The financial forecast is the ideal tool to know if a startup project can become profitable. Therefore, this is the first study that should be done, at the start, before launching.
Also, a financial business plan allows having a complete analysis of your project.
Building a financial forecast also allows estimating the projected turnover of your startup by trying several hypotheses (such as the selling price of your product or service, the number of customers you expect to acquire each quarter, etc.).
The forecast is essential to your startup’s business plan through all the information it provides.
However, constructing a financial forecast seems out of reach for many project leaders. Predicting the future is always complicated, and estimating a business project’s future income and expenses is even more difficult.
What if we told you that nothing obliges you to build an entire financial forecast, from A to Z, from a blank sheet? Here is the method for a successful economic prediction for your startup.
THE ELEMENTS THAT MUST BE FOUND IN A GOOD STARTUP FINANCIAL FORECAST
REALISTIC ESTIMATES OF THE TURNOVER YOU WILL GENERATE
You must be clear about the business model and how you will generate money. For example, how much will you earn from a transaction on average? This is the first question to be answered. You will then need to multiply it by the number of potential customers you expect to convert.
Adopt a conservative approach for the first few months. However, this number will increase in the following months (thanks, in particular, to your efforts in marketing and communication).
For the second and third years, you can expect a pretty aggressive growth rate for a startup: that’s usually what startups are about.
Find the right balance between stable and overambitious growth and, above all, justify it with your marketing plan.
NO ERRORS IN THE ESTABLISHMENT OF ACCOUNTING RULES AND FORMULAS
Your banker will look for “red flags” in your startup’s financial forecast. For example, your cash flow should not stay negative “too long.”
Also, correctly transcribe your cash shifts between the forecast income statement and the cash budget. Do not set up a forecast turnover that triples yearly without investing the slightest euro in marketing and communication for your startup.
Finally, you don’t have complete freedom regarding the presentation of your financial tables: you must respect a certain formalism.
THE 3-YEAR FINANCIAL FORECAST FOR YOUR STARTUP MUST BE COMPLETE
I do not think presenting the list of expenses that justify the fundraising will be enough.
The reader of your business plans will want to be able to consult the following tables: a financing plan, a forecast income statement, a forecast balance sheet, the analysis of intermediate management balances, a cash budget, details of the break-even point, or the details of the calculation of the working capital requirement.
It’s even better if you add financial charts and ratios. Finally, unless otherwise instructed, favor three years rather than five years (economic forecasts over five years are not very credible).
WHAT ARE THE STEPS NOT TO MISS WHEN PREPARING A FINANCIAL FORECAST FOR A STARTUP?
PREPARE A COMPLETE LIST OF YOUR INITIAL EXPENSES FOR YOUR STARTUP FINANCING PLAN
When you start a new startup, there is a large list of expenses, including, probably:
– the purchase of premises
– a budget for the works
– the purchase of a vehicle
– small fittings
– decoration, small furniture
– computer equipment
– set-up costs
– accountant and lawyer fees
– a marketing budget for the launch
– the purchase of the first stock of products
– costs to develop a service
– the creation of a website
– subscription to online applications
– fees for listing in the directories
– a security deposit or the payment of the first rents
Think carefully about all the expenses necessary to obtain a startup budget.
AFTER THE INITIAL INVESTMENTS COME THE CURRENT EXPENSES
The sum required for capital expenditures, such as equipment, tools, shipping, installation, etc., makes up the initial investment. Plus, any increase in working capital minus any after-tax cash flow from selling old assets. We don’t care about sunk costs because they don’t matter. The initial investment is the starting amount of money it takes to either open an account or establish a buy-in relationship. The two distinct but related industries of banking and long-term investment brokering are the main uses of the term “initial investment.”
You will pay current expenses regularly when you launch your startup.
According to our experience, here is what can be found in the disbursements of your provisional cash budget: water, electricity, gas, telephone, bank charges, a supply budget, insurance, fees for legal and accounting support, rent, a marketing and communication budget, travel expenses, a budget for team-building events, costs for freelancers and consultants, salaries and social security contributions for your team.
Do not forget to enter the payment of taxes in your financial forecast.
DO NOT PUT 0 FOR YOUR MARKETING BUDGET
An increase in income must be correlated with certain investments. For example, a startup manager must invest in marketing to grow his business. The marketing budget starts at zero. That means that the CMO doesn’t get any money (other than for operating costs) unless they can show why they need it.
What is included in a “marketing budget”? These expenses increase your visibility: advertising support, maintaining a website, or communication on social networks.
For a startup, you should spend at least 15% of your income on marketing and communications, at least for the first few years.
A FILE WILL ALLOW YOU TO MAKE A SUCCESSFUL FINANCIAL FORECAST FOR YOUR STARTUP!
Do financial formulas scare you? Use our economic forecast template for startups. We have designed this document so that you can make your financial forecast yourself.
This is the surest way to easily, quickly, and correctly succeed in your financial analysis. Your only job? Fill in boxes.
Also, note that we have already listed the possible expenses of a startup. No calculation is required. This financial model results from several iterations: startup creators had tested it before you and told us what needed to be added or simplified.
You can also have fun changing assumptions (like the selling price of your product or service) and see how that impacts your projected revenue or break-even point!
A financial forecast over three years, complete, with all the tables. In particular, you will find a provisional balance sheet, a provisional income statement, a provisional cash budget, a financing plan, and other tables such as the detail of the intermediate management balances, the calculation of the working capital requirement (WCR), or break-even analysis.
You will also find graphs and financial ratios. Once this Excel template is completed, you can present your startup’s serious and detailed financial analysis to your potential investors.
You even can check if your financial forecasts are solid and relevant. In this template, you will find a tab that compares your predictions to that of a fictional startup and tells you if your assumptions hold up (or not).
If they are not, this tab, which updates each time you change an assumption, tells you what you need to change.
Once you have completed your tables, you can integrate them into one of our business plan templates.
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