Mastering Financial Models for Your Startup with Logan Burchett

Hey everyone, how's it going? My name is Deon Isaacs. I'm the head of global growth for the Founder Institute. Thank you so much for joining us today. We've had another great webinar queued up for everyone today. It's everything about building a financial model, specifically a bottom-up financial model. I have an amazing speaker. His name is Logan. He's the founder of Forecaster. He's been with us before. His content has been very well received by FI. I'm really glad and grateful that he's taking the time to jump in here. We're gonna get started here momentarily. We had about 371 people sign up for this event today, which is awesome. We're at about 95 people live. I think we'll get around the 150, 170 mark. So I just wanna make sure that we give everyone some time to trickle in here. In terms of an agenda, very straightforward. We're gonna start off with the content. It's about 30 to 35 minutes worth of content. We might hit the 40-minute mark. After that, we'll swap over to Q&A, and then we'll open— we'll break out for open networking. There'll be some virtual tables, so please stick around for that. It's a good time to chat with everyone else here, share some notes, and just meet new people. That's the agenda. In terms of housekeeping, just real quick, as you can see on the right-hand side, there's a chat function for messages. Write in the chat right now let us know where you're calling in from just so we can see. Okay, I see Ottawa, represent Ottawa. I went to Carleton, so nice to meet you, Ash. We see Dublin, Tunisia, Israel, Netherlands, Miami, Florida, Cambridge, Ontario, Tirana, Albania, UK. I'm based here in Dubai, UAE. I know Logan's based in Kentucky, Cairo. So we have a very global audience here, which I'm super pumped for. Glad that everyone can take the time out today, whether it's in your evening, morning, But we're very grateful that all of you have taken the time. Underneath the messaging, there's another button called the Q&A button. Please use that to feed us questions during the Q&A because that's how we'll bring up the questions onto the screen and Logan will be able to discuss it. But also you're able to upvote each other's questions, right? And last but not least, there's some emojis at the bottom. Please use that to like to showcase any interest, or if the presenter sees something interesting, you know, you can, uh, you can kind of like just showcase that. All right, with that being said, let's— Akshay, if you can bring up Logan, let's get this show started. Logan will self-introduce himself and we'll kind of go from there. Really pumped for this. While he's doing that, I want to run a quick poll to the audience so we know what's going on here. Uh, yes or no, have you ever built a financial model? Let's kind of get some votes in. This will help Logan as he's kind of presenting the content today. Um, all right. Hey Logan, can you see and hear me?

Sure can.

Awesome. Uh, well Logan, we have 56 people voted in. It's pretty even, so I would say 55% have not built a financial model and 43% have. So that should hopefully give you some indication. It's going up to 58-40 or 60— let's say 60-40 split. Hopefully that gives you a good idea of how it goes. Okay, I'm gonna hide the poll here. And sorry, one last thing, people are asking about the recording. Yes, you will receive the recording within 24-48 hours if you've not received it in the past. I'll just put it into the chat, fi.co/youtube. All the recordings live there so you guys can always go and digest the content afterwards. All right. With that being said, Logan, the show is yours. If you want to screen share and self-introduce yourself, that would be great. We had about 148 people live globally, so no pressure.

