Troy Henikoff is the managing director of TechStars Chicago. I recently saw him do a great talk outlining the tools and strategies around building your financial models. Lucky for you, the Techstars team in NYC, where Troy spoke, videotaped the whole thing, but I thought I would pull out a few key points and add a bit of my perspective too.
As entrepreneurs, we all make PPT slides to tell our stories, which is basically required. These slides get the broad story across and should be used to get prospective investors engaged in the business. But, the smart investors will quickly want to understand how you plan to run the business, what choices you need to make when and what impact these choices will have on the core metrics of the business. These choices are best examined and communicated in a set of financial models and they are critical if you are to impress good investors and run a successful business. Time to study up!
Troy does a masterful job of showing you, through a presentation and example spreadsheets, how to build the models, what assumptions to make, how to challenge these assumptions inside your team and then with investors.
A few key tips;
Use Excel vs. Google Spreadsheets. Excel is more powerful, will allow you to take real snapshots and is “the language of a professional financial world.”
Use simple, clear “labels” on your spreadsheets. This makes is easier for everyone to understand what you are talking about as you move around different sheets.
Build the models yourself – you need to understand your business, how the model works, what are key assumptions, when you need more cash…you can get help in structure so it meets standards, but know your own model.
The most important number on the model — revenue. To create long-term sustainability, you must be growing revenue, preferably quickly.
Know how to take an investor through your model in a way that is concise, clear and methodical. This will instill confidence and build a solid foundation for working together.
The one thing you know about your model is that it’s wrong, you’re just not sure where, yet. Your job is to make it and then find the things that are incorrect as you keep running the business by comparing the model to actual, usually on a monthly basis.
Troy does such a good job on the slides and the presentation, I won’t try and cover all the points, but I highly encourage you to download the docs and watch the full video. It will be worth it.
Full video is here – https://techstars.wistia.com/medias/qqh2rt9v7w (multiple segments, so keep watching)
Copy of presentation and sample docs are here – https://www.dropbox.com/sh/wyvknlpf0i2myzw/AABH4wDZD1qeq2rtPzxaSKina?dl=0