1. Startup financials

2. Startup Financials Required component of a business plan
Helps answer questions about Revenue, Expenses, and Profit
Shows growth of the firm and profitability
Cash balance in each time period
How much capital will be required now and later.
Required by investors
Keeps you honest on your business model
Active document!
No Cash, No Startup – Harsha Purasinghe

3. Components of a Financial Plan
Time Period (1-3 years for software startup)
Revenue
Profits!
Sources of Cash
Funding (angel, venture, or self)
Uses of Cash
Marketing
Product Development
Administrative Expenses (fees, salaries)
Operational Costs (commissions, partnerships)
Cash balance per term/period
Assumptions

4. Key Terms
Cost of Goods Sold (CoGS): Total cost of good sold by a company. Includes production and labor costs. Does not include sales and administrative expenses (indirect expenses)
Selling, General, & Administrative (SG&A): sum of all direct and indirect selling expenses and all general and administrative expenses of a company
Cost of Customer Acquisition (CoCA): indicates all the sales and marketing costs required to get a new customer

5. Pricing – e.g. $0.99 per app download Development cost
Assumptions
Pricing – e.g. $0.99 per app download
Development cost
Cost of Goods Sold (CoGS)
SG&A Expenses
CoCA
Customers in the 1st, 2nd,….nth month
Funding Needed
Expected Growth

6. Changes to Cost Metrics
Lower the CoGS, the more the profit. Create your product with limited resources
CoCA will gradually go down: getting the first customer is hard but it gets progressively easier.
SG&A should be kept as low as possible. Usually remains constant in a product lifetime

7. MicroImage - Time & Reporting
Headcount:
Starting Cash:
Development Time:
Testing Time:
Operating Cost:
Unit Price:
Sales Volume:
Other Costs: Customer Service, Sales, Marketing 5
80,000
6 Months
Operating cost includes rent, electricity, internet, food
4 months
25,000/month
80,000/license
6 licenses for first customer

8. Sample Financial Plan/Budget
Revenue/Sales
SG&A Expenses
Cash on hand
Uses of Cash
Administrative
Operating Expenses
Development Cost
Cash balance per period

9. Sample Financial Projection
Growth, Return on Investment
Startup, seed funding

10. Always mention the ROI when asking for funding from an investor
VC Term
Return on Investment (ROI): Measure used to evaluate the efficiency of an investment. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
(Gain from Investment – Cost of Investment)
Cost of Investment
ROI =
Always mention the ROI when asking for funding from an investor

11. Key Items to Note About Financial Statements
Numbers must be correct!
Validate your assumptions against a base-case
Have a rational around your assumptions
Be realistic about sales and your growth
Consider all costs and expenditures (even food, drink, family etc.)
Financial Statements are a key component. Any mistake and you will be dismissed by the investors!