No pressure. There you go. I appreciate it. All right, well, thanks everybody for joining. Like Ayan said, my name is Logan Burchett, and again, thanks for joining us in what's really going to be more of a Financial Modeling 101 talk. So I'm really excited to be talking to everybody today. This is a presentation that's really, really important to me because I've worked with a ton of companies over my career as a fractional CFO, and I've had a lot of really promising companies go off and do really great things and become really big and really, really successful. But then I've also had some companies that were kind of equally promising that ended up failing, and it wasn't because their business model was broken or because they weren't getting enough traction or anything like that. Some of these businesses failed simply because they lacked the resources and the know-how in order to adequately build a forecast. And because they didn't have any visibility coming up the pipe, they ended up running out of cash, which is a really tragic thing. Nobody ever wants to see any company or any startup fail, but these types of things happen all the time. So a lot of the content that I'm gonna be going over today is going to be how to set yourself up for some success, how to put up some guardrails so that you don't run into a similar situation. So we're gonna go over some of the basics of financial modeling. We're gonna dive into starting at the very beginning of what even is a financial model. Then we're gonna go into the benefits of it, all of the aspects, and we're actually gonna keep it hands-on and go through what a real-life bottoms-up financial model looks like. So it should be a lot of fun. Try to keep it interactive. Try not to be too boring, 'cause I know it can be a boring topic, uh, and hopefully give you guys some value. Just to give you a sense of who I am, to give you a quick intro, my name is Logan Burchett. I'm the co-founder, chief operating officer over here at Forecaster, and I'm a self-proclaimed finance nerd. I've been in finance pretty much my entire career. I started off managing the Kentucky Pension Fund for a number of years, then I eventually left because I wanted to pursue my passion of working with startups. And because I was a finance guy, I wanted to become a fractional CFO, and I did that, and I worked with a dozen, a couple dozen actually, companies. And that's where I really honed my craft. That's where I learned what makes a good CFO, what makes a good finance function, really what makes a great financial model. Ultimately, that's what led me to starting Forecaster, just because I noticed all the nuances there of what people do right, what people do wrong, where the pain points are, and all of that stuff. It's also what led me to meeting my co-founder, Steven, who's on the slide next to me. He's not going to be joining us today, but between the two of us, Steven and I have raised $10 million into Forecaster, and we've each built roughly 200 financial models at this point. And Forecaster's got over 700 startups using us. So you'd be hard-pressed to find somebody that knows more about startup finance than me or Steven. And just to give you a sense of what Forecaster is, I think, I always think it's very important for you to understand why we exist, what our mission is. And the way that I like to describe the value that Forecaster brings is by looking at larger and more mature companies and working backwards. Right? So if you look at any large company, maybe even like a middle market company generating millions of revenue and profitable, and you look at the organizational structure of these companies, you're going to notice that they all have one department in common and it's called FP&A. Now that stands for financial planning and analysis. The entire purpose of that department is to ingest financial data, to analyze financial data, and to extrapolate that data into the future and in order to make really, really strong financial decisions today. So these can be decisions like, who can we hire? Do we need to get debt or equity? Do we need to try out a new marketing channel? Do we need to spend more on paid ads? Things like that. And it's really difficult to get clear answers to these decisions without a really strong financial model. And historically, that's been built in Excel. Now, the problem with financial models built in Excel is they're highly technical. They require really experienced people to run. They're out of date basically as soon as you build them. And that's why we wanted to create Forecaster. So what we've done is we've taken all the good parts of Excel, we put it into an online integrated web app specifically designed for financial modeling. And now all of your financial models are gonna be up to date so that you get all of the benefits of an FP&A function for a fraction of the cost. We pair all of our clients up with a financial analyst as well just to make sure that they see success. So the, the value of Forecaster is kind of that starter FP&A function, even if you're a startup, even if you're a small business. If you don't have a big budget, we'd still love to work with you and show you the power that a financial model and FP&A can bring. So that's why we exist. We're very passionate about this, and hopefully some of the content that I go over today is going to show you why you should really pay attention to this and why you should be looking at adding, you know, FP&A to your repertoire whenever it comes to finance. Just go over a real quick agenda. Uh, we're gonna go over the why of financial modeling, right? So like, why do we even do this? Why should you be paying attention to this presentation? Why are you joining with us today? That's going to be a big part that we're going to start with. We're going to go through what an investor-grade financial model looks like, just so we all know what the bogey is, what does success look like. We'll talk briefly about how to build one on your own and then how to use it effectively once it's built. But I always like starting at the very, very ground Financial models can be somewhat complex. They can be a little bit mysterious. So there's a lot of variability in what people think a financial model actually is. So just to orient us, I wanna start here at the ground floor and say, what is a financial model after all, right? What is this thing that we're talking about? To answer this question, I like to use an analogy that I've stolen from a guy named Troy Hennecoff. He was the former MD of Techstars Chicago, but he actually created an analogy to describe what a financial model is. That I absolutely love that we use all the time over here at Forecaster. And it's an analogy that likens financial modeling to the early days of the car manufacturing process. So if you're looking at these slides, this is showing what it looked like to actually design and build a car way back in probably like the '40s or '50s. I'm not entirely sure when these photos were taken, but it's showing what the design phase of the car manufacturing process looked like. The way things would work is you would start with an engineer and they would take a pen and paper and they would sketch out— if they had a new idea for a car that they ultimately wanted to build, they would sketch it out. They would get a rough estimate of what the car is going to look like, kind of how aerodynamic it's going to be, what the different parts are going to look like, all of that stuff. So it'd start on pen and paper, then it would move into what you're seeing here on the screen where you've got this gentleman that's got this big chunk of clay and he's carving it out. So you're getting a real-life, like, in-person sense of what this car is ultimately going to look like. So you can get a deeper level of understanding of, okay, this is what the weight distribution is going to be, and this is kind of like more details on those aerodynamics and things like that. Once that's done, then they're going to translate that clay block into a working prototype, right? Something that's functional, something that's actually drivable. Then they're going to get somebody to jump in this car, put it on a track, and just drive it, right? They're gonna, they're gonna drive it and they're just going to run it through a wringer of tests to see how does this car actually perform. So they're going to do things like drive it on a track in cold weather, hot weather, do a variety of turns, just really put the car through the wringer. Now sometimes this would go out and it'd be okay and the car would perform fine and they would just go off to mass production, but that was actually the minority of the case, right? Most of the time there were kinks to work out for varying degrees of severity. So it could be anything from, you know, maybe the center of gravity is off and it's suboptimal performance, all the way up to catastrophic failures, right? There are instances where when you're doing the 90-degree turn test, the car might flip over because the weight distribution is just so uneven, right? There could be, you know, explosions. People's lives could actually be at risk. And so not only is this dangerous and, you know, terrible whenever things go wrong like this, but it's also incredibly costly because you've just wasted a ton of time and a ton of really expensive people— a lot of really expensive people's time and a lot of money building out this prototype, ultimately to find out, hey, this didn't work, let's go all the way back to the drawing board, or just abandon ship altogether, right? I think we can all agree this is not a good process. Things have evolved significantly since then, and nowadays this is just not how things are done. Cars are built soup to nuts using software before any kind of physical prototypes are built and put into the universe. So they've got this system called CAD where I can get on my computer and all the way down to the component level, I can design a car, and then I can take that design and I can put it on a virtual test track, and then I can see how my concept might perform in the real world to 99.9 degree of accuracy. Right? So I can put my car on a virtual track and I can run it through the wringer and I can say, run this virtual track 1,000 times under 1,000 different variants of, you know, all of the different environmental elements and things like that. And if something's right, that's great. Now it goes on to building out the physical prototype. But if something goes wrong, it's really not a big deal because all I have to do then is just tweak some things in the software. Re-run it until I get it right. The beauty of the software too is if there are issues, it's actually going to identify the point of failure. So going back to my original point, let's say that a car flips over when it's doing that 90-degree turn. The software will say the car flipped over because of this component that broke or something, right? You zoom in, you fix it, you tweak it, you do it right, and then you go off to actually testing in the real world. And in our opinion, this is the ultimate analogy for financial modeling because in the same way, using a financial model, just like these people use CAD to, you know, find insights before they built the car, we can use a financial model to simulate what it's like to run our business before we run into any issues, right? So we can simulate what it's going to look like if I hire an employee or if my churn rate increases or if I double my paid ads budget, let's say, I can understand, I can get a very detailed understanding of what the downstream impacts of that's gonna be. If I'm really early, like I assume a lot of people on this webinar are, I can figure out if my business model is gonna scale. I can figure out what happens if my churn rate is here or my price is here or my conversion rate is here. I can do all of that before I'm actually out in the real world trying to execute on a theoretical business model. If you do it right, then you're gonna get insights without anybody getting hurt. You're not gonna get hurt, your investors aren't gonna get hurt, your co-founders aren't gonna get hurt, and you're gonna have the opportunity to really optimize before you jump in headfirst and you waste a ton of time and money. So this is really the value of a financial model, of an FP&A ecos— or an FP&A kind of like a function of your business, is it just allows you to answer these really, really difficult questions before you waste a lot of time and resources, not after the fact. So it's because of this that we firmly believe at Forecaster that having a solid financial model and a solid foundation of FP&A is one of the most important things that you can do for your company. And I can almost guarantee that it's the most important thing that you're probably not doing for your company right now. And I think that the poll results that we got at the beginning of this support this. So hopefully I've at least got your attention to pay