startup-tips

Get started

Books For Startups

Introduction

Starting a business is a challenging task for entrepreneurs/founders. An entrepreneur who is preparing to launch a startup may be in search of books. In addition, reading books helps to do things right by looking into the experience of innovative and successful entrepreneurs. Given below are the top 11 must-read books relating to startups for any new founder:

1. Zero to One

Zero to One” is the best startup book written by Peter Thiel (co-founder of Paypal). The word meaning of “Zero to One” means starting ground zero and building a new foundation. He explains that one should think out of the box and create a new brand to be the leader in the market. This book is full of unique and challenging ideas that are hard to ignore for a founder who seeks to survive in the market for a prolonged period and can dare their predetermined belief about what startups or small businesses resemble. One of the best lessons learned from this book is how big companies can set up through irregular insights and conflicting beliefs. No doubt, this book is worth reading.

Image shows startup book written by Peter Thiel

2. The Hard Things About Hard Things

This book by Ben Horowitz (entrepreneur of Silicon Valley) is about Ben’s journey to success. “The hard things about hard things” is an easily readable book that offers sincere advice in case of difficult decisions while operating in a startup like funding, running, and managing with a first-hand approach. Read this book if you plan to start a new venture, no matter what your business is. Along with starting a business, it also covers topics relating to buying, selling, and investing in the business. This book is more suitable for SaaS founders.

The hard things about hard things written by Ben Horowitz

3. The Lean Startup

The lean startup” by Eric Ries is one of the bestseller books in the market. According to Ries’ view, every founder should treat a startup as an experiment. He discusses his business failure in the lean startup and how he spent too much time on the initial product launch. This book teaches you how to operate a new startup with minimal resources and effectively optimize capital and human creativity. His “build-measure-learn feedback loop” hypothesis is presented in this book. It focuses on how businesses should stay away from developing comprehensive strategies and use the idea to eliminate market uncertainty. Further, it explains the lean startup approach in detail and persuades why you should use them. Startup entrepreneurs highly recommend this book.

The lean startup written by Eric Ries

4. Who

The book named” Who” was written by Geoff Smart and Randy Street. Hiring is a complex procedure. In many cases, the biggest mistake made in a startup is hiring.” Who” covers simple steps to improve the hiring process. The author suggests A method for optimal hiring. The A method conveys two basic steps- Create a scorecard (it describes what you want a candidate to accomplish, like desired outcomes, and competencies in a particular role) and Test if the candidates fit the scorecard. It teaches you how to interview and evaluate employees, how to avoid single hiring mistakes and ensure you’re hiring the right person in the right roles.

Image of book called Who written by Geoff Smart and Randy Street.

5. Founders at Work

Founders at Work” by Jessica Livingston (founding partner at Y combinator) conveys engaging interviews with founders of most popular startups such as Steve Wozniak (Apple), Caterina Fake(Flickr), Mitch Kapor (Lotus), Max Levchin (PayPal), Sabeer Bhatia (Hotmail). This book shows how these popular technology companies started, how determined and creative they are, how they reacted to situations, and what they did to nurture them. You should read this book if you become an entrepreneur to get an idea about the possibilities and challenges in startups.

Founders at Work startup book

6. Will It Fly

The book named “Will it fly” was written by Pat Flynn. If you are looking for an excellent book for a startup, here it is. Perhaps the most challenging thing about beginning a business is that your idea could drop. “Will it fly” explains your business idea to set yourself up for success and suggest a few tips for running a business in the right direction. The author provides case studies and action-based examples that ensure you get a good idea before you waste your time, money, and effort. You can also discover how to verify and test your theory to see if it can work, how to create a business that fits your skills and goals, how to think when you assess the current market, and so on.

Image of Book called Will it fly

7. The Art of the Start

Guy Kawasaki wrote this book. He talks about essential topics for startup founders like finding a business idea, pitching potential investors, and preparing business models. This book The Art of the Start also covers topics like the art of launching, positioning, socializing, and advertising your startup. Further, it also gives helpful advice for those who intend to launch a new product/service. So whether you’re an entrepreneur or want to add more entrepreneurship within any firm, this book will surely help you get on the right path.

The art of start book

8. E-myth Revisited

The E-myth Revisited” is one of the best books for startups, written by Michael E Gerber, focusing on the myths entrepreneurs have about building a business. He believes that running a business and having technical skills are two different things. Therefore spending no time on the business and spending too much time on business is why most startups fail within starting years. The author explains his growing startup from an entrepreneurial perspective in this book. He also provides powerful insights for running a business confidently and efficiently. He suggests that business people should play the role of three people equally-. They are Entrepreneur, Manager, and Technician. And focus on time to make systems dependent (Your business is the system, not the product you’re selling to consumers). In short, this book is a very entertaining and valuable guide for readers.

The E Myth Revisited startup book

9. Crossing the Chasm

Crossing the Chasm” is a marketing book by  Geoffrey A Moore (Software startup founder).  The book covers the marketing of high-tech products during the early start-up stage. He also explains a gap or chasm between innovators and the mainstream market, so the author dedicates various steps that a high-tech company requires to negotiate through this chasm. According to Moore, marketers should consider only one group of consumers at a time. Besides, he offers outstanding strategies and advice for taking your business from early adopters to mainstream consumers. The success of this book led to a series of follow-up books and consulting companies.

Image of book called Crossing the Chasm

10. Built to Sell

Built to Sell” is a fun read book by John Warrillow, sharing his personal experience about selling his business. The business lesson that Warrillow teaches is translated into a simple story that makes for quick reading. He shows precisely what it takes to create a strong business that can flourish long into the future. He also talks about essential tips for creating value for the business and practical insights for selling a successful business product in the market.

Image shows Built to sell book

11. Rework

The book Rework is written by Jason Fried. concept of Rework, like other business books, teaches entrepreneurs the art of productivity rather than corporate strategy and management. The book’s central theme is employing competition, productivity, advancement, and personal evolution to expand one’s business. It dispels business fallacies, offers entrepreneurs a fundamental viewpoint, and it aids in seeing that challenges are frequently used as justifications. Even if many of the book’s other business-related observations and recommendations are unconventional, they have a significant influence.

Image of startup book called Rework written by Jason Fried

Final Thought

Knowledge is power, and the best place to gather knowledge is through books. Reading startup books helps to increase our imagination and push the business forward. Starting a business may be a terrifying, time-consuming endeavor. However, it might be helpful to occasionally get outside your brain. Also, remember that many successful individuals have been in your current position. One of the books on this list could contain advice for you no matter what problem you’re having running your company.

The most crucial thing to learn from startup business books is to let go of your preconceived notions and be receptive to new information. Make an effort to connect your company with the book’s setting. But if you are too lazy in reading books, you can get more startup guides from our experts. So, without wasting much time, book a slot with us. Scaalex is a team of top domain experts and financial consultants. We worked closely with 270+ startups to build financial projections, valuation reports, business plans, and funding advisories. If you are among the startups lacking adequate financial insights, reach out to us to attain exceptional execution and fundraising results!

startup-funding

Get started

Understanding Startup Cashflow

Introduction

Image showing business growth, cash flow, revenue.

Cash flow is the lifeline of any business, especially for startups that are still testing the waters. With the lack of cash flow management, established businesses as well as startups can face severe financial difficulties. This could lead to dwindled revenue as well as a complete shutdown of their business. 

In this blog post, let’s break down the important cash flow elements for a thorough understanding.

What is Cash Flow?

Cash flow refers to the cash amount that flows in and out of an organization during a particular duration. Cash inflows include cash received from customers, interest earned, and any other sources of cash whereas Cash outflows refer to payments made to suppliers, salaries and wages, rent, taxes, and other expenses.

How Does it Work?

Cash flow works by tracking all the capital that flows in and out of a business over a specific period. This period can depend on a monthly or annual basis. 

For firms to maintain a positive cash flow, they need to ensure that their cash inflows are greater than their cash outflows. The business will experience a negative cash flow if the cash inflows are less than the cash outflows. This could lead the business to severe financial difficulties. 

Being an essential finance and accounting component, cash flow measures the net amount of cash and cash equivalents flowing into and out of a business. Positive cash indicates a growth in the company’s liquid assets. This allows the firm to settle debts and invest in growth opportunities. 

Below are the key details of how cash flow works and its relevance to a startup:

  • Cash flow can be calculated using either the direct or indirect method.
  • The direct method calculates cash flow by tracking the actual inflows and outflows of cash, while the indirect method starts with net income and makes adjustments for non-cash transactions and changes in working capital.
  • The cash flow statement provides a detailed picture of what happened to a business’s cash during a specified period, known as the accounting period. 
  • The statement demonstrates an organization’s ability to operate in the short and long term, based on how much cash is flowing into and out of the business. 

How To Analyze It?

To analyze cash flow, businesses must create a cash flow statement that outlines the inflows and outflows of cash over a specific period. 

The cash flow statement helps businesses to identify their cash position and enables them to make informed decisions regarding their finances. Businesses can use various tools and software to analyze their cash flow and make data-driven decisions.

How to calculate cash flow?

1.) Calculate your revenue: Calculate your revenue by multiplying the number of services you provided by the price per service.

