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  • Writer's pictureMike Lingle at Rocket Pro Forma

Streamlined Financials for Entrepreneurs - With Q&A

I just wrapped up a webinar walking through finance basics for startups, pro forma financial projections, the three financial statements, cash vs. accrual (they work well together), we love COGS, and fun with business models.

Here's what we covered in the webinar, and I've included the Q&A below:

How can entrepreneurs present financial projections to investors and stakeholders after the model is conceived?

I've also released my Rocket Pro Forma financial model spreadsheet that automatically creates a killer pitch deck slide. I've included a bunch of other resources for startups on the site as well. My goal is for you to be able to draft your financial model in an afternoon Yes, really! (and you can also grab only my financial projections slide template)

I would either send your slide to investors in advance or give them a few minutes of silence to digest if you’re presenting live. People aren’t good at taking in a bunch of information while listening to you talk, so give them some space before continuing the conversation.

I also love ending pitch decks with a milestones slide that shows how much you’re raising, how long it will last you, what you’ve already accomplished without this investor’s money, and a few key milestones you’ll reach once you have the funding. I like to leave the milestones slide up during discussions with investors because it frames the conversation you want to have (rather than ending on a Thank You slide that basically just wastes space).

When is it the right time to raise capital? 

There's no right answer. In fact, some businesses succeed without ever raising money. The most common approaches I see are:

  1. Bootstrap to get the first customers with a minimum viable product, and then raise a bit of money ($250k to $1 million)

  2. Raise a smaller bit of money ($25k to $250k) and use that to get the first customers with a minimum viable product.

  3. Raise more money ($1+ million) to start the company. This is usually easiest for second-time entrepreneurs and rock star teams. 

Again, there’s no right answer. Please feel free to chart your own course.

Depending on the business, is the cash method better than the accrual method when it comes to accounting? (For example, businesses in the food industry or hotel industry) 

You'll end up using both the cash and accrual method together. Accountants use three main financial statements for every business:

  1. Income Statement (usually on the accrual basis)

  2. Cash Flow Statement (on the cash basis)

  3. Balance Sheet (on the accrual basis)

These three financial statements work together to give an accurate picture of your startup.

Here's a quick walkthrough of cash and accrual, and how you'll use them for accounts receivable, accounts payable, and deferred revenue (a superpower of subscription business models):

Does my pro forma need to capture historical financials up to the present day?

If your business has historical financials, I would only share them with people who are actually interested in investing (i.e.- I would save them for a second, third, or fourth conversation—rather than emailing your historical financials to strangers and bringing them to a first meeting).

I would also keep historical financials on a separate slide from your pro forma projections. First, this is just easier so you don't have to keep updating your pro forma. Second, I prefer to paint the picture of the future separately from the past.

How far in the future should my pro forma go?

I recommend projecting three years of financials. Why three years? The world is moving so quickly that it’s hard to plan even three years ahead. I used to do five-year projections, but switched a decade ago and haven’t looked back.

If you're working in hardware or medical devices, investors may ask for 5-year projections because it takes so long to get to market.

Which KPIs should we highlight?

I would highlight the one or two key metrics that drive your business. These typically include number of sales / transactions, number of subscribers, monthly active users, and monthly or annual recurring revenue.

What detail gives comfort to investors, and what overwhelms?

Please see my pitch deck financials slide template for a walkthrough of specific recommendations on how much detail to show to potential investors up front:

Once you find investors who are interested, they’ll ask for more information over time. Professional investors will run your startup through a due diligence process after they give you a legally binding term sheet and before they invest. They’ll want to review your financials in detail along with contracts, they’ll ask to speak to your customers and employees, and they’ll request conversations with personal references. It’s a good idea for you to speak with other founders they’ve invested in to make sure there’s a good fit.

I am interested in learning more regarding the investor's perspective on financial projections. Given the speculative nature of forecasts, what are investors looking for from entrepreneurs before deploying capital?

Honestly, most professional investors want to see that you can grow big enough to make them rich. They understand that actual results may vary, but they want to hear your thought process. Their main criteria for investing is usually their confidence in you, so it’s important that you make them feel comfortable about both your vision and your management skills.

I also recommend doing some work to reduce the speculation as much as possible. Can you quickly build a minimum viable product and sign up some customers? Can you run some tests on Facebook and Google Ads in order to better understand your customer acquisition costs? Etc.

Where can I find benchmark data for SaaS Companies, including how much they spend on COGS, sales and marketing, etc. Also How they finance their working capital and what interest rates they have.

Check out annual reports of publicly traded companies in your industry, which are available for free in the Investor Relations section of their websites. For SaaS you could check out Salesforce and Zoom.

You can look up industry-specific Gross Margin percentages (start here and here), and you can also check out the income statements of publicly traded companies in your industry.

How do you use forward-looking financials, monitor performance of key indicators, then refine the predictions to make them more accurate. i.e. we have found ourselves (especially on the revenue side) predicting some sales ramp, not achieving it, then re-predicting a new growth projection. I figure this is normal, but how do we "teach" the model so that we can have more confidence in the new projections than the old?

You’re not alone! The hard truth for many startups is that expenses are real—but revenue is imaginary. This is really a question about building a predictable sales pipeline. I suspect that you need to do some more work around customer validation, marketing, and pricing. I recommend spending a lot more time listening to potential customers and truly learning to understand their needs.

I also suggest reading Predictable Revenue and checking out this free World Domination eBook from Sales Hacker.

From the investor side; what are some good questions to ask founders/CFOs to understand if they have good financial model practices (as above) and gain confidence in their model and process.

First, I think you want to see that the founders have thought through the finances for themselves. They should be able to explain their assumptions to you. They should be able to adjust their model as the business evolves. I don’t think you necessarily get there in your first conversation, so keep diving deeper every time you speak with the entrepreneurs you’re interested in working with. 

How do you think startups should adjust their projections during the pandemic?

I would reduce spending now in order to conserve cash, at least until there’s a clearer timeline of what comes next. 

I think this may go on for a while. Even once we’re out of our homes, it may be a long time before everyone’s comfortable taking their family to a restaurant, a movie, an airport, an amusement park, or even the grocery store. 

Some industries have benefited from so many people being home and online, so adjust your approach accordingly.

Do you have any templates you might suggest?

Please grab my Rocket Pro Forma financial projections spreadsheet plus other resources at

Mike Lingle is obsessed with helping founders grow their businesses. I'm a serial entrepreneur, mentor, and executive in residence at Babson College. Check out Rocket Pro Forma if you want to quickly create your startup financial projections.

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