Template and Guide
The Financials
Financials are there to put the business into rationals, enable plans and mitigate risks by creating budgets. Financials are not there to waste your time or build air castles.
The most important thing about financials: You can’t control revenue. You can control costs and estimate delivery dates.
The Big Things
Your runway, burn rate, inflection point and underlying assumptions make your financial planning rich and worth your time. It shall be a number-based feasibility study for your commercial model, as well as provide you with important decision making tools.
How To Build Your Financial Planning
Runway
The runway describes how much time, in months of years, you have until you run out of cash. In average, per funding round, you should have 18-24 months of runway. The runway includes your entire financing mix, venture capital, revenue, debt, grants and other sources.
Burn Rate
The burn rate quantifies how much cash you spend every month to run your business. That includes operating expenses (opex), such as payroll, servers, rent and also capital expenses (capex) to acquire buildings or other assets. I highly recommend to avoid capex by any means, because you lose runway for physical assets, while you usually can buy services based on assets from others.
Inflection Point
Inflection points are crucial events for your startup, where it’s valuation increases drastically. Those events are not very specific set, but can be revenue, ratio from cost of revenue to revenue, development progress, … this heavily depends on your business. You focus on your next inflection point.