2.) Subtract direct costs: Subtract any direct costs associated with providing your services. This may include things like materials, equipment, or any other costs that are directly related to providing the service.

3.) Subtract overhead costs: Subtract your overhead costs, which are the costs that are not directly related to the provision of your services. This may include things like rent, utilities, and administrative expenses.

4.) Add back non-cash expenses: Add back any non-cash expenses, such as depreciation, that were subtracted in step 3.

5.) Subtract your taxes: Subtract your taxes from the result of the previous step.

Type of Cash Flow

Here are the three types of cash flows:

Operating Cash Flow (OCF)

Operating cash flow is the amount of cash generated by the core operations of the business. It includes revenue generated from the sale of goods and services, minus all operating expenses incurred during the same period. 

Some examples of operating expenses include salaries and wages, rent, utility bills, inventory costs, and marketing expenses. This cash flow measure provides insight into the financial performance of a business’s core operations.

Investing Cash Flow (ICF)

Investing cash flow is the cash inflow and outflow related to the purchase and sale of long-term assets, such as property, plant, and equipment.

This measure includes the money spent on capital expenditures and the proceeds from selling long-term assets. For example, if a business purchases a new piece of machinery, this will be considered an outflow of cash. On the other hand, if a business sells a property, it will be considered an inflow of cash.

Financing Cash Flow (FCF)

Financing cash flow measures the inflow and outflow of cash related to the financing of the business. This includes money received or paid for issuing and retiring debt, issuing and buying back shares, and paying dividends. 

Financing cash flow is important to track as it shows how a business is being funded and whether it’s relying on debt, equity, or dividends.

It’s important to note that while tracking each type of cash flow is crucial, it’s also important to understand the overall cash flow position of the business. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in the business, pay dividends to shareholders, or return capital to investors. Conversely, negative cash flow indicates that a company is spending more money than it’s generating, which can lead to financial difficulties and possible insolvency.

Managing a Startup Cash Flow

Managing startup cash flow is crucial for the success of any business. Startups can manage their cash flow by creating a cash flow budget, negotiating payment terms with suppliers, collecting receivables on time, and reducing unnecessary expenses. Startups need to stay on top of their cash flow to ensure that they have enough cash to cover their expenses and invest in growth opportunities and expand their business.

For startups, managing cash flow is critical as they often have finite financial resources. Startups must focus on creating a positive cash flow by increasing their cash inflows and reducing their cash outflows. They can do this by increasing their sales, reducing expenses, and managing their cash effectively. 

Here are some tips for managing startup cash flow:


1.) Create a Cash Flow Forecast

A cash flow forecast is a prediction of your company’s future cash inflows and outflows. Use this forecast to plan your spending and make sure you have enough cash on hand to cover your expenses.

2.) Prioritize Your Expenses

Determine which expenses are essential and which can be delayed or reduced. Focus on the critical expenses that keep your business running, such as rent, salaries, and supplies.

3.) Delay Payments When Possible

Negotiate payment terms with your suppliers to extend payment deadlines. This can give you extra time to collect revenue from your customers.

4.) Collect Payments Quickly

Send invoices promptly and follow up on late payments. Consider offering discounts for early payment or charging late fees for overdue accounts.

5.) Manage Inventory Carefully

Keep a close eye on inventory levels to avoid overstocking or stockouts. Overstocking ties up cash, while stockouts can result in lost sales and missed opportunities.

6.) Explore Financing Options

Look into financing options like lines of credit, small business loans, or crowdfunding to help cover expenses during times of low cash flow.

7.) Focus on Revenue

Acquiring more customers to pay for the products/service is the best way to ensure they don’t run out of cash. And yet, many startups seek to attract new customers with free trials. That won’t generate revenue. A better approach is to charge customers a small fee to take part in a test and offer them a discount if they end up purchasing at the end of a trial period. They will be willing to pay if you have a good product.

8.) Monitor Regularly

Keep track of your cash flow on a regular basis and adjust your spending as necessary. Use accounting software or a spreadsheet to help you stay organized and on top of your finances.

Importance of Cash Flow for Startups

Cash flow is essential for startups as it helps them manage their finances effectively. Startups need to ensure that they have enough cash to cover their expenses and invest in growth opportunities. A positive cash flow can help startups secure funding and attract investors, while a negative cash flow can lead to financial difficulties and ultimately failure. 

Here are some key points to explain why cash flow is essential for any business:

1. Helps Businesses Remain Solvent

Cash flow is a fundamental aspect of a business’s solvency. It is essential to ensure that a company has enough cash on hand to meet its financial obligations. Without sufficient cash flow, a business may not be able to pay its suppliers, employees, or lenders, leading to default, bankruptcy, and even closure.

2. Enables Better Decision-making

Cash flow statements provide a detailed breakdown of a company’s inflows and outflows of cash. By analyzing this data, business owners and managers can make more informed decisions about how to allocate resources and manage their finances effectively. A thorough understanding of a company’s cash flow can help business owners identify areas where they can reduce costs, increase revenue, or improve profitability.

3. Helps Secure Financing

Investors and lenders often look at a company’s cash flow statement when deciding whether to invest or lend money to the business. Positive cash flow indicates that a company is generating enough cash to cover its expenses, pay its debts, and potentially invest in growth opportunities. Investors and lenders are more likely to finance companies that have strong cash flow, as it demonstrates a company’s ability to manage its finances effectively.

4. Facilitates Planning

Cash flow projections are crucial for business planning. By forecasting future cash needs, businesses can prepare for potential shortfalls or opportunities to invest in growth. It can also help businesses manage seasonal fluctuations in revenue, anticipate changes in demand, and plan for unforeseen expenses.

5. Helps Manage Risk

Cash flow management is an essential risk management tool for businesses. By closely monitoring cash flow, businesses can identify potential financial risks and take corrective action to mitigate those risks before problems escalate. For example, if a business sees that its cash reserves are getting low, it may decide to delay purchasing new equipment until it has generated sufficient cash flow to cover the expense.

In a Nutshell

Managing cash flow is critical for the success of startups. Startups need to create a positive cash flow by managing their finances effectively, reducing expenses, and increasing their cash inflows. By analyzing their cash flow regularly, startups can make informed decisions and avoid financial difficulties. With the right strategies in place, startups as well as established businesses can achieve financial stability and grow their businesses in the long run.

Learn about other key startup financial metrics: Cash Burn rate, Debt-to-Equity ratio

Optimize Your Startup’s Cash Flow: Expert Services for Financial Success

Unlock the potential of your startup’s cash flow with our specialized services. From financial modeling and business plan writing to due diligence and valuation reports, we’re here to ensure your cash flow strategy aligns with your growth ambitions. Explore our services now and pave the way to a thriving financial future. Book A 30-minute free consultation call with our experts!

FAQ

1.) What are the 3 types of Cash flow?
The 3 types of cash flows are Operating, Investing, and Financing cash flows.

2.) What is free cash flow?
Free cash flow is the cash a company generates from its operations, after accounting for capital expenditures needed to maintain and expand the business.
Free Cash Flow measures the amount of cash a company has left over after it has paid for its operating expenses and investments in property, plant, and equipment. This money can be used for various purposes, such as paying dividends to shareholders, repaying debt, or reinvesting in the business.

3.) How are cash flow different than revenues?
Revenue is the total amount of money a company earns from the sale of its products or services.
Cash flow, on the other hand, is the amount of cash that flows in and out of a company over a specific period of time. They are is calculated by subtracting cash outflows (such as payments for expenses and investments) from cash inflows (such as payments from customers and investments).

4.) What are the important points of making cash flow for start-up businesses?
The important points of making cash flow for start-up businesses include:

  • Wages and salaries
  • Payment to suppliers
  • Interests on loans and overdraft
  • Tax on profits
  • Repayment on loans

5.) What are the limitations of cash flow forecasting?
The limitations of cash flow forecasting include:

  • It cannot gauge future market conditions
  • Inflation
  • Sales demand shifts

Now that you have a better understanding of cash flow, it’s time to explore the other essential startup financial metrics.

startup-funding

Get started

Startup Seed Funding

Introduction

Seed funding is a crucial stage of a startup’s development, providing the necessary capital to bring an idea to life. Seed funding is the initial investment that a startup receives to get off the ground and cover costs associated with development, marketing, and operations. However, securing seed funding requires entrepreneurs to understand the different fundraising stages, create a compelling pitch, and identify the right investors to approach.

In this blog, we’ll guide you through each stage of seed funding and also discuss its importance, the types of investors you can approach, the factors that investors consider when evaluating startups, how to get seed funding for your startup, and so on. Let’s get started then.

What Is Seed Funding?

Seed funding also known as seed money/seed capital/seed investment refers to the initial capital that a startup receives from investors or venture capitalists to launch and develop their business idea. This type of funding typically occurs during the early stages of a company’s growth, when the business model is still in development and the product/service is not yet fully functional.

Seed funding is usually used to cover the costs of product development, marketing, and operations, and can range from a few hundred thousand dollars to a few million dollars, depending on the needs of the startup.

How To Get Seed Funding?

