How the right financial forecast is crucial to unlocking startup investment
If you’re looking to secure startup investment, it’s inevitable that at some point you’ll face the boardroom. But when you watch shows like Dragon’s Den or The Apprentice, you’d be forgiven for thinking the pitch is everything.
Yes, being pitch ready is important – it’s where you get your chance to show your passion, explain your idea, and convince people to believe in you. But investors need more than showmanship.
Investors need to see your vision brought to life in numbers too. It’s what gives them reassurance, an understanding of the business’s true potential and enables them to make rational decisions about whether or not you’re a solid investment.
A financial forecast template for startups is more black and white than the vivid painting of colour in your pitch, and needs to be based on credible unit metrics that bring to life your vision for growth in tangible, detailed, numbers.
If you’re looking to secure startup investment then read on to find out everything you need to put your best financial-foot forward.
Why is a financial forecast so important?
Investors are backing your business with their hard-earned cash, so they won’t back you on a hunch. They want to see the financial detail that demonstrates your vision is, or can be, a reality. Importantly, a good financial forecast template tells the story of growth.
Done right, a good financial forecast template can:
- Allow investors to visualise growth in numbers
Sharing a financial forecast is essential to attracting potential investors. Being able to project where your company will be in six months, or a year, is important to attract investors or secure bank loans.
- Determine business viability
The numbers show investors whether the business is viable – or not!
- Confirm you are raising the right amount now, and what you will need in the future
By understanding when sales may be lower or cash flow will be reduced, you can determine when your startup will need more investment (be that another equity funding round or a loan).
- Reduce financial risk
Forecasting allows you to take a broad view of your business and understand where resources are being wasted, so they can be repurposed or limited.
- Measure and improve your business
By comparing your actual performance against your financial forecast, you can continually improve and more accurately predict your upcoming performance.
Ultimately a good financial forecast template shows investors how your startup will provide a Return On their Investment (ROI).
Investors are looking for exponential growth because that increases value in the business and delivers a return on the investors’ investment. The greater the perceived risk, the greater the return they will expect. A strong financial forecast template demonstrates the rate of growth, highlights the potential for exponential returns and – if done well – reduces the perceived risk for investors too.
What does a good financial forecast look like?
A good financial forecast needs to predict future profits, sales, growth and costs. The best financial forecast template are made up of three key statements:
- Balance sheet – which analyses your company’s assets and liabilities. It predicts what your startup will be worth at the end of the financial year.
- Cash-flow statement – which shows all the money flowing in and out of your business. It answers the questions “will you have the money to do what you need to do when you want to do it?”
- Income statement or profit and loss statement – this shows your startup’s ability to make profit. It is build by showing sales projections, the cost of those sales, other expenses and interest and taxes.
A financial forecast template encourages use of both internal (actual) data and/or historical data to demonstrate how the business makes the most of a market opportunity and grows over time.
Most investors expect startus to use a financial forecast template that shows how the business grows over 3 or 5 years. This will be outlined month by month, year by year.
How do you get your hands on a good financial forecast template?
Focused For Business provide a financial forecast template as part of Funding Accelerator and has proven to be instrumental in unlocking investment.
PEEQUAL used it to secure funding from the British Design Fund, and Interlinkd used the same template and discovered it opened up new ways of thinking about their business, reducing risk and opening new revenue opportunities.
Other founders have used the template to get instant offers of £50,000 from Capital Pilot’s Boost Fund. It’s clear a good financial forecast template is vital in unlocking investment.
If you’re looking to secure financial investment for your startup, a good place to start is by taking the Startup Investment Scorecard to discover if an investor would back your business.