a little bit more attention to this and then try to use it for your business. So that's kind of the what of financial models. That's really, you know, generally what the value of it is. But if we would take one step deeper a look and we try to segment the specific points of value that a financial model will bring and that FP&A will bring, you can kind of boil it down into two different buckets. The first one is it's going to help you impress investors. The second one is it's gonna help you run your business better. It's gonna help you make better decisions. Now, I don't wanna cheapen that. Those are two incredibly important value propositions, but they are two propositions nonetheless. So just to kind of go into each of those, if I'm looking at the first one, it's gonna help me impress investors. The way that it's gonna help me impress investors, I think it's helpful to kind of analyze this by thinking through how investors think and the background that investors have. So if you look at most investors, most of them are ex-investment bankers, they're ex-operators. Some of them are startup founders that have grown businesses to be big and successful, stood up a finance function. These are people that think in terms of math. These are people that think in terms of metrics. These are people that speak the language of finance, to say it as simply as I can. They speak the language of finance. They analyze in terms of financial outcomes. If you are trying to get an investor to invest your business, to invest in your business, the best way to do that is to show them your financial plan for how you're going to take their dollars and turn them into more dollars, right? There's nothing that's going to inspire an amount of confidence like that with an investor. And being able to do so through the lens of finance and financial modeling shows you that you speak the language that they are most familiar with, right? So the other analogy that I like to use is if I'm going to, let's say, France, right? I love traveling to France. Me and my wife try to go there once a year. If I'm going to France and I'm pitching a French VC to invest in my business, if I have the wherewithal to do so, I'm gonna try to pitch to them in French. That's their native tongue. That's the language they're most familiar with. And if I do that and they're not expecting it, it's gonna cause them maybe to sit up in their seats a little bit more and think, oh wow, like this person took the time to actually speak to me in my own native language. Kind of the same deal here. If I'm pitching an investor that I know is familiar with finance and metrics and this is how they think, if I pitch to them using their language and talking to them about what my revenue's gonna be in 12 months, 18 months, what my churn rate is and what variance of churn rate can be for me to hit my goals, things like that, it's going to signal to them that, hey, this person speaks the language that I speak. I have a deeper level of familiarity and comfort with that. It's going to cause them to pay attention, especially it's also going to cause you to stand out from the pack because there's a lot of people that are pitching that same investor that cannot speak in those terms, right? So if you can you're going to stand out of the crowd. So it's going to help you impress investors. But in my opinion, even more importantly, it's going to help you make better decisions. It's going to help you stay on top of cash, manage runway, prepare for a variety of different scenarios. I'm actually not going to go as deep into that one because I'm going to spend a little bit of time here in a few slides showing you specific examples of what that looks like. So stay tuned. You're going to, you're going to get a little bit more of the make better decisions piece in a second. I do wanna talk about now the output of a financial model, right? So we've talked about high level, what is a financial model, why you should pay attention to it. We took a step down to say, okay, these are the more tangible points of value that a financial model will have. Now I wanna talk about what are the actual things that are the financial models gonna produce for me to get these outcomes. The way that I like to think about it is I like to segment financial models from financial projections. So mentally think about it like this. The financial model is an engine that is a series of calculations and logic that we, that have been created that can produce an infinite amount of financial projections, right? The engine is just something that is built that is evergreen, that's likely gonna stay relatively the same over time. The projections can change over time and what the projections say can be aggressive, conservative, and so on and so forth. So I may have one financial model that spits out a series of financial projections that are my best case situation of finding like best financial situation, base case financial situation, worst case financial, financial situation, what my financials will look like if I triple my paid ad spend or if I go out and hire a sales force, things like that. You can have an infinite amount of financial projections. What do these financial projections actually look like? Well, we're going to go through that here in a little bit as well. But just to keep it high level, it's going to look a lot like what your accounting looks like, and that's on purpose. So if you use QuickBooks or Xero, or if you have an accountant and you look at the reports that your accounting software produces, it's going to be the big three finance reports, right? And I'll spare you going through all the details of each of those reports because that's going to be a very heady, very dry conversation. But at a high level, you've got the income statement, the balance sheet, and the statement of cash flows. The income statement, its whole job is to show you things like revenue and expenses, and are you making money or are you losing money? Right. So it's going to show you that over a span of time, you can look at my income for the past month, past 3 months, past year, past 18. You can aggregate it, you can sum it up, you can chop it, slice it, dice it as much as you like. But it's basically going to show you how much money am I making, how much money am I spending, what does that bottom line look like? And that's kind of at a very high level what an income statement does. The balance sheet, on the other hand, that's going to show you a ledger of what your company owns and what it owes other people as well. So you've probably heard assets equals liabilities plus owner's equity. That's the golden equation that orients the balance sheet. But generally, it's going to show you we own this much. So I have this much cash. I've got this much that other people owe me. These are kind of my assets, the things that this company holds. I've got my liabilities. So those are the things that I owe other people. Either I have to pay people or maybe I have debt or things like that. And then I have my equity that balances that. And that's where things like how much money you've raised come in, as well as a rolling balance of what the company has made over time called accumulated retained earnings. I'll leave it at that for now. And then the statement of cash flows has one job. We can all probably guess what it is just from the name alone. What is happening to cash, right? So it can show you my cash was this last month, it's this at the end of this month. These are the changes that happen between now and then to give me a better visibility into my cash flow situation. So those are the big 3 financial statements. Why are they the same as what's in accounting? It's because accounting and FP&A go like that, right? They fit together. It's really, really important that what I'm reporting on historically matches what I am forecasting is going to happen in the future. If they don't look the same, it's really hard for me to get those types of insights. It's hard for me to understand, am I on track? You know, did my forecast measure up to what actually happened? So we have to make sure that they look the same for us to actually have a true FP&A function. And of course, Forecaster is set up that way, and that's why we built it that way. So financial models can have a lot of different moving parts and pieces, a lot of stuff going on. So a lot of times we're asked, what is the important part of a financial model? What is the thing that I really need to pay attention to to make sure that I'm hitting home with investors and being able to make good decisions? It's all important, right? But the most important, we would always say, is revenue, is forecasting revenue, right? Why is that the most important? Well, it's most difficult to predict. It's the most difficult to control. And it's the reason that most ventures end up failing is that they just don't end up hitting their revenue targets. You'd be hard pressed, I think. I mean, you can find them, but it's difficult to find companies that are actually hitting their revenue targets and growing the way that they should be growing. And then they end up failing. You can always raise more money or things like that, but it's the reason that most end up failing is they just miss their revenue target. So because revenue is so important, we really advocate that you focus on understanding what's known as your revenue formula to give you the best understanding of all of the underlying drivers of your business. So I want to go through an example of a revenue formula right now. So, you know, this is a very— I think it's a slide with a lot going on. So don't worry, I'm going to kind of talk you through exactly what's happening here. But essentially what a revenue formula is trying to do is it's trying to articulate in a mathematical way how I'm generating revenue over a month, a year, a quarter, whatever makes sense, right? In this case, we're going to be looking at monthly revenue. And your goal is to kind of start at the highest level and you want to dive deep into each underlying metric that drives the one above it. Until everything is an input, right? So you can see here at the bottom left, we have a key that shows that my green bubbles are essentially formulas. My purple bubbles are inputs. Inputs are something that we have either direct or indirect control over, right? So I can influence, I can change an input. There's really nothing that drives an input. It's just something that I have the ability as a founder and operator to influence in some way, shape, or form. The goal of the revenue formula is to get it to where all of your bases are those purple input metrics. So to say it differently, the goal of the revenue formula is to boil everything down to the things that you can control so that you can get an understanding of how you can actually influence your revenue, right? So if I'm going through this revenue formula with you all right now, we can see that this is a subscription business model. So you can think Spotify, Netflix, Hulu, those types of things. Revenue at the highest level equals my number of subscribers multiplied by my monthly price, since we're doing a monthly revenue formula, right? My monthly price is already a purple input, right? I could change my price at any point in time. I could go into Forecaster right now, I can go into Stripe, and I can double my price for all of my customers. I have that level of control. I might not want to do that, that might be a really bad idea, but I could, right? Because it's something that I have control over, it's an input. My subscribers, though, is not that simple. There's a lot that actually goes into understanding how many subscribers that I have at any point in time. So I don't have anywhere to go on my monthly price. I'm at the base. It's already an input. My subscribers, we're going to go a level deeper. My subscribers is equal to the number of people that I had subscribed at the beginning of the month minus any subscriptions that I lost that month plus any new subscribers that I got in that month, right? So let's, if we can go through that a little bit more, my subscribers at the beginning of the month, there's nothing I can do there. That just is what it is. The subscribers that I lost is the number of subscribers I had at the beginning multiplied by my churn rate. So, you know, the churn rate, for those of you that don't know, is the percentage of customers that leave you over time. So in this case, it could be a month where if I have 100 customers and my churn rate is 5%, that means that 5 customers that month will leave, right? So that's just the percentage of customers that leave at any given time period. Now, that's going to be a purple input because I have indirect control over that. I can run campaigns to change my churn rate. I can try to optimize my churn rate. I can try to, you know, run a customer success campaign. But there's really nothing that I can do, you know, outside. There's basically nowhere deeper