Obtaining funds to launch a product/service is critical for many startups. To cover this risk, they start approaching external sources. Seed funding, also known as seed money/seed capital/seed investment, is the first key round of funding early-stage startups. Generally, the process may take 3-6 months. It may vary according to startup stages, intended to finance the initial stage operations of startups such as product development, market research, and technology development, contributing to a strong foundation for successful startups. All you need is a practical idea with a strong business plan and management team to convince investors that you have a product prototype or proof of concept for your business. Once the startup establishes a user base and persistent revenue, they can proceed to fund rounds – Series A, B, C, and D. But the founder must have an exact picture of when and how to raise seed funding effectively.

Different Series Of Funding

Series A:

Series A round is used to optimize its user base and product offerings. The venture capitalist is the most common source of funding for series A. The expected capital raised is between $2-$15 million.

How Series A funding works?

During a Series A funding round, the startup’s founders and existing investors will seek out venture capital firms or other institutional investors to provide additional funding. The investors will evaluate the startup’s growth metrics, business plan, and management team before making a decision to invest.

Series B:

In this stage, startups are ready for their development stage. They have substantial knowledge about their product/market and decide to expand to support the company’s growth to the next level. It can acquire up to $7 million to $10 million for funding.

How Series B funding works?

The funding provided in a Series B round is typically larger than that of a Series A, and the valuation of the company is usually higher as well ( between $30 million and $60 million). This allows the company to continue scaling its operations, expanding into new markets, and investing in research and development. The funding may also be used to acquire other companies, hire key executives, or strengthen the company’s balance sheet. Both Series A and B have some similarities in terms of the funding process and the investors involved, with the main difference being additional venture capital firms taking part in bigger investments.

Series C:

Series C funding occurs when a company has already achieved significant scale and is looking to continue growing rapidly. This funding helps to develop new products, expand into new markets or even acquire new companies. This stage sets a goal of raising $26 million on average.

How Series C funding works?

In a Series C funding round, institutional investors such as venture capital firms, private equity firms, hedge funds, and corporate investors are typically involved. These investors are looking for high-growth startups that have already established a significant market presence.
Given the amount of capital required in a Series C funding round, investors often look for opportunities to deploy large amounts of capital into a single investment. This means that the investors involved in this funding round are often larger and more sophisticated than those involved in earlier rounds of funding.

Series D:

Most startups finish raising capital with series C. But when startups can’t achieve targeted goals, they may choose to raise Series D round. It is also known as a Down round.

Sources Of Seed Funding

1. Bootstrapping

Bootstrapping is a self-starting process where founders put their wealth or savings without external help. A small amount of money is set apart for the bootstrapping process at the time of starting a venture. Generally, founders may rely on internal cash flow and business revenue by substantially increasing their valuation or seeking funds from friends and family. It is an inexpensive form of funding because they need not want to return borrowed money from others. After all, it brings financial pressure on them to gain more profit. GoPro, Whole Foods, and Under Armour are some of the companies that have funded through bootstrapping.

2. Corporate seed funds

Another vital source of funding is Corporate seed funds. Big tech companies like Apple, Google, FedEx, and Intel regularly provide them with seed money if they think that startups can be a source of profit or talent for their pool. This funding can contribute to lucrative acquisitions in the future and also brings excellent visibility for startups.

3. Incubators

Business incubators are collaborative programs run mainly by private and public entities that provide all sorts of services ranging from management training, expert advice, office space, and venture capital financing to those at the idea stage. There is no need time limit to the duration of the services provided by Incubators. They invest a small amount of funding and usually don’t take equity from startups. Nevertheless, it helps to shape the business idea perfectly. The main difference between incubators and accelerators is that incubators focus on early-stage startups, whereas accelerators focus on scale-up startup growth.

4. Crowdfunding

Crowdfunding is the fastest way to raise a small amount of finance from a large number of people. The word “crowd” in crowdfunding refers to the individual investors or enterprises that provide finance using web-based platforms and social networking sites with no upfront fees. It provides funds needed to get a startup off the ground in return for a potential profit or reward. It would be an alternative finance option if you struggled to get bank loans or traditional funding. Equity crowdfunding, Debt crowdfunding, Donation-based crowdfunding, and Reward-based crowdfunding are some of the types of crowdfunding.

5. Accelerators

Accelerators (also known as seed accelerators) will be the startup’s first external finance in most cases. It’s a set timeframe program designed to provide sound advice, mentorship, and resources to support startup growth on a public pitch day or demo. A good startup accelerator scales up business growth for a certain percentage of equity. Y Combinator, TechStars, and Brandery are some of the well-known accelerators in India.

6. Angel investors

Angel investors (also known as seed investors, business angels, and angel funders) are high-net-worth individuals who provide capital in return for ownership equity or convertible debt. Apart from financing, it brings expert advice, stable growth, and a greater return rate. They often save startups at the risk of failing; that’s why they are called Angel investors and invest in small amounts and take more risks when compared to venture capitalists. They may conduct detailed research, competitive analysis, and several rounds of meetings before investing. Angel investors who earned at least $2,00,000 in income or a net worth of $1 million in assets are considered accredited investors by SEC(Securities and Exchange Commission). AngelList, Lead Angels, and Indian Angel Networks are some of the significant Angel networks in India.

7. Venture Capitalist

Venture Capitalist (VC) is the most common method of seed funding. VCs are institutions that finance a significant amount of capital from large companies or corporations. Beyond the budget, it offers services such as industry insights, mentorship, support, and connections. It’s not an easier task to pitch VCs as they tend to invest in startups that show brilliant business plans, strong presentations, and wide-ranging market and growth potential. They usually demand a high equity stake and participation in management decision-making. The average venture capital investment may range from $1 million to $100 million and involves narrow investment criteria.

8. Friends & Family

Friends and family are one of the common sources of seed funding for most early-stage startups. They are often willing to invest in the entrepreneur’s vision and can provide the initial capital needed to get the business off the ground. Seed funding from friends and relatives is typically less formal than traditional seed funding sources, and the terms of the investment can be more flexible. However, it is important to approach them with a solid business plan and clear expectations regarding the investment, in order to avoid potential conflicts down the line which could affect personal life.

State Government’s Seed Funding Schemes:

  • Kerala Govt implemented the Seed Support Scheme to provide monetary help to startups (having an upper limit of INR 15 lakhs ). It aimed to promote innovation-based enterprises’ creation and development, thereby encouraging growth in Kerala state through providing venture creations and increased job opportunities. Kerala Startup Mission enforced this scheme.
  • Govt of Karnataka provides seed funding under the “idea2PoC” program of the Karnataka Startup policy. It aims to provide seed funding to ideas or concepts which are yet to validate the proof of concept. It’s granted only one time, having an upper limit of INR 50 lakhs, and provided in installments over a maximum period of 2 years.
  • Govt of Haryana granted a seed fund of INR 3 lakhs for the authenticity of ideas, prototype development, traveling costs, and expenses for carrying out the initial activities of startups.
  • The Government of Bihar will give a seed grant of up to INR 10 lakh as an interest-free loan for furnishing authenticity of ideas, prototype development, assistance towards traveling costs, and almost all expenses required for setting up startups within ten years.
  • Seed Capital Fund Scheme turned an essential component of the Sher-e-Kashmir Employment and Welfare Programme for Youth (SKEWPY) into the Govt of Jammu and Kashmir (JK) initiative. It is a one-time grant that aims to provide seed funds up to INR 7.5 lakh to contribute to employment opportunities among youth and make business plans profitable.

Getting Seed Funding: Steps Involved

Step 1: Determine What Type of Funding You Need

Before seeking seed funding, it is important to determine the type of funding that is most appropriate for your startup. Seed funding can be in the form of equity, convertible notes, or simple agreements for future equity (SAFEs). Each type of funding has its own advantages and disadvantages, so it’s important to consider which option aligns best with your business goals and needs.

Step 2: Determine How Much to Raise

Once you have decided on the type of funding you need, the next step is to determine how much capital to raise. This will depend on the stage of your startup, your business goals, and your financial projections. You should create a detailed financial plan that outlines your expected expenses and revenue projections for the next few years.

Step 3: Create a Pitch Deck

A pitch deck is a visual presentation that outlines your business idea, market opportunity, financial projections, and team. It should be concise, engaging, and persuasive. A pitch deck typically includes slides that cover the following topics:

  • Problem: Define the problem your product or service is solving.
  • Solution: Describe your product or service and how it solves the problem.
  • Market: Define the size of the market opportunity and target customers.
  • Business model: Explain how your company plans to generate revenue.
  • Competition: Describe your competitors and how your product or service is unique.
  • Team: Introduce the key members of your team and their expertise.
  • Financial projections: Outline your revenue projections, expenses, and funding needs.

Step 4: Meet With Investors

Once you have a pitch deck, you can start meeting with potential investors. This can include angel investors, venture capitalists, and even family and friends. You can also attend networking events and pitch competitions to connect with investors.

When meeting with investors, it’s important to be prepared and professional. You should be able to answer questions about your business plan, financial projections, and team. It’s also important, to be honest, and transparent about any risks or challenges your business may face.

Step 5: Negotiate Terms

If an investor is interested in funding your startup, you will need to negotiate the terms of the investment. This can include the amount of funding, equity stake, and other key details. This is typically done through a term sheet, which outlines the main terms of the investment.

It’s important to seek legal advice when negotiating the terms of the investment to ensure that you fully understand the implications of the agreement.

