{"id":16849,"date":"2018-12-13T10:01:01","date_gmt":"2018-12-13T18:01:01","guid":{"rendered":"https:\/\/foundersnetwork.com\/?p=16849"},"modified":"2018-12-13T10:01:01","modified_gmt":"2018-12-13T18:01:01","slug":"a-founders-guide-to-startup-financial-modeling","status":"publish","type":"post","link":"https:\/\/foundersnetwork.com\/a-founders-guide-to-startup-financial-modeling\/","title":{"rendered":"A Founders Guide to Startup Financial Modeling"},"content":{"rendered":"

Jacob Loveless has been a member of\u00a0Founders Network<\/span><\/a>\u00a0since June 2018. He\u2019s also been a prominent FN member in our Los Angeles Chapter<\/a>. To receive peer mentorship from Jacob and over 600 fellow Tech Founders, please\u00a0request an invite<\/span><\/a>\u00a0and join our global network.<\/span><\/em><\/p>\n

Building a financial model is one of the first steps you take once you have decided what your company is going to do as a business. Quite simply \u2013 how will you survive if you don\u2019t know what your costs and revenues will be? If it seems absurd that you should be able to \u201cguess\u201d with any level of accuracy what a customer would\/should\/could pay for a product that hasn\u2019t even been born yet: take some comfort in what world-famous statistician George Box said in his 1976 paper in the <\/span>Journal of the American Statistical Association<\/span><\/i>:<\/span><\/p>\n

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\u201cAll models are wrong, but some are useful\u201d\u00a0<\/span>George Box<\/span><\/a><\/p>\n<\/blockquote>\n

And this is exactly the point. The value of early financial models is the <\/span>process<\/span><\/i> of building them, not the numbers themselves. It\u2019s this act of coming face to face with questions you have not \/ don\u2019t want to face on the financial viability of your company that matters. Financial models are the cold bucket of water you need \u00a0\u2013 and I can assure you that you will come out more energized and stronger for having done it. <\/span><\/p>\n

Prior to a life in startup land, I was a Partner at Cantor Fitzgerald, a leading Wall Street firm where I lived in models every day for 15 years. I have done things in excel that shouldn\u2019t be done. A 6GB spreadsheet? I\u2019ve been there. Multiple spreadsheets that spread calculations across machines? Check. An options model that required a full blow backend database in order to chew through the calculations? Been there and crashed said database. <\/span><\/p>\n

But the beauty of startup modeling is this:<\/span> the simpler they are the better they are.<\/b><\/p>\n

A Model for Models<\/span><\/h2>\n

In my experience, you will generate 3 classes of models over time, each one in increasing complexity. <\/span><\/p>\n