Slides from a class I gave at General Assembly Sydney in June 2012.

1. FINANCIAL MODELLING
FOR STARTUPS
Tuesday, 26th June 2012
Darren Miller | @sumwise | darren@sumwise.com

2. Overview
• About me
• Basic principles
• Design rules
• Excel tips
• Accounting 001
• A practical example
• Q&A

3. About me
• Academic:
– UNSW B.Com with honours in accounting
– Chartered Accountant, ICAA
• Work:
– 5 years Ernst & Young corporate finance
– 7 years managing investments for the Packers
– 3 years running a tech startup (Sumwise)
• Skills:
– Business analysis
– Strategy
– M&A
– Spreadsheet modelling

4. Basic Principles of
Financial Modelling

5. Why build a financial model?
• Predict the future? NO
• Prove that your idea makes financial sense? NO
• Raise money from investors? SORT OF
• Know when your cash will run out? MAYBE
• Help to understand your business better? YES

6. Know your purpose!

7. Know your audience

8. Beware the flaw of averages

9. Know your weakest link

10. Expect errors

11. Expect errors
• Most spreadsheets contain errors
• Hard to detect
• Use various techniques to trap errors:
– Good / defensive design
– Input validation
– Conditional formatting
– Check cells
– Worksheet protection
– Common sense

12. Design Rules

13. Design rules
• IO
• Blocks
• Styles
• Names
• Links

14. Design rule: io
Separate your Inputs (I) from your Outputs (O)

15. Design rule: blocks
Build blocks of cells that do the same thing.
1 piece of logic per row element.

16. Design rule: styles
Use Cell Styles for all formatting.

17. Design rule: names
Use range names (sparingly).

18. Design rule: links
External links are extremely dangerous.
Only ever use logical links (not physical).

19. Design rule: links
External links are extremely dangerous.
Only ever use logical links (not physical).

20. Excel Tips

21. Excel tips
• Some useful functions
• Keyboard shortcuts
• Other bits and pieces

22. Excel tip: useful functions
• =Don’t(use(nested),ifs((they=suck,big,time!)),0)
• INDEX and MATCH for lookups
• SUMIF and SUMIFS for conditional adding up
• OFFSET for dynamically expanding ranges
• SUMPRODUCT for vector multiplication

23. Excel tip: keyboard shortcuts*
• Crtl [ drills to source, F5 Enter to go back
• Ctrl arrows and Ctrl shift arrows to move and select
• Ctrl R and Ctrl D to copy right and down
• Ctrl Enter to fill the selected range
• F4 or Ctrl Y repeats the last action
• Ctrl 1 to format cells
• Ctrl ` to screw with your friends
* sorry Mac users, I don’t really get the Command key.

24. Excel tip: bits and pieces
• Conditional formatting – to highlight strange results.
• Data validation – to prevent data type errors.
• Goal seek.
• Trace precedents and dependents.
• PivotTables.

25. Accounting 001

26. Accounting 001
• Every transaction hits the balance sheet.
• Assets = Liabilities + Equity.
Value of stuff you OWN Value of stuff you OWE
• Every transaction has two parts.
• Cash flow statement is a drill-down on cash.
• Income statement is a drill-down on profit.

27. Accounting 001
Cash Flow Statement
Profit and Loss Statement
Or
Income Statement

28. Practical Example

29. Practical Example
• Business: SaaS, 1 month free trial, CPC marketing.
• Purpose: How much cash might I need?
• Audience: First me/co-founder, then investors.
• The model: http://sumwi.se/fmmodel

30. Q&A

31. Links
Slides:
http://sumwi.se/fmslides
Contact:
http://sumwi.se/darrenhmiller