Financial Modelling for

Your Business

Objective: Walk out with the confidence to build

Financial Models

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Financial Modelling for Your Business

Learning Objectives
Overview
In this lesson, students will:
High level overview of financial models,
decision trees and structure. Gradually, going ● Understand when to use
deeper into structure though exercises. Then Financial Models
showcasing best practice and going through a ● Make decision trees
couple of examples from students. ● Thin through model structures

Important Note Duration

Basic excel skills (ie vlookups) 120 minutes

 FOR INSTRUCTOR USE ONLY

Suggested Agenda
Time Activity Purpose

0:00 - 0:02 Welcome Introduce the lesson’s objectives and agenda.

0:02 - 0:10 Activity 1 Why?

0:10 - 0:25 Activity 2 Why?

0:25 - 0:30 Summary Wrap up the learning and share next steps.
 FOR INSTRUCTOR USE ONLY

Materials and Preparation

● Only materials required:
● These Slides
● Financial Model Google Sheet – link here: https://goo.gl/j4u7kE
 FOR INSTRUCTOR USE ONLY

Differentiation and Extensions

● Less advanced students
● Go into some basic Excel functions
● Sum
● Countifs
● Sumifs
● More advanced students
● Build the Financial Model out in more detail during the class on live screen
● Small class / Interactivity
● Project someone else’s model and walk through Good/Bad feedback
● Model someone else’s business to make it more engaging / applicable
 Agenda
1. Intro

2. High Level – Structure

3. Low Level – Drivers

4. Spreadsheet Design - Best Practice

5. Example

6. Design Your Model

7. Bonus

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 Intro
1. Intro
2. High Level – Structure
3. Low Level – Drivers
4. Spreadsheet Design - Best Practice
5. Example
6. Design Your Model
7. Bonus

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 Michael Batko
Head of Operations @ Startmate (part of Blackbird Ventures)
- michael@startmate.com.au

● I’m not an Accountant

● Financial Analyst @ American Express

● Finance Consultant @ KPMG/PwC
● Austrian Trade Commission (Government)
● Operations Manager @ MadPaws (2 person startup)
● Ops/Analytics Manager @ Expert360 (10->60 person startup)

● Taught Basic & Advanced Excel in Unis / Accelerators

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 What about you?

● Your Name

● What do you do?

● Why are you here?

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 Discussion: Financial Model

What is a Financial Model?

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 Usually in Excel or Google Sheets

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 Usually X / Y Axis
When?

What?

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 Always Wrong
but it’s your Best Attempt

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 “
…is a mathematical (simplified) representation of a financial
something.

Wikipedia (simplified)

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 Discussion: Financial Model

What Question will your Financial Model

answer?

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 Why do I need a model?

● Get the Answer to Your Question

● Set plans / benchmarks / budgets

● Others understand your business

● Understand key drivers of the business

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 High Level – Structure
1. Intro
2. High Level – Structure
3. Low Level – Drivers
4. Spreadsheet Design - Best Practice
5. Example
6. Design Your Model
7. Bonus

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 Where to start?

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 Start with Your Question
What are you trying answer / solve?

● Who is your audience?

● What do they expect to see?

○ Metrics
○ Detail
○ Timeline
○ etc.

Over- vs Under-engineering

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 Start with Good Plan
Work backwards from your Question:

● What are the key drivers / levers which affect the outcome?

● Which ones can you affect and how?

● Which ones are dependent or influenced by others?

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 10 minutes
Partner Exercise: Driver Tree

Imagine you are an Executive at Uber

Someone asks you:

“What will be Uber’s profit/loss in 12 months?”

“What are our key levers, which we can pull to try to increase profit?”

Draw it as a Driver Tree

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 Discussion: Driver Tree

What are they key levers?

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 Next Step: Understand your Drivers
● Dig deep into the branches

● Understand what affects them and how

● Gather your Sales / Marketing / Product plans

● Draw your timelines out – GANTT chart works well

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 “
You can’t predict your revenue with any
kind of precision, but you should be able
to manage your expenses.

Brad Feld
– Managing Director, Foundry Group

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 Low Level – Drivers
1. Intro
2. High Level – Structure
3. Low Level – Drivers
4. Spreadsheet Design - Best Practice
5. Example
6. Design Your Model
7. Bonus

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 Model Structure

● Base it off the Driver Tree

● Model Complexity
- Simple: Cash-based model
- Complex: P&L model + Cashflow model

● Start modelling bottoms-up

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 5 mins
Guided Walk-Through: Marketing / Sales Funnel

Let’s take a classic Marketing / Sales Funnel for a company which sells an online service (ie Airbnb).