that I can go on churn rate than that. That. So that's kind of the base there. If I'm looking at how many new subscribers that I got, you can break that down into all of the different ways that I get new customers. In this case, Google, email, and Facebook. So we're going to dig into Google, assuming it's paid Google. Then my new subscribers from Google is my traffic from Google multiplied by my conversion rate. Conversion rate is going to be that purple input metric. I have indirect control over that. My paid traffic from Google is going to be my monthly budget on paid ads. Divided by my cost per click. Both of those are inputs. I can directly influence my monthly budget. I can indirectly influence my cost per click by choosing cheaper keywords and things like that. So that's a lot, right? But if I take a few steps back, I can— I think that you can actually start to see the value and the power of a revenue formula. So if I wanted to increase my revenue, if I wanted to influence my revenue in any way, there's only 5 things that I have any kind of control over to do that. So think of the focus that that brings to the business. If I'm trying to drive revenue, I can increase my budget on paid ads. I can try to find cheaper keywords to reduce my cost per click. I can try to influence my conversion rate to get new customers. I can try to reduce my churn rate so fewer people leave, or I could increase prices, right? That's 5 things. There's only 5 things that I can do to influence my revenue. So our job as owners of the business is to take a look at those 5 things and see what we can do to optimize to generate the maximum amount of revenue. And we may even stack rank those 5 things to say these are the most important things, this is the lowest hanging fruit that we can influence to ultimately impact revenue, right? So that's kind of the power of a revenue formula. It's that clarity and it's that understanding of the most important metrics that are ultimately going to influence revenue, which is, I think we can all agree, the one, at least one of the most important pieces of business, if not the most important. Okay, so I'm going to switch gears a little bit here and we are going to run through a specific example together using a real-life financial model. So what I'm going to do is I'm going to put 30 seconds on the clock right now and I'm not going to talk for 30 seconds. I'm going to let you all read this prompt. Once that's done, we're going to jump into the financial model, run through some scenarios, then jump back into slides. So 30 seconds on the clock right now. Okay, 30 seconds is up, so we are going to jump into the Dollar Cave Club financial model. Hopefully this is large enough. I've zoomed in quite a bit on my screen here just to make sure that we, we can see what's going on, uh, but just to kind of walk you all through what's happening here. I've got a list of assumptions that is described in the, in the prompt that we just read. So I can see that I'm getting new customers. This is my customer acquisition section. I'm getting new customers from customer referrals, Facebook ads, Google ads, website traffic, things like that. And I can see I'm in August of 2023, so you can kind of see how this is changing over time. I can see also how this translates into revenue. So I can see you know, what my revenue is, how it's going to be changing over time, how it's going to be growing over time. And then I've got 3 different revenue streams here as well. And I can see how this all flows into my income statement, my balance sheet, and my statement of cash flows. So if I look at my business as it is right now, and I'm going to zoom out just maybe one. If I look at how my business is right now, I can see that if I change nothing and if I charge what I'm gonna charge and I zoom all the way out to the end of the model, which is 72 months from now, I have $8.51 million of cash, right? $8.51 million. So I'm gonna put my business owner hat on. I wanna see if there's anything that I can do to optimize this business and make it better. So first thing I wanna do is I wanna look at my most predominant revenue stream, looking at this graph right now, I can see it's subscribers. So if I scroll all the way out, I can see I'm generating $1.42 million per month in subscribers. And then if I, if I, you know, uncollapse this, I can see that my churn rate's 4% and then my monthly price is $29.99. So the first thing I want to do is I want to see if I increase this from $29.99, which is basically $30, up to $60 per month, what will happen to cash, right? My cash was $8.51 million. What does that accumulation look like? Is that going to be greater than, equal to, or less than double that $8.51 million? Right. So if I do this in my model, I can go in here and I can see what the answer to that question would be. So if I scroll all the way out now, my ending cash is $24 million. So I've doubled my revenue or I've doubled the price that my customers are paying me on a monthly basis and my cash has over tripled, right? My cash has tripled. So that shows me that I have a very sensitive input for my model whenever it comes to price. If I can just increase the amount that other people are paying me, that my customers are paying me, it's going to have a very drastic increase on my accumulated cash. But that's not very realistic. Because if I double my price, my churn rate's likely to increase as well because the people that leave me or the people that pay me are probably gonna leave cuz they don't like spending more money all else equal. So if I increase that, let's say to 8%, so I've doubled my price and I've doubled my churn rate. Now I could see, am I better off or worse off than I was at the beginning? Right? Remember it was 8.51 million to begin with. If I scroll all the way out now, I'm still significantly better off. I've still doubled my cash. So I've already got just through, you know, 30 seconds of financial modeling, a really, really valuable insight here where it's like if I double my price, even if my churn rate also doubles because people don't like spending more money, then my cash is still going to be way better off to the tune of double what it was before. And I can even find exactly what that threshold is. So I can go in here and I can say, okay, well, I've doubled my price. What if my churn rate triples to 12%? Right now it went from 4% to 12%. Now I am at 12.73%, right? So I'm still better off. So my churn rate could even triple and I'd be better off. All right. And I can just tell you, since I've done this several times, that it can basically quadruple before I'm back to where I was at the very beginning. Right? So that, these are the types of insights that you can get. I'm actually gonna put this back to where it was in the beginning. So we're at 4% and we're at $29.99. So essentially what we're doing is we're stack ranking the most important inputs for my business. So now if I'm the CEO of this company, I'm gonna do whatever I can to increase the amount that my customers are paying me, even if it comes at the expense of churn. If churn rate goes up, That's okay. Churn rate can quadruple if I'm doubling price, let's say, before I'm worse off. So that's— that gives me clarity and direction as a business owner, which is very, very important. The second thing I want to say before I jump back into the slides is that a financial model is really going to help you understand where not to focus on your business. So if I— let's say, let's switch this over to years. One of the things that you're going to notice is I've got 3 different revenue streams here. I've got add-on purchases, advertising, and subscribers. But it looks like I've only got 2 bars here. I've just got this, I've got this purple bar up here, this pink bar down here. It's kind of an optical illusion. There is a 3rd bar here. It's just so small that you can't even actually see it. And that's this advertising bar right here. Right. It's this bar. And this is doing $600,000 of revenue. This is doing $6.4 million of revenue. This one's doing $34,000 of revenue. So I can actually go in here and I can try to tweak these inputs. I could say, what if my page views per month was doubled from 80 to 160, right? I could do that and I could see it still, you can barely even see that bar. It's still such a low amount of money. And what this tells me is that I need to not focus on advertising at all, right? I need to, if I'm the CEO of this company, I'm going to delete advertising from my model and I'm going to delete it from my mind. Right. We all know as founders, there's only so many hours in the day. There's only so many things we can focus on. A financial model is going to help you understand what are the things that I need to focus on. But just as importantly, what are the things that I just need to forget about? What are the things that I need to not focus on at all? And in this case, advertising is the thing that I do not need to focus on. There's nothing I can do to make this revenue stream interesting enough for me to actually focus on it today. And in fact, if advertising in any way causes a degradation in the experience to my subscribers, which is, which is my cash cow in this model, then I need to, I need to delete it, right? I need to just get it out of my business. So it's going to show you what to focus on. It's also going to show you what not to focus on, which is very, very important. Right. Okay, so I do want to move along pretty quickly because I know we're bumping up on time. I want to talk very, very briefly about how to build a financial model, and then we're going to open it up for Q&A for the last, you know, 15 to 20 minutes. I'm not going to go through this entire thing just because that in and of itself is an entire webinar and likely a very boring webinar at that. But just to give you a sense of the high-level steps of how to build a financial model, it all starts with the revenue formula. Right. So, so in order to understand and forecast your revenue streams, you really have to focus on steps 1 through 3. Understand your revenue formula, even if it's on a chalkboard or a whiteboard or something like that. Just figure out what that formula looks like for you to generate cash. Then you're going to forecast your customer acquisition funnels, which is going to be a part of your revenue formula. So you're going to understand how am I getting customers, how am I turning those customers into dollars? I put those two together in step 3, that's gonna forecast my revenue streams, right? If all you do, if all you take away from this webinar is that, just to do these 3 steps, I would recommend you do that. That is a very important thing that's gonna give you some insights on your business. Once that's done, you gotta start looking at expenses. So you're gonna forecast your direct expenses and your indirect expenses. That happens in step 4 and 5. Those are your cost of goods sold and then all of your other expenses like hiring plan, operating expenses, things like that. Step 6 is the balance sheet. So you're going to forecast your assets, liabilities, and equity. And then steps 7 through 9 is just putting them all together. So you're actually connecting all of the things you're forecasting, putting them in the income statement, the balance sheet, the statement of cash flows, and then summing them up annually. So you have both monthly or annual statements, or you come to Forecaster. Uh, we want to give a special offer at 20% off the first year for anybody that's interested. We'll do all of this work for you and we'll pair you up with an analyst that's going to get you get you going and make sure that you have success in your forecasting and FP&A services. So it's going to be 20% off for the first year. We're also going to waive an implementation fee of $500, and we're going to give you a listing on Investor Connect, which is our matchmaking platform for founders and investors. Just to give you a sense of what price looks like, these are undiscounted, so you're going to want to take 20% off of the prices that are shown on the screen. We have an essentials package where we build your model and we keep it up to date quarterly and give you reporting on that. That starts at $500 a month, which would be $400 a month with a discount. A growth package which starts at $1,000 a month where we do the same thing monthly and give you more custom reporting. That would be $800 a month with a discount, all the way up to fractional CFO, which starts at $1,500. And we can figure out which package on that one works best for you, uh, if you're interested. So if you are interested, Jimmy from our team is going to put a link in the chat. That's the best way to get in touch with us and you can just meet with somebody from our team to learn a little bit more. With that though, I do want to open it up for questions and I'm going to stop sharing my screen here. So if anybody has any questions whatsoever, I'm more than happy to answer them now.

