STARTUP FINANCIALS
Startup Financials
 Required component of a business plan
 Helps answer questions about Revenue, Expenses, and
Profit
 Shows growth of the firm and profitability
 Cash balance in each time period
 How much capital will be required now and later.
 Required by investors
 Keeps you honest on your business model
 Active document!
 No Cash, No Startup – Harsha Purasinghe
Components of a Financial Plan
Time Period (1-3 years for software startup)
Revenue
Profits!
Sources of Cash
 Funding (angel, venture, or self)
 Uses of Cash
 Marketing
 Product Development
 Administrative Expenses (fees, salaries)
 Operational Costs (commissions, partnerships)
 Cash balance per term/period
 Assumptions
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Key Terms
 Cost of Goods Sold (CoGS): Total cost of good sold
by a company. Includes production and labor costs.
Does not include sales and administrative expenses
(indirect expenses)
 Selling, General, & Administrative (SG&A): sum
of all direct and indirect selling expenses and all general
and administrative expenses of a company
 Cost of Customer Acquisition (CoCA): indicates all
the sales and marketing costs required to get a new
customer
Assumptions
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Pricing – e.g. $0.99 per app download
Development cost
Cost of Goods Sold (CoGS)
SG&A Expenses
CoCA
Customers in the 1st, 2nd,….nth month
Funding Needed
Expected Growth
Changes to Cost Metrics
 Lower the CoGS, the more the profit. Create
your product with limited resources
 CoCA will gradually go down: getting the first
customer is hard but it gets progressively easier.
 SG&A should be kept as low as possible.
Usually remains constant in a product lifetime
MicroImage - Time & Reporting
 Headcount: 5
 Starting Cash: 80,000
 Development Time: 6 Months
 Testing Time: 4 months
 Operating Cost: 25,000/month
 Unit Price: 80,000/license
 Sales Volume: 6 licenses for first customer
 Other Costs: Customer Service, Sales, Marketing
Sample Financial Plan/Budget
Revenue/Sale
s
SG&A
Expenses
Cash on hand
Uses of Cash
- Administrative
- Operating
Expenses
- Development
Cost
Cash balance per period
Sample Financial Projection
Growth, Return
on Investment
Startup, seed
funding
VC Term
 Return on Investment (ROI): Measure used
to evaluate the efficiency of an investment. To
calculate ROI, the benefit (return) of an investment
is divided by the cost of the investment; the result is
expressed as a percentage or a ratio.
ROI =
(Gain from Investment – Cost of
Investment)
Cost of Investment
Always mention the ROI when asking
for funding from an investor
Key Items to Note About Financial Statements
 Numbers must be correct!
 Validate your assumptions against a base-case
 Have a rational around your assumptions
 Be realistic about sales and your growth
 Consider all costs and expenditures (even food,
drink, family etc.)
Financial Statements are a key component.
Any mistake and you will be dismissed by
the investors!