A lot of startups fail. In fact, according to Failory, a newsletter that interviews Failed founders, about 90% of them do. That’s a lot of businesses that didn’t make it past the five-year mark. But why? A lot of times, it’s because they ran out of money. They didn’t have a solid financial model in place and they couldn’t sustain themselves long enough to make it to profitability.
If you’re running a lean startup, you can’t afford to have this happen to you. You need to have a firm handle on your finances from the get-go so that you can make smart decisions about where to allocate your resources. In this blog post, we’re going to give you a crash course in financial modeling for startups so that you can build a solid foundation for your business.
Financial modeling is the process of creating a model that projects the financial performance of a company over a certain period of time. This model includes things like revenue, expenses, and cash flow. It’s important to note that financial modeling is different from accounting. Accounting is historical—it looks at what has already happened. Financial modeling looks at what could happen in the future based on certain assumptions.
As we mentioned before, one of the main reasons startups fail is because they run out of money. This usually happens because they haven’t planned properly for their spending or they didn’t raise enough money from investors. A good financial model can help you avoid these pitfalls by giving you a clear picture of your burn rate (the rate at which you are spending money) and how much money you need to raise from investors.
It can also help you make smart decisions about how to spend your money so that you can achieve profitability as quickly as possible. For example, let’s say you have $100,000 in the bank and you need to decide whether to spend $50,000 on marketing or $50,000 on hiring new engineers. A good financial model will help you figure out which one is more likely to help you reach your goals so that you can make an informed decision.
The first step in building a financial model is coming up with assumptions about your business. This includes things like how much revenue you think you can generate, what your margins will be, and what your customer acquisition costs will be. Once you have these assumptions in place, you can start plugging numbers into your model.
There are lots of different ways to build a financial model, if you're looking for a 100% free option, I'd recommend you try to build something on Google Sheets. If spreadsheets aren't your thing or if you're looking for a tool that won't break the bank and will wow investors, checkout our platform Sturppy.
A good financial model is crucial for any startup—but especially for lean startups who can’t afford any missteps when it comes to their finances. Building a solid financial model will help ensure that your startup has the best chance possible at achieving profitability and avoiding common pitfalls like running out of money prematurely. And while it may seem daunting at first, creating a financial model for your startup doesn’t have to be complicated or time-consuming if you use Sturppy... So what are you waiting for? Get started on building your own lean startup financial model today!
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