Awesome. Thanks, Logan. Super, super insightful. I like the fact that you went through the whole model. I remember when I was building models at F5, I was like, you press a button and the entire model crashes. So it's good to see a platform that you can play around with. All right folks, we're going to jump into Q&A. Um, please feed us your questions and then we'll kind of go from there. Um, all right, so Logan, first question is, I think you briefly talked about it, maybe can you just talk about again, um, Mutasim from Faisalabad NIC is asking, how should you look at financial modeling when you're pre-revenue? Obviously, like, is it based on assumptions? Or maybe elaborate a little bit on that, that'll be helpful.

Yeah, no, it's a great question. So, so in order to answer that question, I like to kind of take a step back and think about really what a financial model is. And a financial model in its core form is a series of really educated guesses, right? So if you are pre-revenue and you don't have a lot of data, financial modeling can be very, very daunting because you're like, I don't know what my churn rate is, I don't know what my price is, I don't know what these different assumptions are. But it's still very important that you go through that exercise and you actually put together what you think those assumptions are going to be and more specifically what you're shooting for them to be. What are your goals? Right. So if I'm an investor and sometimes I think it's helpful to put yourself in the shoes of an investor whenever they're trying to make a decision. If I'm talking to a company and let's say they're a SaaS company and they say that I want to take your investment and I want to get this company to generating $1 million a year of revenue, my question is going to be, how are you going to do that? Right? How many customers do you need to get over what time frame? When are you going to start getting customers? What are they going to pay you? What if your churn rate is this? What if your upgrade rate is that? How many people are you going to— things like that. Very important questions. You probably don't have the answer to those questions, but you should at least have an idea of what that needs to be. And that's where a financial model comes in. It forces you to put those estimations and really those goals of what you're hoping to achieve on the paper so that you yourself have at least a roadmap for what— if you can just do what's in this model, if you can do what's in this, that is what success looks like at this timeframe with these specific metrics. That's going to give you kind of a guiding compass of what to shoot for and give the investor an understanding of what you're shooting for and kind of the expectations that, you know, these are the goals that you're hoping to achieve. So hopefully that was helpful.

