Financial Modeling Example: Making our Financials Public

27.5.2021
Caya
  |  

A couple of years back, we (Slidebean) made our 2015 Financials Public. Little did we know that it would become a reference for 10,000+ companies. 

2015 was a pivotal year for our company. We raised our first round of funding, we started expanding and investing more aggressively in marketing, and we hired our first few employees! 

We figured it's time to do it again, and this time we are releasing our financials for 2016. Our entire financial spreadsheet for 2014-2016 will be attached at the bottom of this video/blog post, and you'll be able to navigate it and download it as a reference for your company. 

Raising this round was sooo easy compared to the previous one because we had incredible traction to show for.

2016 was even more exciting than 2015. We closed an additional $500K in seed funding (which we called 'part two of our Seed Round'). Raising this round was sooo easy compared to the previous one because we had incredible traction to show for. We were growing 20% MoM; we made our first content marketing bets (and look where it's gotten us), and therefore, we had proven that additional capital equaled more scale. We demonstrated that we could manage the money and the operation successfully and that, in theory, by pouring more fuel into the fire, we could SCALE. 

I want to believe that looking at these financials will serve three primary purposes for you, entrepreneurs watching/reading, 

  • First, learn how we keep track of our historical performance and project future performance with our Financial Model.
  • Second, to understand how financials operate for a tech startup of our size back then.
  • And third, to dissect them, learn from our mistakes, and even more, to point them out to the rest of the community and us. 

Let's first understand the parts of our Financial Model. 

The parts of a Financial Model

First, the COGS Sheet 

That stands for Costs of Good Sold and relates to the direct costs associated with providing your service. 

For a supermarket or an eCommerce store, COGS is straightforward. It's the cost of the groceries or the items sold that the company pays to the suppliers. 

As a software company, I like to use COGS for server costs and other essential tools that the platform needs to be functional. In our case, tools like Intercom and Amazon Web Services are part of COGS. 

Second the SG&A sheet. 

Pretty much every expense that does not classify as COGS goes into the SG&A sheet. That includes payroll, marketing costs, travel, office expenses, rent, accounting, consultants... you name it.

Both of these sheets will hold your expense information, so you will need to do some work to sync these with your books. You want to keep these in sync because knowing how much you spent in a given month is necessary to estimate how much you'll spend in the future and allows you to calculate your runway. 

Back in 2016, when our books were simpler, our office manager had a monthly task to sync Financial Model expenses with actual expenses from our P&L.

As our company grew, this became unsustainable, so we designed a system to upload a ledger from QuickBooks and have the data be updated automatically. I can cover that in a future article/video if you're interested. 

Third the revenue sheet, where we not only log revenue but KPIs.

Same as before, historical data is exported and pulled into the model. In our case, we use ChartMogul, so we simply pasted the exports and then projected future performance based on that. 

We started creating our own KPIs for that, but I'll get to that in a second. 

Fourth working capital and CAPEX. 

This sheet is meant for assets owned by the company. If the company buys a car, that car is not an expense; it's an asset. Yes, the car affects your cash flow because you no longer have that cash available in the bank, but the asset should be logged in the model. 

Desks, computers, and other matches are often assets and not expenses, and these are to be logged on this sheet. 

We honestly don't use it very much, except for our laptop purchases and, in 2016 specifically, to remodel our office. 

Fifth Summary Spreadsheet

Going to the Summary sheets, we have the FS-Month and FS-Annual, which are the generalized financial statements for the company. 


I also created a custom Summary Spreadsheet, which had some of the most critical indicators I had to keep track, and so I could keep them on the same page. You'll see some revenue KPIs as well as runway and cash flow. This was very custom to the stage that we were in as a business, and it looks very different today. 


Sixth Projections Sheet

Finally, you'll find our variables on the Projections Sheet. 

In essence, the financial model has two sets of formulas. If the month you are looking at is historical, we take our data exports (Quickbooks and ChartMogul) and estimate KPIs from them. 

If the month is in the future, we take those KPIs and use them to project future expenses or future revenue. 

Keeping these variables or inputs on the same page allows you to tweak and play around with your assumptions, to figure out how it affects your business in the future. 

We've published a ton of more in-depth content about understanding these financial models, so go check that out if you need more detail before digging into the actual numbers.

OK, now that we are on the same page, let me walk you through the numbers, or at least, what I can remember about them. 

Managing cash in the bank and runway

I've said it before, your main job as CEO is not running out of money. So runway is THE number that you have to keep an eye on. 

The runway is, of course, your total cash in the bank, divided by your monthly burn rate. Burn rate is the amount of money you 'lose' each month, so your revenue minus your expenses. 


Formula: Burn Rate = Cash In the Bank 

                                   ____________________

                                    Monthly Losses


Formula Burn Rate = Cash in the Bank 

                                   __________________________________

                                          (Revenue - Expenses)


If you are profitable, your runway becomes infinite, and that was a beautiful sight to see. 

Anyway, you'll see that through 2015 after we raised our $250K round, we set our burn rate to $15K-$20K. So we were willing to spend, on average, about $17K/mo because this meant we'd have a runway of around 14 months. 