Step 6: Finalize The Deal

Once the parties agree on the terms, the investor will provide the funding to the startup in exchange for an equity stake. At this point, the parties must sign legal documents to finalize the deal.

We Help You Raise Funds Effectively

Looking to raise funds for your startup? Our financial modeling service can help. We work with you to create a detailed financial model, identify sources of funding, develop a pitch deck, and provide ongoing support throughout the fundraising process. Our expertise and guidance can help you increase your chances of securing seed funding and kick-starting your business. Connect with our experts to learn more about our services.

Seed Funding FAQ

1.) How much is seed funding?
Seed funding round amount typically ranges from $500K to $2M. But this can vary depending on factors like location, industry, the track record of the startup founder, and more.

2.) What documents are needed for seed funding?
The specific documents you would need to raise seed funding can vary depending on the investor and industry. But some common documents that you will need are the pitch deck, business plan, financial statements, and projections.

3.) What are the requirements for seed funding for startups?
The requirements for seed funding can vary depending on the investor, but some general requirements include a business idea, an MVP, a capable team, and an idea of your target market.

4.) What comes after seed funding?
After seed funding, startups typically move on to their next round of funding, which is Series A. This round is typically aimed at helping startups expand their operations and develop their products or services further.

5.) How is Seed Funding Different From Series A, B, and C?
Seed funding is the initial stage of funding for a startup, while Series A, B, and C are subsequent rounds of institutional funding used to expand and scale the business. Funding amounts increase with each round, and investors become more involved in the company’s operations as it grows.


finance

Get started

Understanding Strategic Forecasting

Introduction

Financial forecasting is an important part of financial planning and budgeting. It is the process of estimating future financial outcomes for a company or organization based on past and current financial data and market trends. So the goal of financial forecasting is to provide insights into future revenue, expenses, cash flows, and profitability, and help organizations make informed financial decisions.

Unfortunately, many finance leaders create forecasts based on guesses rather than solid data, which ultimately leads to financial reports that don’t really mean a whole lot.

So in this blog, we’re going to explore the very opposite: strategic forecasting.

What is Strategic forecast?

Strategic forecasting is an approach to financial forecasting which combines historical performance with the expected changes in revenue and expenses from aspects like economic conditions, market trends, and strategic growth initiatives. Also strategic forecasting involves using data, analysis, and insights to anticipate and plan for future events and trends that may impact a company’s performance.

Indeed a revenue forecast tells an estimate of how much revenue a business is expected to generate over a certain period of time, usually a year. A simple revenue forecast looks at historical performance of the business and map that forward into the future.

Strategic forecast takes a slightly smarter approach by looking at other variables along with historical trends, including:

  • Revenue drivers
  • Market trends
  • Employee headcount
  • Economic conditions
  • New upcoming products or features

Variables of strategic forecasting

A number of different variables influence strategic forecasting. So when creating your own strategic forecast, draw from these variables to make your estimates as accurate as possible.

1.) Historical Data

Historical Data is certainly an important variable of strategic forecasting that most of us look to first. It uses past financial data to predict future revenue for a business or organization. This data typically includes information on sales volume, revenue, profit margins, and other financial metrics for a given time period, such as the previous quarter or year.

Historical data help identify patterns and trends in sales and revenue growth over time. This information is then used to develop forecasting models that estimate future revenue based on factors such as market conditions, consumer behavior, and industry trends.

2.) Revenue Drivers

What are revenue drivers?

Revenue drivers are the things that drive your revenue. They are the variables your revenue model is based on. Furthermore using the data and insights from revenue drivers, you can more accurately predict what your revenue will look like in the future.

Revenue drivers generally fall into categories of sales or marketing. The marketing campaigns you run to generate new revenue for the business. Similarly social media ads, PPC ads, partnerships, media buys, or any other channel, are all ways to drive revenue for your business.

3.) Employee Headcount

Depending on the role, employee headcount can have a major impact on revenue in several ways, including increased productivity, improved customer service etc.

For example, If you double the headcount of your sales team, you should be able to bank on doubling sales volume, all things being equal.

Analyze goals for the headcount growth as well as historical trends in this area, and then equate that to revenue.

4.) Economic Conditions

Economic conditions can have a significant impact on the profitability and revenue-driving capabilities of a business and predicting them can be challenging.

Here are some ways in which economic conditions can affect a business:

  • Consumer spending
  • Interest rates
  • Competition
  • Inflation
  • Government policies

Make considerations for the possibility of economic changes, and how they’ll impact your profitability and revenue-driving capabilities.

Market trends refer to the overall direction of the market or industry. Hence these trends can include changes in consumer behavior, advances in technology, shifts in regulatory or economic policies, and emerging opportunities or threats.

Take stock of any trends in your market, and analyze how they might change over the next financial year and apply these predictions to your revenue forecast.

Moreover incorporating market trends into forecasting can help businesses make more accurate and informed decisions about future investments, resource allocation, and growth strategies.

6.) New Product releases

Analyze whether you see a boost in sales when you release new product updates or features? Look at your historical data for an indication.

Best practices for implementing a strategic forecasting process.

  1. Involve Key Stakeholders: Strategic forecasting requires buy-in and support from key stakeholders, including senior leaders, department heads, and front-line employees. Thus involve these stakeholders in the process from the beginning to ensure their input and support.
  2. Use Data-Driven Analysis: Strategic forecasting should be based on data-driven analysis, including both internal data (such as financial and operational metrics) and external data (such as market trends and competitor analysis). Use a combination of qualitative and quantitative data to inform your analysis.
  3. Prioritize Objectives: Prioritize your objectives based on their importance and feasibility, and focus on the ones that are most critical to achieving your long-term vision.
  4. Develop a Realistic Timeline: Strategic forecasting requires a long-term perspective, but it’s important to set realistic short-term goals and timelines. Break down your objectives into smaller, achievable milestones that can be accomplished in a reasonable timeframe.
  5. Clear and Frequent communicate: Effective communication is critical to the success of strategic forecasting. Ensure that everyone involved in the process understands the objectives, action plans, and timelines, and communicate progress and updates frequently.
  6. Monitor and Adjust: Strategic forecasting is an ongoing process. Also it monitor your progress towards achieving your objectives and adjust your plans as necessary in response to changes in the market or other factors.

Conclusion

Strategic forecasting is one of the most important skills every great CFO needs to master. Creating a strategic forecast for your business requires a deep understanding of your business, industry, and market. By following these steps, you can create a plan that helps you achieve your long-term vision and stay competitive in a rapidly evolving business environment.

startup-tips

Get started

Latest SaaS Tools For Startup

As a startup or small business, staying on top of the latest technology trends is crucial for growth and success. SaaS (Software as a Service) tools are essential for startups and small businesses as they provide cost-effective and scalable solutions for various business needs. Startups typically have limited resources and need to be mindful of their spending. SaaS products often have lower up-front costs and subscription-based pricing, which can be more manageable for startups. Additionally, SaaS tools are cloud-based and can be accessed from anywhere, which is helpful for startups that may have employees working remotely or in different locations.

SaaS tools also offer scalability and flexibility, allowing startups to manage their usage as their needs change easily. This is important for startups as they grow and their business needs evolve; SaaS tools can adapt and grow with them.

This blog will cover the top 10 latest SaaS products launched in the market that startups can leverage for their growth.

1.) Hyperswitch

SaaS product hyperswitch

The first on the list is one of the tops on the product hunt list. Hyperswitch is a payment solution platform that lets you connect with multiple payment processors with a single API and access the entire payment ecosystem. It’s an open-source payment switch that improves payment success rates and reduces payment costs, ops & dev efforts. Hyperswitch supports all primary payment methods and connectors, and its unified payments interface supports more than 135 currencies.

Some of the significant features:

  • No-Code Integration with more than 100 Processors
  • Complete control & automation of payments flow
  • Easy-to-write rules to manage Routing
  • It lets you manage 200+ payments methods the CRUD way

Hyperswitch offers a free tier for Startups.

2.) Traw

Traw - First replayable whiteboard

Traw is the first ever replayable whiteboard communication software built especially for remote teams and collaborations. With Traw, you save and replay everything from meetings, including audio recordings, and it lets you enhance your discussion with visuals.

With traw you can:

  • Collaborate with team members in various ways.
  • Use Templates to complete repetitive tasks quickly and easily.
  • Record your work in real-time and team meetings with visuals.

Pricing

Free version available; Paid starts from $8 per month

3.) YourChamp

SaaS product YourChamp login page design

YourChamp lets you make a digital business card that shows your cumulative social reach. With YourChamp, you connect all your prominent social media accounts to a single dashboard and show your collective social reach. It also helps you build credibility by inviting fans from all social media networks into one profile. YourChamp is a free tool and requires no payment info to use.

4.) Luru

SaaS product LuRu login page design

Luru is a productivity tool that lets you update CRM software more quickly. This is the fastest way to access CRM from anywhere on the web, and it brings the CRM to communication & team collaboration platforms like Slack, Zoom, Google Meet, Email or anywhere on the web.

With Luru, you can:

  • Automate your sales process on Slack
  • Take notes from inside Zoom and Google Meet
  • Create meeting playbooks that guide you through the calls.
  • Update your CRM in seconds
  • Create action items for yourself and your team quickly

Pricing

The free version is available; Paid version starts at $439 per month.