Yeah, that was. All right, let's do a couple more, um, here. This question just came in, which I like. Graham from High Point is asking, How much data do you actually need to build an accurate model that's specific to a company? For instance, if you're a marketing company with 20 clients, has been in business for 2 years, but I guess also if you're a startup, like, you know, you're just getting things started, like, I think this is an important question, like, how much data should you be analyzing? And I guess to add to this is like, how often should you be revising your model? So if I already have like 10, 15 clients and like things, should I always be looking at quarterly. I think you heard quarterly, but if you can elaborate, that would be helpful.

No, it's a really great question. So, um, it's a— so the answer to this question is it really depends, and there really is no answer to this question of like how much data do you need, kind of where is the line. I will say that financial modeling and FP&A is something that is going to get better over time, right? So whenever you first start, maybe you're pre-revenue, you put a model together, you're like, I don't know what my price is going to be, I don't know how many customers I'm going to get, but I got to put something down. I got to manage to— I have to manage to something, right? I have to put goals together. So whenever I kind of go back and I look at in the month, right, which to answer that question, you want to look at things monthly at least and you say, this is what I said I was going to do last month, this is what I actually did. And you do what's called a variance analysis to see where, where did I hit, where did I miss. You're going to have some major misses in those early months, right? You're going to realize, wow, I was way off, right? And then I'm going to adjust. Then I'm going to be like, that was way wrong. I'm going to adjust. Okay, now next month I'm still going to have a big variance. It's going to be a little tighter, right? Next month, a little tighter. Next month, a little tighter. And so on and so on and so forth. But it's important. The more important thing is the process of like getting that stood up and running that process on a monthly basis. And eventually you're going to get to a point where you're getting pretty tight on that data and you're getting pretty tight variances. Like Forecaster, for example, I mean, we're kind of the poster child for forecasting, I would hope anyway. And our variances are less than 1% on a monthly basis. We are a startup, right? We are still a startup. We're doing just shy of $2 million in annual recurring revenue. So, you know, once you, once you kind of get this stood up and you've got that process going, you, I think, would be very surprised at the level of detail and accuracy that you can get when it comes to forecasting. But just expect that whenever you start, it is going to be a big variance and that's going to go down significantly. I would encourage you to get really diligent about accounting because if you are actually tracking your data historically, then you at least have something to measure against, which is going to help tighten up those forecasts. So I would say at a baseline, if you don't have accounting set up, that's okay. That doesn't mean you shouldn't build a model. But at a baseline, I would say focus on getting accounting set up and then at least use that as an integration point for you to understand what's going right, what's going wrong. And then another plug for Forecaster, we actually will integrate directly with your accounting so you don't have to do any manual work there. And our analysts will help make sure that you're always, you know, on top of your finances and on top of your variances.

