Financial Modeling for Startups & Small Businesses

Clarification for students about WHY we chose the lemonade stand example to start with.

Before we dive into the example, we want to just briefly explain why we chose to do a lemonade stand and what you'll be able to learn from it.

Every cup of lemonade you make costs you money to make. We'll break it down into it's separate components here before we look at the larger business. Part 1 of 2

Every cup of lemonade you make costs you money to make. We'll break it down into it's separate components here before we look at the larger business. Part 2 of 2

When we model, we don't just start modeling aimlessly.  We model to solve a question.  In this example, we'll look at how we could easily determine a proper selling price as well as our labor costs.

You did well and now your customers are asking you for a strawberry lemonade.  You think you could make even more money by adding that option so let's see how we could adjust our model to account for a premium add-on.

Whew! Bet you didn't think you could learn so much just from a lemonade stand business did you?  

Among the most important things to do BEFORE you start building your model is to first decide what question(s) you're trying to answer.  

A few more thoughts before we get into the best practices for building financial models.  Always create a road map for yourself. 

Always have a goal in mind of what you'd like your financial model to be able to do for you BEFORE you start building it.  Have an end in mind.

Why taking more steps in building out your model to make things clear is better than being clever with your financial models. 

As they say, "garbage in garbage out".  It's the same when it comes to building financial models.  To make sure you don't look silly in front of investors or business partners, make sure to do sanity checks on your models.

Building financial models is a lot like building with legos--you do it one piece at a time.  Trying to do too much too early or at the same time will not only make it much harder to build your financial model, but it'll introduce more errors.

Quiz to review the best practices we covered.

Enough with all the talk, let's get back to building financial models.  In this lecture, we'll do a sanity check for a co-working business called "YouWorks".

Alright, now that we have a good idea of what we want to build out, let's see how we can build out the revenue model for our YouWorks business.

But there are many ways to segment users or customers.  We revisit our YouWorks example and explore several possibilities for segmenting our users. 

For some business models that either has pricing that depends on their customer's usage or has costs associated to their customer's usage, it is important to be able to segment the customers based on their usage profiles.  We look at an example and a demonstration of how to do that here.

If you're having trouble conceptualizing how your revenue model would work in your financial model, one way that helps is to visualize a funnel that users of customers have to go through through in order go from initial contact all the way to sales.  

Some more thoughts on funnels. 

There's a common way and a better way to model growth.  We'll explore both in this lecture. 

As much as you fantasize about it, your business won't retain 100% of its customers.  It will lose some customers due to attrition (or churn in the SaaS world).  In this lecture, we look at various ways to model this out. 

Quiz to review the main take ways when it comes to modeling user growth

In this lecture, we'll explore the Affiliate Business Model and build out a model that you can use to build on top off if you're exploring a similar business model. 

In this lecture, we'll explore the Freemium Business Model and build out a model that you can use to build on top off if you're exploring a similar business model. 

We've looked at enough revenue examples, now let's dive into the other side.  Not being able to accurately access your startup costs and expenses is a lot more costly than if you're off on the revenue side.  Running out of cash is the number 1 way for a business to fail.  So let's dive in on how we can better understand startup costs and expenses. 

Regardless of what your business does, you probably need people to do things.  In this lecture, we'll go over an example and show you some techniques for modeling out both headcount and labor related expenses. 

Chances are you'll have other overhead expenses for your business like rent and other office related expenses.  Some might depend on your headcount and others might just have it's own schedule for growth.  We look at how to handle both in your financial model here.

In this lecture, we'll look at expenses that tend to vary depending on the number of customers or users you have and how you can factor that into your financial model. 

No matter how much you plan, there will always be some unexpected bumps along the way.  That is why you should always build in some contingency (or margin for error) in your financial models.  Let's see how we can easily do that.

Here we go over the model and explore the SaaS economics of a single salesperson.

Here we go from 1 salesperson to looking at an entire team of salespeople.  How do you model the sales that grows the growth of sales hires?