2. About Early Growth Financial Services
• Outsourced financial services firm
providing finance, accounting, valuation,
and tax services for early-stage
companies
• Extensive experience working with
companies at all stages of development
• 180+ successfully funded clients
throughout CA, NYC, Boston, and Seattle
• Services include: transactional
accounting, strategic financial guidance,
taxes, CFO services, 409a valuation,
corporate governance, and more.
www.earlygrowthfinancialservices.com
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3. David Ehrenberg
Founder and CEO – Early Growth Financial Services
• Founded Early Growth Financial Services
in 2008
• Startup mentor with a passion for helping
early-stage companies to build, establish,
and manage their infrastructure, processes,
and procedures
• Specialize in venture funding, debt
financing, strategic planning, corporate
strategy, business and financial plans, and creating
company infrastructure
• CPA, MBA from University of Washington, BS Accounting
and Finance from Georgetown University
www.earlygrowthfinancialservices.com
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4. Presentation Overview
The essentials of startup financial management
• What is a financial model?
• Process for creating a financial
model
• Goals, objectives, and milestones
• Bottom-up financial projections
• Spend
• Budgeting
• Top-down projections
• Cost assumptions
• Reforecasting
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5. Why a 3-Year Financial Model?
A comprehensive financial pictures serves as the road-map
for your business
• Helps you understand your cash burn
• Forces you to evaluate key
performance drivers
• Validates your assumptions
• Puts challenges into perspective
• Iterative process continuously
improves your assumptions
• Insight into your business model
• Clarifies decision-making process
(short-term and long-term)
• Gives you leverage of accurate
baseline valuation
www.earlygrowthfinancialservices.com
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6. What Goes Into a 3-Year Financial Model?
Essential components to your model
Major
objectives
Timeline
Milestones
Key
assumptions
Key variables
Trending
analysis
www.earlygrowthfinancialservices.com
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7. Identify Major Objectives for Your
Company
Assess where you are and what you want to achieve
Venture funding and
negative cash burn
Positive cash burn and
no venture funding
What do you want to accomplish
with next raise?
What are the goals you want to achieve
during this time period?
www.earlygrowthfinancialservices.com
8. Process for Creating Your Financial Model
How to approach the process and get buy-in
1. Go to stakeholders and members of
executive team – what do they need to
achieve objectives (revenue, product,
market, strategic, etc.)?
2. What is needed from a
programmatic perspective?
3. Compile information and discuss
with CEO (maybe executive team):
total amount requested relative to
milestone
4. Dialogue about wants and tradeoffs
5. Use dialogue to create bottom-up
forecasting budget
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10. Spend for Bottom-Up Projections
Consider relevant operational costs and check cost
assumptions
•
•
•
•
•
•
•
Customer/Cost details
Human resource costs
Consultant and professional services
Research and development
Office and admin
Sales and marketing
Capital spending
www.earlygrowthfinancialservices.com
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11. Budgeting
Use your budget to plan your actions
• Budgeting created on accrual basis: budgeting
versus actual results
• Difference between cash and accrual is
around capital expenditures
• Report budget by department and major cost
drivers (expense categories and revenue
categories)
• Plan actions: how quickly will this impact
revenue and what will you be able to achieve
based on spending
• Identify key variables
• Identify key revenue assumptions
• Run different scenarios
www.earlygrowthfinancialservices.com
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12. Budgeting Exercise
Start from a milestone perspective
• Look at historical costs
• What do you need to
accomplish before you run out
of money, or in a specific time
period
• Ask budget owners what they
need to accomplish goals
• Tradeoffs
• Trending analysis
• Trending initiative
www.earlygrowthfinancialservices.com
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14. Reforecasting
Your financial plan is always evolving
• Don’t do a 5-year plan, at
most 3-year
• Update your budget on a
quarterly basis (at least)
• For investors budget on a
quarterly basis for first year
and then annually
• What’s realistic in terms of
timeline and reforecasting
on monthly or quarterly
basis?
www.earlygrowthfinancialservices.com
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15. Final Thoughts
“The point of financial projections is to
tell a story with numbers—a story about
opportunity, resource requirements,
market forces, growth, milestone
achievements, and profits.
Your job is to create a numerical
framework that complements and
reinforces the vision you’ve painted with
words.” – Guy Kawasaki
www.earlygrowthfinancialservices.com
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16. Thank You!
Early Growth Financial Services
David Ehrenberg
dehrenberg@earlygrowthfinancialservices.com
www.earlygrowthfinancialservices.com
415.234.3437
Follow us @EarlyGrowthFS
www.earlygrowthfinancialservices.com
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