Before pitching to potential investors or banks for loan applications, I suggest you tighten up your financial model. Beyond having a strong executive management team, product and market opportunity, you need to clearly display your startup’s path to profitability. One of the best ways to do this is through adopting a rigorous approach to your research and planning with a Startup Budget Template.
An operating budget is a detailed plan of how you’ll spend and earn money over the next year. A Startup Budget Template is an important tool for identifying what resources are needed, when they are needed and for what activity. As a result of identifying the expenditures, you will be able to determine how much revenue is needed to meet your goals, save money and be profitable. For recurring revenue businesses there are certain drivers that can be defined as variables including:
- Customer Acquisition Cost (CAC): The cost associated in convincing a customer to buy a product/service
- Marketing Budget: The estimated marketing spend for a given month
- Cost Of Goods Sold (COGS): The direct costs attributable to the production of the goods sold in a company
- Churn Rate: Expected cancellations every month
- Lifetime Value (LTV): Prediction of the net profit attributed to the entire future relationship with a customer
Venture capital investor, Bill McCullen, recently stated that you should “drive your business model with bottom-up — not top-down” approach. With a particular sub-segment of early adopters in mind, your budget should clearly reflect expected expenses to get your startup going, revenues, an outlined revenue strategy and timeline. A budget can best be visualized in an Excel Spreadsheet. Below is a link to a Startup Budget Template that will lead you through the process:
Hitting your budget may be the difference between success and failure. This Startup Budget Template is a basic model for Year 1 (12-month operating budget) covering expenses, income and budget summary. Most investors like to see a 3–5 year model, as this reveals the founders’ assumptions about their startup’s growth. This, of course, will vary depending on the type of startup you’re launching and the industry you’re playing in. It’s almost always going to be wrong so expect to iterate and manage the budget as a continuing process.