Awesome.

We got a question here from Marcel from Barcelona, Spain. He's asking which KPIs about FP&A are investors mostly interested in? To add to this, like, would an investor actually look at your financial model?

Yeah, so that's a really funny question. Will an investor actually look at your financial model? And so I'll answer kind of both of these. So I'll start with the will an investor actually look at your financial model? It really depends. It really, really depends on so much. It depends on the investor first and foremost. You will find some investors will not care at all about your financial model, right? Some investors will not even care to look at it or anything. Some investors will care a ton about your financial model and they will want to dig in and understand it on a very granular level. And it kind of just, it really depends. It really just kind of depends on who you're pitching. My advice is Prepare for the investor that really wants to see your financial model, and you may get investors that just don't care and don't even ask you about it, but that doesn't mean that you shouldn't prepare, right? So that's, so that's kind of something that we've seen through just running this business and through fundraising. We've raised over $10 million in the Forecaster, so we've seen kind of the, those ends of the spectrum as well. Also depends on your stage. If you're pre-revenue, then an investor might wanna see your financial model just because they wanna understand where you're at, where your head's at, but they're probably not gonna like dig, dig in, you know, super heavily because it's like, you know, it's all just guesses at that point anyway. Once you get to Series A or even like a seed round, they'll probably look a little bit deeper than the early days. But again, totally depends, very big spectrum there. What do they care about? Generally, you know, this also kind of depends on the business. I'll say generally they're gonna be interested in understanding what your revenue goals are. So with this money, What are you expecting to achieve and what are you— and within what time frames? They're just kind of going to want to understand what your objectives are for that investment. They're going to want to understand how your burn rate is going to change over time. So what you said is it's going to be, you know, what is, what is the burn rate going to look like? How's that going to change over time? What does my runway look like? So you hit on that one as well. So like a red flag, for example, would be a founder that's maybe raising $1 million or $2 million and they're prepping for a runway of 8 months or 12 months or something like that, right? That shows me you haven't really thought this through. You don't really know how the game works. You want to prepare for a runway of at least 18 months, hopefully more like 24 months, so that you have 12 months of execution followed by another 6 months of fundraising with some buffer there. So it's going to be just trying to understand what your runway is going to be. Outside of that, depending on the stage of the company, there can be a whole host of other things they're interested in. Another important one, if you've got some data, would be things like CAC, like unit economics, things like churn rate if you're a SaaS business that kind of show, you know, how sticky your company actually is. So I would say if you don't know what those important metrics are and you're gearing up for a fundraise, grab a mentor, find somebody that you trust that's done it, ask them, ask them what the important metrics are for your business, for your vertical. And they'll likely try to help you out. People like helping startup founders.

