Startup Excel Model
In an effort to fill the apparent void on the Internet related to complete financial models built with Excel, here is a model which includes examples for all of the frequent terms (cash flow, CAPEX, sources and uses, headcount, etc.) The model is complete and a good example of what to send to a venture capital or private equity firm or a hedge fund to raise any type of financing.
A few words about this model:
- It is a real model that I built for a client (prospective clients you can see my work)
- It is not a template for you to use (I suppose if you changed all the assumptions it's usable, but...), but the component parts are recommended for capital raising
- The model is for a "triple play" telcom business (cable, voice and data) so the cost of sales part of the model is over 100 assumptions and the CAPEX is fairly involved including physical constraints; this "complexity" is designed to show industry knowledge to financing sources
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The model includes the following tabs:
- Sources and Uses
- Assumptions (which also includes the Financial Summary--P&L and balance sheet information)
- Financial Statements (which includes the P&L, balance sheet, revenue detail, COS detail, CAPEX row 178, and debt schedule row 251)
- Cash Flow Statement
- OPEX (operating expense detail and the headcount plan)
- The model makes extensive use of named fields (after you open the model press F5); named fields make it easier to understand formulas because you use a name instead of a cell reference in the formula
- In addition to being a startup, the strategy called for a series of acquisitions (a rollup) which are modeled
- The model uses a customer acquisition cost driver for the organic growth of subscribers
A few things that would have changed the model design include:
- If I had a complex debt structure (combination of a line of credit, term loan and mezzanine debt) I would have used a separate tab for the "debt schedule" to make it easier to find
- If I had an operating company (instead of a startup) I would have included historical information for at least three years in the "financial summary" and probably have given it a separate tab; if you have a good operating history of revenue growth or a turnaround I would include five years of historical data
- If I had historical information on each acquisition, I would have forecasted/modeled each acquisition on a separate named tab (with a separate P&L and a balance sheet) and then consolidated them; such a presentation would have made it easier to understand the economics of each business unit and to evaluate the reasonableness of the purchase price
- If the headcount additions were based on time instead of capacity requirements (as shown in the model) I would have used date triggers to drive headcount additions
The auditing tool bar in Excel may aid in understanding. Click View>Toolbars>Formula Auditing
Please remember that the complexity of the model serves a purpose--to demonstrate knowledge of a complex industry. Most models can be successfully built with fewer assumptions about revenue and cost of sales.
For more information from Robert Hacker visit Sophisticated Finance.
Comments
Company: www.VDLconsulting.com
I can't say I looked in great detail, but this model does appear to be well constructed. I'm interested to hear opinions of its correctness from those working in the Venture arena.
Company: In Career Transition
I don't even need to look. Based on the description, I am sure the model is impeccable. It sounds like Robert is very thorough. But...the point of a business plan and a model is not just to predict cash flow. It is important that an entrepreneur think through their business and business model. Building a model is part of the business planning process. So...a medium quality constructed model done by the the startup team is usually more useful than a impeccably built model created by a consultant. Canned models and canned business plan programs are the worst. Using a canned model, a startup will have clean numbers and graphs and stuff -- but they won't necessarily have thought things through. I believe it was Eisenhower that said "Plans are nothing; planning is everything."
Company: www.VDLconsulting.com
It's a great point. The model should be born out of discussions with the start-up team where all the key moving parts of the business are identified and understood. Robert's model appears to be a good example of this: A model that is custom built for a client based on the particulars of their business.
Company: EarthClean, SinuGenix, & Fitness Formulary
Following on this theme, I've built several models for fundraising.
For an early-stage or start-up, if the model uses the assumptions to help the founders 'think' about the business (e.g. a realistic product roll-out, team required to support it, etc.) as well as generate a financial outlook - then I think you will have accomplished a great deal.
Sharing two tips that have been helpful.
First, for the initial review of the model, I don't share the financials - only the assumptions. So it's focused on the business, not on financials based upon inaccurate assumptions.
Second, once we get the assumptions done, we select those where we have the least comfort - as those should become the bulk of our project plan. Helps us avoid the natural tendency to detail out the items we know the best versus what needs to be understood better.
Company: GH Capital Partners
Building a financial model in Excel is not a critical skill for an early stage or start up company. Outsourcing the model building may improve the quality/ease of use/detail of the model for the capital provider. However, as Service Provider points out, the model needs to reflect the thinking of the company and not the third party model builder.
Company: www.VDLconsulting.com
I couldn't agree more... for a whole host of reasons!
Company: Advanced CFO Solutions
Thanks for sharing everyone. I agree with your comments regarding the start-up excel model. Canned models don't work well and it is more about the planning than it is the specific model. I've created hundreds and everyone has been wrong after 5 years but the things we (the start-up team) learned in the process of reviewing and challenging the assumptions have had a significant impact on strategic decisions and our ability to both anticipate and control cash flows. We have a great template for a monthly profit & loss, balance sheet and statement of cash flows but we always create the revenue and cost model from scratch or significantly customize an existing model from a company in the same industry. This is important because I've found no other way to properly understand, then vet the key assumptions and make sure that they both tie to the overall strategy and that we understand how changes thereto will affect cash flow in the future.
Company:
I've been working in the telcom space and built models for existing companies. This one, while a commendable effort, comes up short. I'm afraid a VC with domain knowledge might find likewise. The bigger picture is what the other commentators have stated - the act of planning, crafting the key assumptions, getting a real sense of the opportunity - and that picture is missed if a canned model is used.
Better to start from scratch.
Company: In-Between
I like Robert's model, however, I believe it lacks certain detail that is needed to produce the numbers.
This model is accurate and may very well have done the job at maybe a select group of start-ups. But it does lack detail, which, the investors may question numbers and if those backup detail numbers are not in the assumptions than you have a problem. You can't remember everything, but if you can drill down quickly for an answer in front of the investor, your chances are greatly improved.
I'd say it is good, but is a bit lacking on behind the scenes detail.
Company: GH Capital Partners
Two venture capitalists found the model very useful. Levels of detail are somewhat debatable.
Company: Undisclosed
Completely agree, Robert. Your model is your own and you need to "own" it for multiple reasons. First, you should understand the economics of your business better than anyone else. Better even than a rent-a-CFO you might hire to build it for you. That doesn't mean you don't hire 3rd party help, but you need to be involved all the way and own the assumptions and logic. They help you with the model mechanics, you own thinking behind the mechanics. Second, the very process of modeling will bring you to new thinking on your business. I'm not talking only about the results (e.g. geez, this product line is not very profitable), but also about the inputs. What pricing do you use, what's the avg purchase rate, what is your inventory turnover, how many clients re-purchase, etc.. Hard to understate the importance of that thinking/discovery process.
Company: Integrys Energy Group
Every set of financials needs to show income statement, balance sheet, and cash flow, and how all three tie out together. So if a spreadsheet is made that takes net income/loss on the income statement page and debits or credits it to shareholders equity on the balance sheet page, then it now becomes classified as "canned"? Isn't that just basic accounting 101? The owner of the company or potential entrepreneuer needs to enter the "Beginning Equity +/- Net Income = Ending Equity" formula themsleves in order to not be "canned"? Isn't there more important things for them to think about and do then enter "= Sheet1!D17 + Sheet2!E18