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Get Started

The Get Started sheet covers the most important inputs and assumptions in the Standard Model.

The Standard Financial Model is built to handle a wide variety of businesses, and Get Started is the core input area for the model. Most people would label this sheet “Assumptions” or “Inputs”, and feel free to rename it, but I chose “Get Started” to intentionally frame it as the best place to get started in building the model, and the first place to look to change any big picture input.

How it works

This sheet contains only inputs, no calculations. Many of the inputs have a detailed fallback on the various sheets where they are used, so they can be changed on a per-month basis outside of the single input on Get Started.

Inputs

Most of the documentation for the input are covered in the sheets that use them, but this will provide an overall guide.

Model Settings

The initial inputs are structured for model level assumptions:

  • Company. Used for informational purposes only, on Summary and Disclaimer.
  • Currency. The model works for any currency, as there are no currency-specific calculations in the model. This field is used throughout the model for information purposes to denote the units used for each row.
  • Timescale. You can set the start date for the monthly periods in the model and the end date for the fiscal year. The model works for any fiscal year-end and will change the year summaries automatically. To repeat, you are not limited to assuming a December year end. You are also not limited to starting the model in January. The model by default runs for 72 months from the start date, and sums to quarters and years automatically. Five years are reported on most summaries and reports, the extra months provide space to create five full years and a partial year if needed for the first year. The core calcs for the timescale are on Hooks. 1
  • Beginning Cash Balance. Feeds into the balance sheet on Statements.

Conversion Funnel, Growth, Conversions, and Revenues

The next inputs on Get Started are built for the four basic building blocks in creating a growth and revenue forecast:

  • Growth, which represents the growth in the business from 1 or more acquisition channels
  • Conversions, which uses conversion rates to model conversions
  • Retention (and churn), which models the retention of conversions over time
  • Revenues, which calculates bookings, billings, and revenues based on new and retained conversions over time

The inputs and flow for this is covered in detail at Revenue Model.

Seasonality

The next section is for Seasonality. By default this is only prebuilt into the Growth Section, but it is used to create a Forecasting Method that can be used elsewhere in the model.

  • You can input + and - % impacts on a recurring monthly basis that is separate from the growth rates above. The two layer on each other, creating cyclical, seasonal effect on acquisitions and growth rates. Input a positive number for an extra increase during that month and a negative number for an extra decline. The % is the % change from the baseline, so the absolute effect of seasonality is always based on the baseline number in that time period.
  • The %s are used for this calendar month in every year throughout the forecast period in the model.
  • The % impact here have a one month effect; meaning, the baseline growth is not altered by a seasonal bump up or down.
  • You can see the impact of the seasonal effect on the Revenue Model sheet in the acquisitions section
  • Important. You likely want the estimated overall impact to be equal to be zero, the sum of the increase and decreases per month entered above. It’s not exact, because the bases of each month can be different - i.e. if the baseline is growing or changing - but it’s a good estimate of the overall impact of your seasonality inputs

Depreciation and Balance Sheet Assumptions

All of the below are optional, and most users do not change any of these unless needed for their specific business model.

  • Depreciation, straight line for N months. The model assumes straight-line depreciation for all capital expenditures, all depreciated by the # of months in this input. If you need different depreciation schedules for different assets, it’s not difficult to build that in. Calculated on Forecast.
  • Days Accounts Receivable, in days. The model allows you to assume the Days Accounts Receivable so that you can collect the cash later than recognizing the revenenues, if applicable for your business. Calculated on Forecast.
  • Corporate Income Taxes, as a % of net income before taxes. Used for calculating corporate taxes, only if any net loss carry-forwards are extinguished. Details at Taxes.
  • Prepaid Expense (% of all SG&A). If left as 0%, will assume each month is the same as the previous month, starting with the opening balance sheet. Calculated as a % of SG&A, not including salary costs. Calculated on Forecast.
  • Accounts Payable (% of all SG&A). If left as 0%, will assume each month is the same as the previous month, starting with the opening balance sheet. Calculated as a % of SG&A, not including salary costs. Calculated on Forecast.
  • Accrued Liabilities (% of all SG&A). If left as 0%, will assume each month is the same as the previous month, starting with the opening balance sheet. Calculated as a % of SG&A, not including salary costs. Calculated on Forecast.

Inventory

All of the below are optional, and most users do not change any of these unless needed for their specific business model.

  • Number Months Lead time purchase to available for sale (# months). If applicable, enter in positive numbers only. this takes the forecasted COGS and applies a lead time from when purchases are made to when they are added to inventory. This takes the forecasted purchases and creates a lag to when they are added to inventory, during which time they are accounted as work-in-progress.
  • Inventory Turnover Ratio (#). If applicable, automatically calculated using simple assumption of target Inventory Turnover Ratio. Input here is for targeted # of inventory turns per year.
  • Number Months held in inventory before sale (# months). If applicable, enter in positive integers (i.e. whole numbers, no decimels) only. this takes the forecasted COGS and creates a lag from when inventory is available to when it is actually sold. This is used in combiation with other inventory purchase calculations to figure out when to purchase inventory.
  • Number Months future COGS held in inventory (# months). If applicable, enter in the number of months of future cost of sales desired to hold in inventory. For this, can enter in decimals to reflect weeks; i.e. to hold 6 weeks forward inventory, input 1.5, and the model will use an assumption of 52/12 weeks per month to estimate out the partial month’s COGS
  • Safety Stock, Ending Inventory as % of current COGS. If applicable, a % of current month’s COGS can be kept in inventory, as “safety stock”. This can be used in addition to the inventory turnover ratio and lead time assumptions if desired.
  • Minimum Order Quantity (MOQ, in currency). If applicable, the dollar value of the minimum order quantity. For example, if the inventory calcs say you need to purchase $500 of inventory, and your minimum order from your supplier is $1500, the model will buy $1500 of inventory and then run it down until next time it needs inventory.