5.) Bardeen

SaaS product Bardeen home page design

The fifth one on the list is Bardeen. Bardeen is an automation tool that lets you automate repetitive manual tasks without code right from your browser. With the help of Bardeen, you can perform tons of automation across Sales, Marketing, Product development, data research and many more use cases. Bardeen offers hundreds of pre-built playbooks and audiobooks. They also provide tons of integrations and even let you develop your own. Bardeen is currently available as a chrome extension which you can download from the chrome web store. They have also won awards and were featured on the top products in the Product hunt platform.

Pricing

Free version available; Pro version under development

6.) Racoon

Email marketing tool Racoon

Racoon is one of the latest email marketing tools that emerged in the market. This email marketing tool is built especially for startups and small businesses. Racoon is powered by Acelle and Amazon SES and is connected to SMTP Service. With this SaaS product, you can send unlimited emails with unlimited campaigns and contacts.

Pricing

The free version is available; Paid version starts from $250 per month.

7.) Yotako

SaaS tool Yotako login page design

Yotako is a design tool that lets you automatically publish your Figma and Abode XD designs as WordPress websites and themes without code. With Yotak, you can design different versions of your websites and update WordPress and themes with the plugin. It’s a free tool and comes as separate plugins for Figma and Adobe XD, and they also provide ready-made templates to get started with.

Pricing

The free version is available; Paid version starts from $39 per month.

8.) Hubalz

Web analytics tool Hubalz

Hubalz is a web analytics solution that helps businesses reach their marketing goals faster by providing actionable insights that matter to make better decisions. The tool gives you a complete understanding of your customers across devices and platforms and helps improve marketing ROI.

With Hubalz, you can:

  • Track customer behaviour
  • Capture visitor sessions
  • Get a visual representation of your visitor engagement using the heatmap
  • Define key behaviours of visitors
  • Detailed analysis of conversion funnel
  • Make data-driven decisions for your website using instant AI-powered highlights feature

Pricing

Starts from $12 per month

9.) Fuelfinance

SaaS tool FuelFinance login page design

Fuelfinance is a cloud-based SaaS product for the financial department for startups. It handles all your finance, including accounting, P&L, CF, Financial projections, Unit economics and Plan/fundamental analysis. Fuelfinance handles all your spreadsheets, graphs and automation for you. They provide powerful dashboards and financial services for SaaS, E-commerce, Construction, and Professional Services.

Pricing

Starts from $1399 per month

10.) GoCharlie.ai

SaaS tool GoCharlie home page

Gocharlie is an AI tool that can help you with social media, content creation, image & art generation and more. Charlie is a lifesaver for content marketers as it can save a lot of their time by creating blog content and captions for them. This great AI tool has 50+ use cases. Try it for yourself.

With Gocharlie, you can;

  • Generate original blog content
  • Create engaging social media Ads and captions
  • Repurpose content
  • Turn texts into images and arts

Pricing

The free version is available; Paid version starts at $39 per month.

Bonus

Startups can use Product discovery platforms to discover the latest launched software for different industries and tasks.

1.) Product Hunt

Product Hunt is a platform for discovering new products, typically focused on technology and startup companies. This is a popular destination for product-loving enthusiasts to share and geek out about the latest mobile apps, websites, hardware projects, and tech creations. Users can submit and vote on products, and discussions about the effects occur on the site’s forum.

2.) Indie Hackers

Indie Hackers is a website and community for entrepreneurs who build and run their businesses, typically in technology. It is a platform for people to share their stories, strategies, and insights about starting and growing their own companies. Individuals use Indie Hackers to build and launch their products, and you can browse tons of products and even create your project with Indie Hackers.

Conclusion

SaaS products can be a game changer for startups and small businesses looking to streamline their operations and improve their bottom line. The options are endless, from cloud-based project management tools to financial management software. These tools can help startups save time and money while improving their productivity and efficiency. However, it’s always essential to evaluate the specific needs of your startup and choose the right products to help you achieve your goals and reach new heights.

finance

Get started
Image showing individuals in an investment bank

International Investment Banks India

What is an Investment Bank?

An investment bank is a financial service provider that serves as an intermediary in large and complex financial transactions. These banks provide financial services such as deals in stocks and bonds, mergers and acquisitions, pension fund management, financial sponsorship, and payment solutions for corporate.

There are many international investment banks in India. They help businesses and Governments to raise funds through access of capital markets, such as stock and bond markets. An investment banker assist startups to prepares for the launch of an initial public offering (IPO) or when a company merges with competitors. 

Benefits

  • Offers financial services and advisory to individuals, companies, and the Government.
  • Provide insights/knowledge about the risks and benefits of investing their money in other companies.
  • Matches sellers and investors in financial markets and economy, adding more liquidity to markets.
  • Undergoes thorough investigation of the deal/project to minimize the risk associated with the same.
  • Connect investors and companies to makes financial development more productive and promote business growth.

How do International Investment banks work?

International banks in India are often classified into 2 categories:- Buy side and sell side. Buy side of the investment bank aims to maximize returns while investing/trading securities like stocks and bonds. It generally includes with pension funds, mutual funds, hedge funds, and the investing public. On the other hand, sell side of the investment includes selling shares of newly issued IPOs, placing new bond issues, involving in market-making services, and support clients to facilitate transactions.

Based on the services provides, Investment banks have three divisions including:-

  • Front office:- Front office is the most important department in an investment banks that creates maximum revenue in an investment banking firm. Some of the front office services consist of merchant banking, strategy formulation, professional investment management, and so on.
  • Middle office:- Middle office services include compliance with Government regulations and restrictions for clients such as banks, insurance companies, and finance divisions. These are the people who manage fundraising and internal control systems. 
  • Back office:- Back office services are the part and parcel of investment bank. The services includes creating new trading algorithms, authenticating data of previous trades of investment bank regulates all operations and technology platform.

Types of Investment Banks

The following are the 4 types of Investment banks:

1.) Regional Boutique Investment Banks

Regional boutique investment banks are smaller investment banks and have small workforce. These banks specialize in providing a range of financial services to clients within a particular geographic region. They typically focus on serving mid-sized and smaller companies, rather than large corporations, and may have expertise in specific industries or sectors.

2.) Elite Boutique Investment Banks

Elite boutique investment banks specialize in providing high-end financial advisory services to clients. They are typically smaller in size and more specialized than larger investment banks and often work with clients in specific industries or sectors.

3.) Full-service Investment Banks

Also called Bulge Bracket Investment banks, Full-service investment bank are the largest and most comprehensive investment banks that offers a full range of investment banking services.

4.) Middle Market Investment Banks

Middle market investment banks specialize in providing corporate finance and advisory services to companies with annual revenues ranging from $10 million to $1 billion. They mostly deal with mid-market firms, specifically for raising debt or equity capital, as well as mergers and acquisitions.

International Investment banks in India

J.P Morgan

J P Morgan is the leading International investment bank operating in Mumbai since 1930. The firm began by offering commercial banking services and was later spread into other sectors. They offer financial services to clients in more than 100 countries to do business and manage their wealth. As a comprehensive product platform, client’s interest is their core principle.

  • Headquarters: New York, USA
  • India Office: Mumbai
  • Employees: 294,000(Approx)

Goldman Sachs

Goldman Sachs is global investment bank founded in 1869. Its headquarter is in New York. The firm provides services such as investment banking, securities services, global banking, and markets. It serves India’s leading companies and has corporate customers throughout the country. They maintain offices around the world and in India, they have offices in Mumbai, Bangalore, and Hyderabad.

  • Headquarters: New York, USA
  • India Office: Bangalore
  • Employees: 49,000(Approx)

Morgan Stanley

Morgan Stanley is an international investment bank that has branches in Mumbai and Bangalore. They provide best consultation, fundraising services, fund management, research, and investment banking services to Governments, corporations, institutions, and individuals around the world. The firm focus to maintain first class service and high standard of excellence for its clients over 85 years.

  • Headquarters: New York, USA
  • India Office: Mumbai, Bangalore
  • Employees: 82,000(Approx)

Citigroup Global Markets (CGM)

CGM India is a subsidiary of Citigroup Inc incorporated in 2000. It has a large team of experts with industry experience and a strong network providing services such as investment banking, securities trading, and market analysis. Further, CGM is the a member of both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) as well.

  • Headquarters: New York, USA
  • India Office: Mumbai
  • Employees: 240,000(Approx)

BofA Securities India Limited

Bank of America is one of the leading International investment bank. This firm was formerly known as Bank of America Merrill Lynch. The firm was established in India since 1964, which has offices in Chennai, Mumbai, Bangalore, and New Delhi. Further, they offer fund raising, M & A advisory, securities research, trade facilities to its clients in India.

  • Headquarters: North Carolina, USA
  • India Office: Mumbai, Delhi, Chennai, Bangalore
  • Employees: 217,000(Approx)

Deloitte Touche Tohmatsu Limited

Deloitte is the world’s largest professional services network. It is a Big Four accounting firms with operations in over 150 countries and territories worldwide. In 1972, the firm was combined with with Haskins & Sells and merged with Touche Ross to form Deloitte & Touche and later was renamed Deloitte Touche Tohmatsu in 1993. The company offers audit, assurance, and risk advisory services to clients including multinational enterprises and major Japanese business entities.

