Global Cleantech Entrepreneur Bryan Guido Hassin lays out the basics of modeling cashflow for a sustainable, scalable startup. This is preparation for one session of a 10-week entrepreneurship program taught at Rice University.
2. Two Areas of the Business Model
Canvas require more detail
• The Business Model Canvas is a great
high-level tool
• But revenues and costs require more
detailed work to ensure your business is
sustainable
• These two areas comprise the Financial
Model (simplified)
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4. R – C = P
REVENUES – COSTS = PROFIT
UNITS X PRICE MATERIALS
LABOR
FACILITIES
A basic Financial Model focuses
on your venture’s income
Your
Goal:
Source: John Pimentel
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5. The best Financial Models are
built from the bottom up
Top Down
• “If we capture x%
of the market, we
can make y profit”
Bottom Up
• “If we employ x
sales people,
paying them y and
expecting z1 sales
per person in
month 1, z2 sales
in month 2, … etc”
• This is a wish
• But is useful for
reality checking
Source: John Pimentel
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14. Investors look for key metrics in a
financial model
• Cash Burn or Burn Rate
• Revenues less costs
• Know on monthly or quarterly basis
• Runway
• # of months operating at a loss before all cash
is gone
• Cash Flow Break Even
• Point at which cash from revenues = or >
Cash Burn
• Cap Ex
• Cash required to build the product, facility,
PP&E
Source: John Pimentel
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15. Modeling the costs of hiring is
more art than science
• A good estimate is $100,000 (fully
burdened, including healthcare, payroll
tax, etc.) per employee
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16. Discussion
• Generate a rough financial model for
your venture
• Use sensitivity analysis to identify your
key financial drivers
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