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Financial Forecasts: Must-haves for Your Pitch Deck

These highlights are from the “Financial Forecasts” Startup Fundamentals webinar presented on April 24, 2024 by Chloe Hazan and Veronica Lin, Valuation Senior Managers at KPMG. The on-demand version is available on the WFN website here. The webinar provides helpful guidance for creating your financial forecast when you don’t have a history or revenues and costs have been inconsistent.

Information Investors Are Looking For

Most importantly, investors are trying to get to know you and your personality. Financials tell investors how confident are you in your business, your approach to operating a business, how well you know your market, and how passionate you are about your business. It's important to be optimistic but realistic in your forecasts and to be transparent and open to advice from prospective investors.

How to Create a Financial Forecast in Early Life Cycle

You don’t have to be a CPA or a financial expert - this is simple math. Align your operational business plan with your forecast. The first thing a company needs to survive is to be profitable.

  • Milestones:

    • Preparation: Capital requirement to get the company started

    • Lead Generation: Capital requirement to keep the company alive

    • Business Development: Capital requirement to keep the company afloat

  • Start small and short term, 18-24 months: Breakeven: Gross margin = Operating Expenses (bottom up approach)

  • Longer-term: Have a high-level view: Addressable market shares, normalized profitability (top down approach)

Simple, Clean, and Crisp

The more complex your projections get, the harder it is to articulate.

  • Base your projections on similar companies that have been successful

    • It’s important to assess the market share by starting with the industry or geography and narrowing down to specific target customers

    • Seek advice from mentors and peers, and online resources

    • Identify the key metrics that will drive your business

  • Define your business model - how you will make money

  • Growth potential is key - lay it out as if you had the resources you need

    • Growth costs money - account for rising fixed and variable costs

    • Know your market and the opportunity

  • For complex projections and financials, use an appendix

  • Clean and Crisp:

    • Minimal text with a large font, one page executive summary

    • Large graphics with clean purpose

The Snapshot

A snapshot of every business’s growth can be painted with the hockey stick chart. However, the real key is the underlying assumptions.

  • User base and experienced growth

  • Revenue run rate

  • Margins

  • Retention

Key Metrics

Understanding the key metrics of your business is crucial for effective forecasting, as they provide insight into the current performance and help predict future trends. ​Key metrics to consider include: ​

  • Revenue per employee is a measure of productivity and efficiency for your business and can be compared to competitors or industry averages. ​

  • Churn rate is the rate at which you lose customers and can indicate future revenue decline if not managed properly. ​

  • Customer acquisition costs show how much it costs to acquire a new customer and can indicate future profitability. ​

  • Lifetime value of a customer reflects the total revenue expected from a customer over their lifetime and helps determine if customer acquisition costs are reasonable. ​

Other Factors to Consider

  • Cash Flow - How quickly are you burning cash? It should be evident from your income statement.

  • CapEx - Have you purchased any large equipment or hardware?

  • Multiple Revenue Streams

    • Do you sell software and hardware?

    • Do you have initial startup fees and then a subscription service?

  • Breakeven point - How many units do you need to sell/how many new subscribers to do you need to break even?

Some Dont’s

  • Don’t tell them it’s a conservative estimate; this is not a budget to be monitored.

  • You can be optimistic and sell your dream in your pitch deck.

  • Don’t tell them you only need 1 - 5% of the market.

  • Don’t show projections out further than 2-3 years, unless requested.

  • Don’t lie - if you don’t know something, say so.

  • Don’t be afraid to take advice from prospective investors.

Disclaimer: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should action such information without appropriate professional advice after a thorough examination of the particular situation. © 2024 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization.

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