  • Headquarters: London, England
  • India Office: Mumbai, Bangalore, Chennai, Hyderabad, Gurugram, Pune
  • Employees: 415,000(Approx)

Deutsche Bank

Deutsche Bank is a global leader in investment banking. Its headquarter is in German with its operations in Europe, the Americas, and Asia. As of 2020, it was the world’s 21st largest bank by total assets and 63rd largest by market capitalization, providing various services to financial sector worldwide. 

  • Headquarters: Frankfurt, Germany
  • India Office:
  • Employees: 85,000(Approx)

Credit Suisse

Credit Suisse is a global Investment bank and financial services company founded and based in Switzerland and is engaged in services like private equity, asset management, research etc.

  • Headquarters: Zurich, Switzerland
  • India Office: Mumbai, Pune, Gurgaon
  • Employees: 50,000(Approx)

Barclays Bank

Barclays is a British multinational Bank providing services like private banking, personal banking, corporate banking and investment banking. They currently operate across the globe.

  • Headquarters: London, UK
  • India Office: Mumbai, Bangalore, Delhi, Chennai, Kolkata
  • Employees: 81,000(Approx)

BNP Paribus

BNP Paribus is a french international banking group and is one of the 10 largest banks of the world. They help corporates and its clients in Investment Banking solutions and also offer other global financial services. BNP Paribus has presence over 65+ countries and territories on 5 continents.

  • Headquarters: Paris, France
  • India Office: Mumbai, Kolkata
  • Employees: 1,90,000

Conclusion

Investment banks are popular financial institutions that serve large organizations and companies to take important financial decisions and grow their business. Briefly, They are experts who undergo thorough investigation and understand the feasibility of large projects to assure that the company’s money goes into safe hands.

Next: Discover the reasons behind the recent crash of Silicon Valley Bank.

startup-tips

Get started

What is a Financial Model?

A startup financial model is the numerical representation of a startup’s goals. And the process of building a financial model for a startup is termed as startup financial modelling. It consists of several steps, from gathering the key metrics and assumptions to helping the startups fundraise. A good financial model is a prerequisite for every startup before approaching VCs and HNIs for fundraising. Further, having a good financial model will also help startups build a sustainable financial future.

Importance of Startup Financial Modelling

  • Financial modelling helps new entrepreneurs to find out whether they can turn their ideas into a sustainable operating business. 
  • It also helps startups quantify and validate their business plan and business models cost-effectively.
  • It helps to get an idea about fund requirements when they are in need and the rate at which the business will possibly scale.
  • Financial modeling shows the actual financial state of a startup. It also provides the investors with the proper insight into its real-time financial position.

Types of financial model

Most financial models focus on valuation. Whereas some other models focus on calculating and predicting risk, the performance of the portfolio, and economic trends. Following are the common corporate financial models that are relevant for startups;

  • Three Statement Model: As the name suggests, this model links three statements. They are income statements, balance sheet,s and cash flow statements. In order to integrate them into one dynamically connected financial model using formulas in Excel. One of the main purposes of this model is to forecast the financial position of a company as a whole. Often this model is a base for models that are more complex like Discount Cash Flow Model, Merger Model, Budget Model etc.
  • Budget Model: Budget Model focuses on the income statement. Usually, this model is prepare by considering the monthly or quarterly figures. This model mainly benefits business to compare their current performance with their future financing goals. Sales, expenses, cash flow, equity and asset replacement etc are some of the financial factors considered by this model. This also enables to perform the financial modelling in Financial Planning and Analysis (FP&A) to arrive at a budget for the succeeding years(usually one, three and five years). 
  • Forecasting Model: As the name implies, this model is to predict the possible outcomes relating various aspects like demand and supply, sales, consumer behaviour etc. This model sometimes uses the budget model to compare. After analyzing its output, both models groups into a single work book or sometimes they may arise to be entirely different.
  • Discounted Cash Flow Model: The purpose of this method is to arrive at the present value of an investment/company or cash flow. It is done by altering future cashflows to the time value of money to reach the present value of an investment in a business. For this we have to consider multiple factors like inflation, risk and cost of capital to estimate the forecast free cash flows, which are further discounts back to the present fair value. 
  • Merger Model (M&A): The merger model determines whether a benefit exists from merging. It represents the analysis of two companies brought together through the M&A process. It determines the possible impact of two companies to get merge or one company taking over another. Two main steps in building a merger model include M&A model inputs, assumptions relating the model, model analysis and outputs.

Apart from the above five models, other types of the financial model include;

A)Initial Public Offering (IPO) Model: Financial professionals like investment bankers mainly use IPO Model for valuing their business before going public. Based on an assumption regarding how much investors would be willing to pay with regard to a company in contention, this model equates to the company analysis. And valuation as per this model includes an IPO discount to ensure better performance of stocks in the market. 

 B) Leveraged Buyout (LBO )Model: The LBO Model aims to evaluate leveraged buy out transactions, i.e., obtaining a company funded with significant debt. The main advantages of this model is that it helps investors assist the transaction and earn low risk internal rate of return (IRR). As an advanced form of the financial model, LBO requires debt schedules for doing the modelling. Some of the unique elements of an LBO model includes;

  1. A higher degree of support
  2. Multiple portions of debt financing
  3. Issuing of shares that prefer
  4. Management equity compensation
  5. Operational improvements aiming the business

C) Sum of the Parts Model (SOPT): As the name implies, this model blends numerous DCF models by adding them together. SOPT states the process of valuing each segment of a business and adding them up to get the total Enterprise Value (EV). Further, this model can also use in parallel with other techniques like Discounted Cash Flow modelling and comparable company analysis. This mode is not fitting for all business, but it’s very useful for;

  1. Companies having different business segment or divisions
  2. Companies having definite assets
  3. Conglomerates or holding companies with different companies 

D) Consolidation Model: This model fuse several business models into one single model. This model groups the financial statements of two or more entities to build a secured financial statement. This type of model belongs to reporting model category of the financial model. 

E) Forecasting Model: As the budget model, this model is also used in FP&A to do prediction that compares to the budget model. This type of model also belongs to reporting model category of financial modelling.

F) Option Pricing Model: The option Pricing model is part of the pricing model category of financial models. Two main types of option pricing models include binomial trees and Black-Sholes. This model is entirely based on mathematical financial modelling rather than specific standards.

Key Inputs To A Startup’s Financial Model

Following are the 6 main inputs to building a sound financial model for a startup;

  1. Revenue: Revenue serves as the first input that goes into a financial plan. For a startup, revenue forecast might be tricky as there have been no sales in the past. The revenue forecast is usually a combination of top-down and bottom-up methods. Forecasting revenue also depends on the business model. But for a SAAS platform, revenue forecasts based on existing customers, new customers and churn rates are much more suitable. 
  2. Cost of goods sold (COGS): COGS includes all costs incurred by a company in delivering its products or services. And this will defer based on the company’s offerings. That means if the company sells tangible goods, COGS includes the cost of materials involved in manufacturing the product. But for a service-based company, COGS consists of the personnel costs for the employees delivering the same. Further, for a SAAS company, COGS covers hosting costs, onboarding and customer support costs and online payment costs. COGS forecast might sometimes depend on the business model. Forecasting the same based on a total level like a month might sometimes give more sense. 
  3. Operating expenses (OPEX): The general expenses incurred by a business to run on daily basis are termed as operating expense. It include all costs associated with sales and marketing, research and development and general and administrative tasks. And preliminary expenses of a startup usually include legal fees, travel costs, costs relating to payroll, IT costs, office supplies insurance, patent cost etc. 
  4. Personnel: Here, an analyst predicts the number of employees hired along with their respective salaries. It also includes the payroll taxes and perks provided, if any. To make this step easier, an analyst may split the personnel into different categories like;
    • Direct labour: Includes all employees who solely engage in producing goods sold or services delivered.
    • Sales & marketing: It includes employees who are part of the business such as sales managers, marketing managers, social media experts, copwriters etc.
    • Research and development: These employees are also part of operating expenses and include R&D managers, software engineers, technicians etc.
    • General and administration: These employees are also part of operating expenses and include back-office and C-level personnel like CEO, CMO, CFO, Secretaries etc. Further, to check whether the personnel forecast is realistic, divide projected revenues in a given year by the number of employees for that year. It will give an idea about the company’s revenue per employee. It also provide a basis for comparison with industry leaders.
  5. Investments in assets/ Capital expenditures: Capital expenditures or, in other words, investments in assets account to be the fifth input to a startup’s financial model. It denotes the fund utilization by a company to acquire or improve physical assets, infrastructure, intellectual property, buildings and other equipment. And these are incurred by a company to sustain or enhance the scope of its operations. For startups, such expenses include investments in computers, office equipment, machinery etc.
  6. Financing: Financing is the final input into a startup’s financial model. It includes financing streams such as equity, loans, or subsidies. This helps to know about the possible impact of the company’s funding need by adding different types of funding.