So yeah, we have a bunch of FI mentors that are also available. So if you do apply for core program, there's a bunch of folks that can facilitate with that. Uh, just one thing to add to the financial modeling question, what investors look for. I remember when I was an FI doing the program in Toronto in 2016, we had an investor come in, like Series A and B. He came in, he's like, I don't care about your financial model, but I'll still look at it because it'll tell me as a founder how you think Right. Let's look at the CAC. Let's look at the burn. It's wrong already, I can tell you, but I want to know how you think. So that's kind of always stuck with me. It's like, okay, fine. Like, can I get into the practice and discipline of doing it? All right, let's do one last—

I'll tag on to that really, really quick. To that point, like, it is so much more about how you think than the actual numbers. And to give you a specific example, you can imagine we see a lot of financial models here at Forecaster. Just this past month, somebody sent me a financial model to review. The financial models show that in 5 years they're going to be making something like $50 trillion with like a 90% net margin, which like, oh, that tells me all I need to know, right? Like I look at that and I said, you put this in front of me and you think that you're going to be generating $90 trillion in 5 years, which would make you the biggest company in the world in 5 years. That's the type of stuff that they're wanting to suss out. Like, does this person get it? Do they know what they're talking about? Have they done that? And so it'll just kind of show you where their head's at, what their expectations are, which is very important.

Clearly, Logan, you missed out on that opportunity. $90 trillion. You should have just taken a couple of points on that.

Just invest.

Yeah. All right, let's just do one more. I saw a good one here by Torsten. Uh, Torsten, based in Israel, is asking, you know, when you're looking at B2B models, there's a few questions there, but like, how do your financial models on the B2B side differ from B2C?

Your example was B2C.

You kind of hinted at it, at like SaaS and customer acquisition costs and stuff, but like, can you just review and review it again?

Yeah, big time, big time. So, so directly answer the question, my— the platform forecaster definitely works for B2B, 100%. I will say B2B, like large-scale enterprise B2B forecasting is just harder than B2C smaller forecasts, more predictable revenue streams, things like that. That just is what it is. Like it doesn't matter if you use Forecaster, Excel, Fractional CFO, anything, it is going to be harder. The reason for that is usually you have longer sales cycles, they're more unpredictable, different salespeople perform at different rates. Like you don't actually know when deals are gonna close. The deals vary by size significantly. It's just harder to forecast. But generally, the way that we recommend doing it, the way that we would set you up if you were to work with us, is we would take a look at all the current clients that you have. We'd analyze their payment schedules and we'd put that in the model so that we know what's coming down the pipe from closed won deals. Then we would look at what's in your pipeline, the big deals that we are working right now, try to forecast out a close rate based off the ones that you think are gonna close and kind of like factor in the ones you don't think are going to close as well. And then if you're doing more longer-term forecasting, like what's going to happen in 5 years, 10 years type of deal, I would recommend using a direct sales force build. So essentially what you would do is you would have a line in the model that shows if I hire this salesperson at this salary with this commission rate, I can expect that they're going to generate this many leads, this many deals, this many new customers per month. And you have to lag that with the sales cycle. So you can say maybe you have one salesperson that closes 3 deals a year and they usually close their first deal 8 months after being hired or 12 months. You would have them start generating the leads now. You would lag the sales funnel months depending on where they're going to make it. And then you can start seeing those deals close, you know, 8 months after they're hired, just as an example. So yeah, we can definitely do that. It's definitely more tricky. Uh, but we can definitely do it.

Yeah, sound advice. I like, I like the fact that you're adding the time delay on the B2B side because I know with a lot of B2B models, it's just like, yeah, yeah, it's like 50K in ARR, guys, like, and we're gonna get that. And it's like, well, it's going to take you 14 months to close that.

You're not—

so it shouldn't be in like this year's forecast. All right, Logan, thank you so much. This has been great, very educational, very helpful. Audience, I hope you enjoyed that session. We're gonna wrap up here. You know, feel free to stick around for the networking. I think Logan, one of your colleagues, will be on the tables. As you can see, Logan, a lot of people giving the clap emoji, the heart emoji, thumbs up emoji. So a lot of positive feedback. The way I like to end these things off is any last bit of advice for the audience of early-stage founders that are out there and who's going to be watching this recording later on?

Yeah, yeah, it's a great, it's a great question. So I'll end also by saying just thank you all for, for being so attentive. I'm watching the chat, it's always great to see people who are actually, you know, interacting with that. So, so thank you for that. My biggest piece of advice is just, if you haven't thought about finance, if you haven't looked at financial modeling, if maybe you've been dismissive of financial modeling in the past, just pay attention to it. Just take a look at it. Sketch out your revenue formula. Just take a harder look, because I promise you, if you invest the time and you actually pay attention to it, I promise you that you're going to find it valuable. You're gonna, you're gonna get something out of that exercise. So if you do nothing else, just at least look at it and pay attention to it.

Awesome.

Well, thank you, Logan. This has been very insightful. We had close to— let me just double check— but close to 260 people live at a given point. We have 140 remaining. So folks, hopefully we see you on the networking table. Thank you so much, Logan. Enjoy the rest of your day, everyone. If you, I guess, starting out today or wrapping up your day, thank you so much for taking the time. Alright, take care.

Thanks everyone, appreciate it.