What to Include
This section outlines your financial forecast for the next 3-5 years, demonstrating the company’s potential for profitability and growth. It serves to show investors that the business can generate sufficient revenue to cover its costs and deliver a return on investment.
Core Elements:
- Income Statement: A projection of revenue, expenses, and profits over time.
- Cash Flow Statement: Shows the movement of cash in and out of the business to ensure solvency.
- Balance Sheet: Snapshot of the company’s assets, liabilities, and equity at a given time.
- Break-even Analysis: The point at which revenues cover expenses, and the company starts to make a profit.
- Headcount Plan: Projected hiring needs based on growth.
- Unit Economics: Cost per acquisition (CPA), lifetime value (LTV), and other important unit-based metrics.
Where to Source the Information
- Internal financial models: You’ll need to develop projections based on your business plan, assumptions about growth, pricing, and customer acquisition.
- Industry benchmarks: Use industry data to benchmark your assumptions and ensure your projections are realistic.
- Market research reports: These can provide insights into expected market growth rates and average profitability in your industry.
- Accounting or financial tools: You can use tools like QuickBooks, Excel, or financial modeling software to create the projections.
How to Analyze
- Realistic assumptions: Ensure your assumptions for growth, pricing, and customer acquisition are based on data rather than optimistic predictions. Use a range of projections (base, optimistic, pessimistic).
- Sensitivity analysis: Perform sensitivity analysis to show how changes in assumptions (like pricing, costs, or conversion rates) could impact your financial outcomes.
- Milestones and funding needs: Link financial projections to specific milestones and funding needs. This helps investors see the capital required at each stage.
Format and Structure
- Executive Summary of Financials: Provide a summary of your key financial projections and assumptions (e.g., revenue, profitability, cash flow).
- Financial Statements (Tables and Charts):
- Income Statement (Revenue, costs, profit)
- Cash Flow Statement (Inflows and outflows)
- Balance Sheet (Assets, liabilities, equity)
- Break-even Analysis: A simple chart showing when the business becomes profitable.
- Headcount Plan: Table showing anticipated hires and associated costs over time.
- Unit Economics: Summary of key metrics such as CPA, LTV, etc.
This section is critical for demonstrating that your business has a solid plan for generating revenue, managing expenses, and scaling. Would you like this template to be prepared as a Google Doc, or would you like to move on to the next section?