Four other supporting elements for a startup’s financial model

  1. Working capital: Working capital is the essential elements as it denotes both efficiency and its short-term financial health. It has a significant effect on the cash flow of a company. If a company’s current asset does not exceed current liabilities, then it can result in bankruptcy. Working capital usually appears on the balance sheet and is calculated based on the number of days the company’s sales and payable are outstanding and the number of days the company holds its inventory before selling it. Thus financial model should essentially include a sheet for calculating the working capital based on revenues, COGS and days outstanding.
  2. Depreciation: Value reduction in a company’s assets is commonly termed as depreciation. It is calculated based on an asset’s value and its useful lifetime. It appears on the P&L and has an impact on the value of assets on the balance sheet.
  3. Taxes: Every company is obliged to pay yearly taxes on its financial results, commonly termed corporate income tax. To include tax carryforwards into financial models, a separate tax scheme is required for the model. 
  4. Valuation: The purpose of every startup building a financial model is for fundraising. And the process mainly includes negotiations with investors regarding the company’s valuation to be invested in. Most startups are valued using Discounted Cashflow Method (DCF). And this method estimates the value of a company based on its future performance. This method best suits for startups because they have not yet realized any historical performance but expect good earnings in the future. But the main downside of this method is that valuation through this method is highly sensitive to the input variables used to calculate the valuation.

How to build a financial model for startups?

There are mainly two approaches to building an effective financial model for a startup, namely;

  • Top-Down Approach: This approach estimates the company’s future performance, starting from market data and working down to revenue. Here an analyst will first determine the total market value of the product and narrow it down to a particular location. And based on the assumption that the product will capture a distinct portion of the target market and further use this estimate to arrive at a sales forecast. Thus in this approach, the forecast is done by considering the market share that the startup is planning to capture within a specific timeframe. And in this approach use mainly the TAM SAM and SOM model. TAM SAM SOM model considers market size at three different levels;-
    1. Total Available Market (TAM) defines the total market demand for the product or service.
    2. Serviceable Available Market (SAM) – Serviceable Available Market is that part of TAM that represents the niche market for the product within the geographical area.
    3. Serviceable Obtainable Market (SOM) – SOM is that part of the market that the business can capture. Thus SOM represents the sales target since it represents the share of the market that the company aims to capture.

      Once the sales target is defined using the TAM SAM SOM model, the next step is to calculate all costs associates with manufacturing and delivering the products or services . Also forecast all expenses relating to various aspects like sales, marketing, general and administrative tasks for the business to run sustainably. And all these costs should not exceed the revenue targets to arrive at a positive EBITDA. 
  • Bottom-Up Approach: This approach considers business-by-business or sector-by-sector fundamentals. Thus helps an analyst identify the profitable opportunities for a startup and perform its valuation compared to the market.

What are the possible outcomes of a startup’s financial model?

The three main possible outcomes of a startup’s financial model are as follows;

  1. Financial statements: A sound financial model must essentially include a forecast of three financial statements, i.e. the profit & loss statement (P&L), the balance sheet(BS) and the cash flow statement(CF). And these statements are used to communicate the financial information across various stakeholders like banks, investors, governments, and others interested in understanding the financial performance of a firm or startup. P&L gives insights into all incomes and expenses generated by a company over a specific period of time and indicates whether the business is profitable or not. Whereas the balance sheet gives details about everything that the company owns and owes at a specific time. Further, a cash flow statement shows the information on all cash inflows and outflows of a company. It consists of three different parts; Operational cash flow, investment cash flow and financing cash flow. Operational cash flow denotes cash inflow and outflow relating to core business operations. Investment cash flow shows cash flow resulting from investment activity. Whereas financing cash flow means cash changes resulting from financing activities. 
  2. Operational cashflow overview: It is good to forecast the financial statements every year for fundraising. But for the financial management of a company on a daily basis, it is helpful to include operating cash flow for the coming 12 months in the financial model. To create an operational cash flow forecast, list out all categories of cash inflows and outflows, add a starting balance and check what remains at the end of every month.
  3. KPI overview: Another common output of a startup’s financial model typically includes Key Performance Indicators (KPIs) of some companies or KPIs relating to specific sectors. KPI is not only important for investors, but it might also be necessary for company owners. These metrics can track company performance, experiments relating to different acquisition channels, cost structures, business models etc. Further, KPIs can be of different types like KPIs showing sales and profitability, cashflows and raising investments or even KPIs that are specific to a company or industry.

Related Topics: How Financial model can help startups raise funds , How Financial Model helps startups avoid common pitfalls

Elevate Your Startup With Our Expert Financial Modelling Solutions

Ready to propel your startup’s funding journey with precision? Our financial modelling services are designed to navigate complexities, fuel growth, and attract investors. From projections to insights, we craft models that speak your startup’s language. Elevate your financial strategy – explore our expert financial modeling services today!

startup-tips

Get started

Introduction To EBITDA

EBITA

EBITA simply means Earnings Before interest, taxes, and amortization. Investors commonly use this acronym to measure the profitability and efficiency of a company and compare it with companies of similar nature. The term includes all costs associated with the capital assets, i.e. depreciation, by excluding associated financing costs and the amortization of any intangible assets, making it an accurate metric for measuring a company’s profitability. Further, it can also compare with EBIT (Earnings Before Interest and Taxes )and EBITDA (Earnings Before Interest Taxes Depreciation, and Amortisation) to get a better insight into the company’s earnings.

EBITDA

The financial metrics that measure a company’s overall financial health are commonly termed EBITDA or Earnings Before Interest Taxes Depreciation and Amortization. Often, there is an alternative to other metrics like revenue, earnings, or net income of a business. This metric excludes all expenses associated with debt and adds back interest expenses and taxes to earnings. It helps to compare the profitability of different companies and industries since it eliminates the effects of financing and capital expenditure.

Further, this metric serves in the valuation process and helps to compare the enterprise value and revenue. Currently, bankers widely use EBITDA to estimate the debt service coverage ratio (DSCR), a ratio that is explicitly used for business loans to measure the cash flow and ability to pay. Moreover, analysts and investors use EBITDA to get an idea about the company’s actual earnings, and it gives a picture of the company’s total amount in hand for reinvestment or to make payments as dividends.

Components of EBITDA

Earnings: It denotes the amount of money that the company brings in over a certain period of time. The amount of earnings can be determined by simply subtracting the operating expenses from the total revenue.  

Interest: It is simply the cost of servicing a debt. Generally in EBITDA interest is not deducted from earnings. 

Taxes: As the name says EBITDA stands for Earnings Before Interest Tax Depreciation and Amorisation. Therefore tax expenses is not accounted for while determining the EBITDA value.  

Depreciation and Amortization: The amount of depreciation and amortization are added back to operating profit to arrive at EBITDA.

What is a good EBITDA?

An EBITDA with a 10% or more margin is generally good. This can be understood better with the help of an illustration;

While considering two different companies, namely Company A and Company B, with their EBITDA of $600,000, total revenue of $6,000,000, and an EBITDA of $ 750,000 and total revenue of $9,000,000, respectively. And this indicates that B company demonstrates a higher EBITDA than A company. (8% against 10%). And looking at this data, company B might appear more promising to a potential investor.

FORMULA AND CALCULATION

Usually, two formulas are there for the calculation i.e;

 EBITDA = Net income + Taxes + Interest expense + Depreciation & Amortization

Or

EBITDA = Operating Income + Depreciation & Amortization

It is thus estimated by straight forward method. Simply by considering the information provided in the company’s income statement and balance sheet. The first formula uses the net income to calculate EBITDA by adding back interest and tax expenses. In the second formula to obtain operating income, subtract daily operating expenses. This method helps investors to get an idea about the exact earnings of the company by excluding interest and taxes. But it should note that the calculations via two different formulas will provide you with two different results. Net income includes line items that don’t include in operating income, such as non-operating income or one time-expenses.

USE CASES :

EBITDA represents the cash flow and gives a quick overview of the total value of a company. Thereby helping the investors to understand whether a company is making a profit or not. Moreover, most private equity firms use these metrics to compare similar companies in a particular industry to understand a company’s performance compared to its competitors.

EBITDA is commonly used in valuation and helps stakeholders, especially investors, understand whether a company is overvalued or undervalued. And such comparisons are essential as different industries exhibit different average ratios. It also reveals the operating profitability of the business. Thus, EBITDA helps investors know the company’s net income even before interest, taxes, or depreciation is accounted for. 

In some cases, EBITDA is very similar to the PE ratio (Price-to-Earnings). But compared to the PE ratio, EBITDA is neutral to capital structure and lowers the risk factors associated with capital investments and other financing variables.

EBITDA is often used in financial modeling to calculate un-levered free cash flow.

EBITDA MARGIN AND HOW TO INTERPRET IT?

The EBITDA margin is a profitability ratio that measures a company’s earnings before interest, tax, depreciation, and amortization as a percentage of its total revenue. And there are mainly two types of EBITDA-1. Higher margin and 2. Lower margin. Comparatively, a higher margin is more favourable because companies with higher value margins produce a higher profit. 

Higher EBITDA margin: Higher EBITDA margin is considered more favorable because companies with higher EBITDA margins are producing a higher amount of profit. 

Lower margin: Lower margin implies the presence of an underlying weakness in the company’s business model, like ineffectiveness in sales & marketing, targeting the wrong market, etc.