Now, of course, revenue was growing! So in April 2015, we burned about $20K, which was similar to November 2015, but the operation was twice as large. Our extra revenue was covering that. 

In other words, as revenue grew, so did we grow our expenses, of course, to accelerate growth; while keeping that $20K burn rate in check. 

Coming into 2016, our revenue started to catch up, and the burn rate went down to about $10K/mo. We had less cash in the bank, so we had to be careful until we could secure additional funding. 


We had a profitable month in May 2016, which prompted an insane party, and by then, we also had good traction with the next round of funding. You'll see that the first checks started coming in June (this was a convertible note, by the way, so we could close different investors at different times. Some wires even came in early 2017). 

As money came in, you'll see that we started spending more aggressively once again, setting our new burn rate at around $30K. This time we had more money, and $30K would end up with a runway of about 18 months, assuming our revenue kept growing as expected. 

So, how did we balance those expenses? 

Your company will deal with four types of expenses. 

- COGS, which are the 'inevitable' expenses. Those you need to make to sell, period. 

- Then Payroll. To me, the most sensitive category because you are, of course, dealing with people's lives: their income, which translates to their well-being, their insurance, their mortgage, their families! 

When you are working on the financial model and commit to an ongoing expense on the Payroll section, you want to be really sure that you can afford that expense moving forward. 

It may be a number in a sheet, but it's someone's life, especially if they are quitting their jobs for this. It's a devastating experience to fire someone because you made a mistake of hiring them when you couldn't really afford their position. 

Then it's recurring expenses. 

These are usually a hassle to keep track of. We now use a tool called recurring for that, which lets anyone on the team forward an invoice when they get it or connect to your Quickbooks accounts- and it keeps you posted in case any tool suddenly spikes in their expenses. 

Recurring expenses are more or less predictable, so you can use an average of the previous months to estimate future costs, or you can scale the expected expense along with the size of your team. 

Try recurring

Finally, you have variable expenses. 

To us, these were key to speeding up our revenue. We felt confident spending in Ads because if the runway was cut shorter, or if we had a lousy revenue month, we could decrease the ad spend with just a click. 

On the other hand, if results were good and we collected more revenue than expected, deploying that capital in our ad spend was great because it gave us immediate results. 

Even mid-month, if we saw things were moving as expected, we could tweak the budget to maximize it while remaining under our target burn rate. This delicate game of estimating revenue and deploying faster is absolutely key to growth. If you are too conservative, you move slower. If you are too aggressive, you might break your unit economics. 

Let's look at revenue now to understand Unit Economics. 

As I said, these couple of years were really exciting for our company. We went from $10K to $50K in monthly revenue in about 12 months, which had everyone genuinely excited. For 2016 we averaged 13% MoM growth in subscriptions, which was a number to brag about. 

One of the biggest mistakes we made here was overlooking churn. You'll see that churn at this time was at an insanely high 13-15%, which is business-killing churn. 

Churn is the % of active customers who cancel each month, and a B2C company like us should aim at something in the 5% range. We made a whole video about what these metrics mean and how to calculate them if you want to check that out. 

Here's the problem, though. Look at our New Business MRR. We were adding $10K-$12K in new subscribers each month. That's 400-450 new customers converted every month. Amazing. 

However, look at churn MRR. By the last quarter of 2016, we were losing $8K-$9K in revenue every month. That means that net, we were only growing $4K-$5K per month, less than half of the revenue we added. 

When you project that churn rate to the future, there's a cap. At around $80K in subscriptions, the amount of money lost matches the amount of money added, and the company stalls. We eventually solved this problem in 2018, but it required us to completely re-invent our product offering and our audience. 

The other detail I will highlight from this sheet is this number; the MRR Subscribed per $1 Spent. This is very much a custom KPI that we created for ourselves, but it was the main driver of our projections for a very long time. 

We were able to conclude that for every $1 we deployed in marketing, we were able to get $0.5 in MRR. So we spend $20,000- we reach $10,000 worth of subscriptions, and those subscriptions renew every month. Assuming nobody canceled the first month, it took us two months to recoup that investment. 

We found a trend here; you'll see that we were improving that number by about $0.02 each month. So what we did to estimate what would happen in the future was just assume that we'd continue on that trend. 

It would have been a lot simpler just to use CAC, but CAC wasn't such a great metric for us back then because we had a bunch of different plans, some at $19/mo and some at $49/mo, so this average number worked a lot better. 

Another number you'll see mentioned a lot in SaaS is the LTV to CAC Ratio. You'll see that here. Even with our super high churn, we had become so good at acquiring customers that our LTV to CAC ratio was well above 4x, compared to the 3x standard that's considered 'good' for SaaS.

Related read: SaaS Company KPIs

Some conclusions

This spreadsheet, as old, or complex as it may seem, has been the backbone of our company in many ways. In the very early stages, it let us keep track of our very little money, and administer it correctly. 

In this expansion phase, it allowed us to make more calculated risks, and it taught us what we needed to measure. I still spend about an hour on this spreadsheet every week, projecting, understanding, balancing. 

I sincerely hope this reference is useful to you guys. 

recurring - SaaS expense tracker

recurring is part of
Slidebean Incorporated

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