Marketing Funnel
People check out the website à Sign up for the newsletter à Create a User Account à

Sales Funnel
Post on the website à Get a booking à Fulfil a booking à

Product Funnel
Keep getting bookings à Post more properties à Churn at some stage

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 Revenue Modelling – Where to start?

○ Marketing driven
à Function of cost à Lead à Marketing Qualified Lead (MQL) à Sales Qualified Lead
(SQL)

○ Sales driven
à Function of people à revenue / person à bigger Sales team = more $$$

○ Unit Economics driven

à CAC, Churn, Repeat Rate

○ Assumptions: based on historical values, benchmarks, reasonably derived, competitors

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 Expense Modelling – Where to start?
● Start from what you know = Expenses

○ # of People per Team à Hiring Plan

- This is usually the biggest cost for early stage companies

- Direct Cost: Salary + Commission

- Recruitment
- On Costs: Payroll Tax, Superannuation, Insurance
- Other: Rent, Desks, Computers, Phone, Stationary, Travel, Food, Coffee, Training

○ Variable Costs à Function of your team (insurance) or amount of units sold (material
cost)

○ Fixed Costs à Office expansion, Infrastructure, Rent

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 Key Drivers
Revenue

● Price (different customers? Different pricing?)

● Discount
● Marketing Cost + Leads
● # of Sales People
● Seasonality

Expenses

● # of People
● Material / Service Costs
● Efficiencies (bulk discount, transport)

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 Key Metrics
Revenue
● Revenue / Market Share
● Profit / Operating Margin
● Marketing / Sales Efficiency

Expenses
● # of People
● Suppliers
● Efficiencies (bulk discount, transport)

Decisions
● Runway
● Burnrate
● Cashflow positivity + Breakeven à Closing Cash Balance
● Unit Economics (CAC, Churn, Repeat Rate)
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 Spreadsheet Design – Best Practice
1. Intro
2. High Level – Structure
3. Low Level – Drivers
4. Spreadsheet Design - Best Practice
5. Example
6. Design Your Model
7. Bonus

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 The Basics
Excel vs Google Sheets

Tab Structure
● Cover Page
● Instructions
● Summary – High Level + Graphs
● Input + Assumptions
● P&L
● Cashflow
● Personnel
● Workings

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 Flexibility
● You know what you want
● You know all the drivers
● Now – think again – is there ANYTHING else that could in theory change?
● BE READY FOR ANYTHING

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 DO NOT HARDCODE

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 Input & Assumptions
● Everything that can be Input should live together

○ ‘Input/Assumptions’ Tab

○ Numbers which can be changed – colour in blue

● Comment column to the right – make it easy for yourself to recall your assumptions

● Include Historic Benchmarks

● Include Sources

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 Scenarios
Different Scenarios are really useful and sooner or later someone will want them

My Tip

- Include a Toggle on the Input page

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 Safety Checks

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 Flexibility – Tips & Tricks

Creating Summaries

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 Flexibility – Tips & Tricks

=VLOOKUP + MATCH OR
=INDEX + MATCH
instead of Static Vlookups

Date Formatting
- Use either first or last day of the month
= EOMONTH()

Remove Gridlines

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 Example https://goo.gl/j4u7kE

1. Intro
2. High Level – Structure
3. Low Level – Drivers
4. Spreadsheet Design - Best Practice
5. Example
6. Design Your Model
7. Bonus

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 Design Your Model
1. Intro
2. High Level – Structure
3. Low Level – Drivers
4. Spreadsheet Design - Best Practice
5. Example
6. Design Your Model
7. Bonus

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 10 mins
Solo Exercise: Design Your Own Model

Roughly outline your own model (in words, no need for formulas)
à You can also do Uber’s model instead

● Key tabs

● Key areas / labels

● Outline assumptions

● Describe how they fit together / affect each other

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 Feedback Please

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 Bonus
1. Intro
2. High Level – Structure
3. Low Level – Drivers
4. Spreadsheet Design - Best Practice
5. Example
6. Design Your Model
7. Bonus

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 Bonus - Resources
● Google Sheets > Excel

● Google Sheets Tips & Tricks

● Spreadsheets Standards Review Board – official Excel rules

● Financial Model Templates

● Crunchbase – for company and valuation data

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 Bonus – Seed Round Pitch
● Problem

● Solution

● Market

● Traction
- This is where your Financial Model comes in
- 1 Revenue or User Graph
(+ maybe one more call out how low your CAC or marketing spent is)

● Team

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 Thank You!

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