Financial Models are one of the things that entrepreneurs need to build for their businesses. This presentation gives a clear idea about how to put a financial model together.
4. Some Basics First
Gross Merchandise
Value
(All goods sold)
Commission
(Portion of it
coming as
income)
Service Income Service Income
Other Income Other Income
Turnover Revenue
5. BS and P&L
Assets Liabilities
Tangibles
Payables (Rent,
Wage, etc.)
Cash Debt
Payments
Recievable
Accounts
Payable
Profit and Loss
Statement
Income
Expenditure
Profit/Loss
6. – My Experience
“Banks worry about Balance Sheet, Investors
worry about Profit & Loss Statement”
7. Expenses (It is easier!)
• You know what you are going
to spend (At least better than
what you are going to get)
• The first month is the easiest to
project
• After that reality will spoil the
party
• Many expenses can be
foreseen
• Ideally break each thing down
to separate sheets
Expenses
Rental Expenses
Salary Expenses
Electricity, Water,
Transport,
Communication,
Admin,
Marketing, Sales,
etc.
Logistics/
Servers/
Hardware Buying
9. Investment
• Initial investment may need to
be made or may have already
been made
• Capital Expenses are all the
things that you may have
bought or need to buy.
Computers, vehicles, etc.
• Working Capital is what we
put under expenses.
Expenses that the company
cannot generate as revenue.
Investment
Capital
Expenses
Working Capital
Advances
12. Income
• Based on the Revenue Model
project the various income
streams
Advertising
Income
Sales Income
Exclusive Tie-
Ups
13. Projecting Sales is Hard (even
for established companies!)
Month 1 Month 2 Month 3
Sales Income
Growth Rate
Advertising
Income
Growth Rate
14. Projecting Income
• You need some data to accumulate before you can
project
• As the founder you know your sales best
• When you say 1000 users in a month, its 33 per
day. Can you personally sell it to as many?
• The Market is hard to predict! Once you get a
grasp of demand, projecting is easier, but still not
accurate
15. Financial Model
Income Stream Year 1 Year 2 Year 3 Year 4 Year 5
Revenue 1,81,40,936 7,71,17,523 21,12,02,880 78,28,42,475 1,66,25,08,512
Transaction Income 18,14,094 77,11,752 2,11,20,288 7,82,84,247 16,62,50,851
Other Income 0 0 0 0 0
Total Income 18,14,094 77,11,752 2,11,20,288 7,82,84,247 16,62,50,851
Expenses
Rental Expenses 72,000 1,20,000 6,00,000 9,00,000 12,00,000
Server Expenses 72,000 1,44,000 2,88,000 5,76,000 11,52,000
Salary Expenses 12,25,000 42,00,000 1,20,15,000 2,23,56,000 3,09,67,200
Marketing Expenses 1,20,000 2,40,000 7,20,000 21,60,000 43,20,000
Elec & Water Expenses 24,000 24,000 96,000 1,44,000 2,16,000
Communication Expenses 60,000 1,20,000 3,60,000 7,20,000 14,40,000
Travel Expenses 1,20,000 2,40,000 7,20,000 14,40,000 57,60,000
Compliance Expenses 48,000 48,000 72,000 1,08,000 1,62,000
Administrative Expenses 24,000 1,20,000 4,80,000 7,20,000 10,80,000
Miscillaneous Expenses 24,000 1,20,000 4,80,000 7,20,000 10,80,000
Gateway Expenses 6,34,933 15,42,350 42,24,058 1,56,56,849 3,32,50,170
Total Expenses 24,23,933 69,18,350 2,00,55,058 4,55,00,849 8,06,27,370
Profit/Loss 6,09,839 7,93,402 10,65,230 3,27,83,398 8,56,23,481
16. Valuation
• If I am investing 1 Crore in your company, how
much equity should I take?
• How much do I want the 1 Crore to become?
• Every investor has a minimum return that he/she is
seeking from an investment
• Let us say 10 Crores…
17. Valuation
• Let us say that you are doing a revenue run rate of
‘X’ today
• In the next 5 years what do I as an investor feel is
achievable?
• Based on the ‘Revenue’, ‘Revenue Growth’ and
perhaps ‘Profits’ that I feel is possible in the next 5
years, I have an achievable valuation in mind
• Let us say that is 100 Crores
18. Valuation
• For my 10 Crore exit I would need to have 10% of
the company at that time of exit
• I also need to consider the further rounds of
funding and dilution which may occur
• I may ask anything between 10% and 15% based
on the above factor
19. Reach me at:
Twitter: @viveksrn
LinkedIn: in.linkedin.com/in/viveksrn
www.vsprudenceadvisors.com
www.viveksrinivasan.com