-term and long-term)

• Gives you leverage of accuratebaseline valuation


What Goes Into a 3-Year Financial Model?Essential components to your model

Majorobjectives

MilestonesTimeline


Keyassumptions

Trendinganalysis

Key variables

Identify Major Objectives for YourCompanyAssess where you are and what you want to achieve

Venture funding andnegative cash burn

Positive cash burn andno venture funding

www.earlygrowthfinancialservices.com

What do you want to accomplishwith next raise?

What are the goals you want to achieveduring this time period?

Process for Creating Your Financial ModelHow to approach the process and get buy-in

1. Go to stakeholders and members ofexecutive team – what do they need toachieve objectives (revenue, product,market, strategic, etc.)?

2. What is needed from a2. What is needed from aprogrammatic perspective?

3. Compile information and discusswith CEO (maybe executive team):

total amount requested relative tomilestone

4. Dialogue about wants and tradeoffs

5. Use dialogue to create bottom-upforecasting budget


Bottom-Up Financial ProjectionForecast for realistic revenue potential


Spend for Bottom-Up ProjectionsConsider relevant operational costs and check costassumptions

• Customer/Cost details

• Human resource costs

• Consultant and professional services• Consultant and professional services

• Research and development

• Office and admin

• Sales and marketing

• Capital spending


BudgetingUse your budget to plan your actions

• Budgeting created on accrual basis: budgetingversus actual results

• Difference between cash and accrual isaround capital expenditures

• Report budget by department and major costdrivers (expense categories and revenue


drivers (expense categories and revenuecategories)

• Plan actions: how quickly will this impactrevenue and what will you be able to achievebased on spending

• Identify key variables• Identify key revenue assumptions• Run different scenarios

Budgeting ExerciseStart from a milestone perspective

• Look at historical costs

• What do you need toaccomplish before you run outof money, or in a specific timeof money, or in a specific timeperiod

• Ask budget owners what theyneed to accomplish goals

• Tradeoffs

• Trending analysis

• Trending initiative


Top-Down Projection?Not particularly useful, but necessary for investors to showmarket potential


ReforecastingYour financial plan is always evolving

• Don’t do a 5-year plan, atmost 3-year

• Update your budget on aquarterly basis (at least)quarterly basis (at least)

• For investors budget on aquarterly basis for first yearand then annually

• What’s realistic in terms oftimeline and reforecastingon monthly or quarterlybasis?


Final Thoughts

“The point of financial projections is totell a story with numbers—a story aboutopportunity, resource requirements,market forces, growth, milestoneachievements, and profits.achievements, and profits.

Your job is to create a numericalframework that complements andreinforces the vision you’ve painted withwords.” – Guy Kawasaki

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Thank You!

Early Growth Financial Services

David Ehrenberg


[email protected]

www.earlygrowthfinancialservices.com

415.234.3437

Follow us @EarlyGrowthFS

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fundraising series (part one): building your financials

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