The free startup forecast template is built using google sheets and focuses on all of the aspects that leaders will need to create a venture capital ready forecast. For a successful venture capital pitch, there are several items in the forecast that need to be understood. Understanding your revenue assumptions, your costs of goods sold, your cash flow assumptions and if/when you are going to hit profitability are key basic financial measures you HAVE to understand to raise venture capital.
In the below, we provide detailed instructions on how to use the startup forecast template while also addressing the above key measures.
Inputs & Assumptions Tab – The Control Center
In all of our forecast templates, we’ve added an Inputs & Assumptions tab in which the whole forecast is controlled. That’s right you can update the entire forecast from one easy to use tab.
There are 4 main sections of the inputs and assumptions tab:
- Hiring Planning
- Year 2-5 Planning
The revenue forecast is the most important piece of your financial forecast as a startup. If you are pre-revenue then you need to have a very clear understanding of how you are going to get to your goals and its best to back those assumptions up by other examples, saying another competitor did x.
To forecast year 1 revenue just add in your estimate – the forecast automatically defaults to $1.5M. Then add in how much revenue per headcount per month. I.e. if I think each sales rep can bring in $6,000 each per month add that into cell C20. This creates your revenue forecast based on your hiring planning which will be reviewed in the next section.
You can review your revenue assumptions on the Financial Statements tab in row 6. If you need to adjust how your revenue ramps over the course of the first year you can do so on the inputs & assumptions tab in cells S32-AD32 which is defaulted to a linear ramp.
If you are a startup, it is likely that most of your costs are going to come from new hires. It’s important to understand how many people you will need to both bring in revenue and build out your product.
There are two parts to the hiring planning section, first is the headcount needed to sell your product which we denote as production headcount. This is automatically calculated based on your revenue assumptions. Go ahead and play around with the revenue assumptions and see how that changes your headcount assumptions.
The second part of hiring planning is what we call the “indirect headcount” so this is your IT, G&A, etc. We’ve simplified this section of headcount planning to just be a ratio of production. In the Inputs & Assumptions tab, in cells C26-C31 input the average monthly salaries and in cells E27-E31 input the ratios of how many G&A to production headcount you will have.
There are two pieces to expenses on the P&L. First and most important for raising venture capital is Cost of Goods Sold (COGS) which is, in essence, the variable cost of selling your product. Think about it as if you didn’t spend that money would your sales go away? This is an important measure for a VC as the margin between Revenue and COGS is the profitability measure VC’s use.
The second expense is your operating expenses or overhead. These are fixed expenses associated with growing a business including rent, accounting, legal, etc.
Cost of Goods Sold
In the inputs & assumptions tab, we’ve set up your COGS as your total sales headcount cost. Included in that cost is employee benefit cost as a % of the total $ spent. We normally see employee benefits in the US around 10%.
When starting a company the goal is to keep operating expenses low to be able to stay nimble and make sure you are able to hire the people needed to generate revenue. In cells C36-C39 you can input costs including rent, G&A per headcount and income tax.
The year one forecast should be coming together. Play with the assumptions and think about those assumptions as levers to either increase revenue or reduce costs.
Year 2 – 5 Forecast
The year 2-5 forecast is important for venture capitalists as they need to understand how you are going to scale your business. It’s also a quick view of your perception of your market size. Input year over year revenue growth and add the number of sr. managers to complete section.