Inventory Payables

All optional. Default setup of the model assumes no payables calculated.

  • Percentage of Inventory Purchase paid at time or purchase. This lets you determine when the inventory purchases are paid, and set how much is paid at time of purchase. By default assumes 100%, so no payables calculated by default.
  • Percentage of Inventory Purchases paid at time of delivery (“available for sale”). Optional. This lets you determine when the inventory purchases are paid, and set how much is paid at time of receipt of the inventory (when it is determined “available for sale”). The model always calculates the % paid at purchase first and will override the assumption here if the sum of these two is > 1.
  • Remaining Inventory Purchases, paid 0 days post-purchase (# days). The model allows you to assume the Inventory Accounts Payable so that you can pay for inventory after purchase. The model calculates the payables based on the other two options above first, then assumes the remaining flows through this timing.
  • Calculate Inventory Disposals? (yes/no) Optional. If the Actuals are used in Hooks, this will calculate this if relevant, based on the relative changes in inventory, work in progress, and cost of sales. It’s optional to use this feature or not, depending on your business.

Long Term Debt Financing

Optional, and not used unless using long term bank debt or a similar structure.

  • Debt Financing, Loan Period (# months). If applicable, the default # of months that any debt (loans) will be repaid over. This can be altered on a per-loan basis on the Forecast sheet
  • Debt Financing, Annual Interest Rate (%). If applicable, the default annual interest rate for any debt financing. This can be altered on a per-loan basis on the Forecast sheet. This is converted to a monthly compounded interest rate (i.e. not annual rate / 12)
  • Debt Financing, Interest Only Period (months). If applicable, if your debt financing has a period where you are only required to pay interest, not principal

Working Capital Line

Optional, only used if using a bank revolver or similar structure.

  • Working Capital Line, based on current (dropdown) If applicable, the working capital facility can be set to be calculated based on current month COGS, SG&A, or COGS + SG&A. The working capital line takes precedence over equity and long-term debt financings, meaning if used it is used before those forecasted financing routes, and the working capital line does not get repaid by raising equity or debt.
  • Working Capital Line, multiple of (dropdown). The facility can be a multiple of the basis set above. i.e. can set it for 1x 1 month COGS, or 1.5x 1 month SG&A, etc. Zero means no working capital line. If you want to only borrow enough to cover current period costs, then type in a very small number (i.e. 0.01), and the line will carry a very small balance.
  • Working Capital Line, Minimum amount. “0” (zero) means no min. If applicable, the working capital line can be set to a minimum amount. This can be used to set a floor on how much would be paid back. This amount is set for all periods (i.e. not set on a scale based on operational performance).
  • Working Capital Line, Maximum amount. “0” (zero) means no max. If applicable, the working capital line can be set to a maximum amount. This amount is set for all periods (i.e. not set on a scale based on operational performance).
  • Working Capital Line, Monthly Interest Rate (%) . If set to a number > 0%, this interest rate will calculate the monthly interest paid on the working capital line.

Cap Table

Calculations from this are used on Forecast to create a simplified cap table. The inputs are:

  • Number of Shares, Issued and Outstanding, at Founding. # of Shares issued and outstanding at founding, before any investment rounds. (note: issued and outstanding is not the same as authorized, do not put authorized but unissued shares on the cap table). This is not that important if you do not know, it just sets the math for the share prices, but has no impact on ownership %s or valuations.
  • % of Shares owned by Founders (Common shareholders). Assumption for the the opening of the cap table on the model. You can enter in past round by using this to set opening ownership between founders (employees, common shareholders) and investors (typically preferred shareholders). If no rounds have been raised prior to the forecast, you likely want to assume 100%.
  • % of Company sold to Investors, per Funding Round. The model uses an assumption of the % of the company sold in each round to create the premoney valuations, based on the amount raised in each round. This can be edited on the Valuation sheet if you want to change it for different rounds, or if you want to set the premoney valuation directly. 20% assumed by default.
  • Option Pool created, every funding round. The model uses this to expand the option pool for every funding round. This simplified version assumes all option pools are created in the postmoney. It also assumes the same pool increase for each round, in practice this likely declines, and you can manually adjust directly on the Cap Table.

Fundraising

Detailed in Fundraising.

Valuation

Detailed in Valuation.

Common Modifications

No common edits to this sheet, other than deleting the assumptions related to the prebuild revenue model if that is deleted from Forecast and replaced with a custom model.