2 min read Financial models contain numerical data about the past, present, and future of your business. This information can be used to make business decisions, analyze the financial health of the company, and can also be presented to potential investors. In this article, we provide tips for using your financial model.
Using Your Financial Model in Your Pitch
The financial model is a key component of your pitch. You should be using key financial numbers from the model to tell the story of how your business can scale up.
To do this, start with your unit economics to show the business works. Show how the systems you have built drive the business using the financial model. Highlight the market size and how fast the market is growing as well as how you will go to market if you are in the early stage.
Call out key cost figures to demonstrate you know the numbers that drive your customer acquisition process and retention rates. Show how you will use the funds by pointing to the costs for building products, generating leads, or closing sales. Show your cash burn and how the fundraise will give you runway.
The financial projections alone don’t tell the story of your business. You have to pull out key numbers to tell the story.
Using Your Financial Model in Your Pitch Deck
Many founders cut and paste cells from the financial model spreadsheet into a slide. This renders the information unreadable as the spreadsheet doesn’t fit with the presentation format. To show your financial projections, consider the following:
- Don’t cut and paste from the spreadsheet. Investors cannot take in a detailed spreadsheet on a slide, only the high-level information. Instead, choose specific numbers from your financial model and place them into the slide using the same font and format as the rest of the deck.
- Choose three sets of numbers: Revenue, costs, and profits. For these categories, show last year, this year, and projections for the next three years. This provides a five-year window into the company. For each of the three categories, create a line graph.
- Avoid hockey sticks as investors will discount those numbers as unrealistic. Investors will look for the growth rate you are projecting. They will look to see when you go cash flow positive. Investors will look at the burn rate on the profit line and then check the fundraise to see how much cash runway you are proposing.
The key takeaway regarding how to present your financial projections is the importance of calling out three key numbers such as the growth rate, months to cash flow positive, and the number of months of cash runway.
How Investors Use Your Financial Model
Investors use the financial model to understand not only the business but also to learn about the founder and their skills.
Here are some key points investors look for:
- Salaries: How well is the team compensated, and does this fit the stage of the business?
- Customer acquisition and retention: Have you built a system for acquiring customers and retaining them?
- Traction: What traction do you have going so far?
- Knowledge of the business: How well do you know the costs of running the business as well as what factors drive revenue?
- Scale factors: Based on the costs and customer acquisition model, how well can the business scale?
- Use of funds: How are you are going to spend the funds raised? Does it make sense for the stage of the business?
- Potential outcome: Is this a venture business or a lifestyle business?
Consider how the investor will view your deal in building out your financial projections.
Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://www.startupfundingespresso.com/calculators/
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: email@example.com.