STEPS TO CALCULATE THE EBIDTA MARGIN

Follow the steps given below to arrive at the EBITDA margin;

  1. To begin with, the revenue, gather the cost of goods sold (COGS), and operating expense from the income statement.
  2. Then consider the depreciation and amortization (D&A) from the cash flow statement and any other non-cash add-backs. 
  3. Determine the operating income by subtracting COGS and operating expenses and adding back D & A.
  4. Finally, divide the value by the corresponding revenue figure, and the resulting figure is your EBITDA margin for each company.

WHY IS IT IMPORTANT TO CALCULATE THE EBITDA MARGIN?

Calculating this margin helps companies to;

Compare against its historical results, i.e., the previous model’s profitability trends.

It helps to compare a company’s performance with competitors in similar industries or relatively similar industries.

IS EBITDA THE SAME AS GROSS PROFIT?

Gross profit and EBITDA are not the same. Gross profit denotes the amount of profit a company makes after subtracting the cost associated with making its product or offering its services to its customers. In contrast, it shows a company’s profitability after deducting interest, taxes, depreciation, and amortization. Thus EBITDA and gross profit are not the same since it measures the company’s profitability by exempting different items or cost.

startup-tips

Get started

What is a Business Plan Template?

A business plan template is a standardized document that helps a business planner to write a detailed business plan. A viable business plan must cover the following topics: introduction, executive summary, company description, and marketing plan. Also a business planner can use a good business plan template to create a well-organized business plan as per the client’s requirement.

A good business plan template must have the following ten key elements;

A well-designed templates for business plan helps to articulate a strategy for starting a business and to pitch the right kind of investors. It also shows the clients that we spend considerable time thinking about the potential issues the business might face. Also ask them detailed questions surrounding economics and fundamentals of the client’s business model to provide valuable suggestions and feedbacks. Thus it’s understood that a well-written business plan is critical for any startup in the event of fundraising.

 While writing a one-pager is almost a layman’s cup of tea, but when it comes to technical writing, it requires deeper knowledge about the subject and needs to follow a specific writing format. A good content writer must essentially be a good wordsmith. Content writing is definitely not a layman thing; it demands good writing skills to achieve required goals. This serves to influence the target audience. While understanding them is essential for all types of writing, but it is different when it comes to technical writing. Influencing the target audience is never an easy task because knowing your audience determines what information you present, how you present it, and also how you structure your entire writing.

The possible audience for a business plan might be micro Venture Capitalists and HNIs (High net-worth individuals). Currently, start ups are highly in need of well organized technical wordsmiths for them to pitch the kind of investors. And Scaalex, as a team of highly driven domain experts, takes no chance to compromise on the quality of our output. Till now we have closely worked with 270+ start ups by helping them in the event of fundraising. As domain experts, we stand out for in depth market research, thereby helping the new entrepreneurs in designing a good business plan. If you think you are one among the start ups who lack enough market data, we are here to attain you with exceptional execution and fundraising results.

startup-tips

Get started

What is Business Plan

A business plan is a standardized written document outlining the company’s organizational, financial, and operating framework. A good business plan gives potential investors the right insights into the company’s current state. Also an idea of how it becomes an investment opportunity in the future. It is a prerequisite for any startup to begin with and to attract more investors. In short, a business plan conveys the company’s goals, both short-term and long-term.

Planning helps to strategize, find problems and the competition of an organization, and ways to overcome them too. Moreover, it includes overall structure, marketing and positioning strategy, and fund required by the company for the long run.

For most startups, it serves as a dual-purpose document used internally and externally.

Importance:

  • To set KPIs and benchmarks: Having a good plan helps the company frame its goals and benchmarks more precisely by aligning with its long-term vision and strategy.
  • Decision Making: A viable plan helps entrepreneurs to make critical decisions regarding its core strategies and helps them understand how those decisions will impact the overall business.
  • Roadmap Planning: A good business plan describes what the business intends to be doing over time through a detailed description of the customer, market, competitors, and current and future strategies.
  • Funding: Prospective investors and banks require the startups to prepare a detailed business plan for them to understand and decide whether the business has the potential to earn profits in the long run or not.
  • Partnership and alliances: It also helps in the smooth execution of the planned business models and enters into collaboration with the desired partners by explaining to them the roles and future vision of the company.

The Major Types

  • Standard Business Plan: Standard business plan covers details like the mission, vision, financial statistics, and target audience, which is usually comprehensible for all parties like product vendors, VCs and investors, finance firms or even internal business members. One of the actual merits of this kind of business plan is that it describes the expenses in detail along with the information regarding profit and loss, cash flow, and projected balance sheet.
  • Growth Business Plan: A growth plan gives insights into the proposed strategy, execution mechanism, various parameters, and metrics to aid assessment and the necessary statistics and numbers. A well-defined strategy finds solutions to the identified problem, the target audience, and how to approach them. Whereas an execution plan states the methodology to implement the strategy by elaborating each step of the process in detail. Metrics measure the current performance against the set benchmarks. Finally, the plan also includes reliable statistics, charts, and tables to convince investors of the projected growth.
  • Lean Business Plan: Lean plan is an optimized version of a standardized business plan and shares similarities with a growth plan.
  • Strategy: This phase states what the company wants to achieve and how it will achieve it. Working in line with sound strategy helps the management from unnecessary waste of time and effort.
  • Tactics: Tactics are measures taken to make the strategy result in maximum efficiency.
  • Assumptions, metrics and schedule: Assumptions without benchmarks are meaningless. And benchmark comes through the use of established milestones and metrics. Further, to ensure that things go as planned, it’s essential to follow the proper schedule.
  • Forecast: Financial forecast relating to sales, revenue and expenditures must be entirely accurate. And making basic predictions plays a crucial role in adding credibility to the business plan.
  • Reviewing: Once the business plan is completed, quality time be invested in reviewing the documents. There should be 3-4 rounds of iterations required to increase the efficiency of the business plan.
  • Internal Business Plan: Internal plan is similar to a lean strategy, but it delivers results within the organization. It is not made available to investors or any other external entity; it is specific to the employees.
  • Feasibility Business Plan: As the name suggests, it determines whether the proposed product or service will be feasible or not in the future. It also determines the potential investors, intended demographics, and the recommendations required for the business to be ongoing.
  • OnePage Business Plan: A one-page business plan will be concise, defining the milestones, objectives, and actual numbers summarised within a page.
  • Strategic Business Plan: The strategic plan overlooks the financial description and focuses more on the strategy and tactics to achieve the objectives.
  • Contingency Business Plan: The contingency plan details the alternate course of action if the primary strategy fails because the probability of facing a loss is the same, just as the chance of being profitable.
  • Startup Business Plan: Often considered as a version of the lean plan, a startup plan is prepared by new businesses to attract VCs and investors.

Essentials of a Good Business Plan

It is essential for attracting investors and fundraising. It also helps companies articulate their mission and vision and plot their growth trajectory. As such, it cannot be just a bulleted list. The plan needs to be a serious business document with the following size elements:

  • Executive summary: Executive summary should contain a brief overview of the entire business plan. This section is critical in a business plan because it decides whether the stakeholders will continue reading the project or not. It gives a brief overview of the business idea, the target market, goals, competition, USP, the overall team, and the financial outlook for the business.
  • Company Description & Synopsis: This part of the business plan explains the company’s mission, philosophy, goals, industry and legal structure, USP, i.e. the problem the company is solving for its customers and the solution which makes it stand out from the competition.
  • Market Overview: This section explains the current market scenario of the whole industry, covering aspects like the size of the market, trends, customer’s needs, competitor details Etc. with reliable facts and figures needed to substantiate the overall market scenario.
  • Customer Analysis: Customer analysis gives details regarding customers like customer demographics, geographics, psychographics, needs, wants, desires and buying habits Etc.
  • Product/Service Overview: This section gives a detailed overview of the product and services offered by the company.
  • Business Model: The business model gives an overview of how the company approaches the market and how the approach is viable.
  • Revenue Model: It explains how the company is planning to make revenue through its business model by stating the expenses and revenue sources.
  • Competitive Analysis: It explains who the competitors and their USPs and the strategies used by the company to tackle the competition.
  • Marketing Plan: This part explains how the company uses the above details in formulating and executing the marketing strategies. This part is crucial since it describes how the company plans to reach out to its customers and stand out from the competitors.
  • Management Team: Gives details of all board members, their qualifications, experience, and designations.
  • Funding & financials: It is the final and essential part of a business plan, especially for startups, since it states the cost of the execution of the business plan. It also includes all short-term and long-term financial requirements, funding goals, and how the investors can help the company achieve them.

How does Scaalex come into the picture?

Most startups fail to raise funds from investors. This is because of the lack of knowledge on how to execute the financial models. Further, they have to struggle without proper market research, financial plan, model, and so on.

Scaalex is a team of top domain experts and financial consultants. We closely worked with 270+ startups to build financial projections, valuation report, business plans, and funding advisory. We stand for an expert team with in-depth market search and also understand the expectations of new entrepreneurs. If you are one among the startups who lack adequate financial insights; reach out to us to attain exceptional execution and fundraising results!

Related Blog: Tips to Improve Your Business Plan