Wow! Finally, the time has come! You must have the next revolutionary idea? The next Facebook or Google? If you're like us and thousands of other entrepreneurs worldwide, you probably need to understand the numbers side of your idea. That's where we come in! We specifically created Finply to help you better understand your business and to help save your most precious resource, time. This step-by-step getting started guide will walk you through what you need to know to create your first financial model. Let's dive in!
First-things-first! Let's provide a bit of context. As an entrepreneur in the early days, you're probably most concerned with three things on the numbers side, revenue, expenses, and cash flow. Revenue or sales is what your customers pay you for your good or service. Expenses or costs are what you have to pay for, like packaging, a website, and/or people. And finally, cash flow, or profit, is nothing more than the difference between your revenue and expenses. Your business must have positive cash flow to succeed long-term. While unlikely to be profitable in your company's early days, having a plan to work towards profitability is always a company's massive objective.
Finply let you forecast your business's revenue, expenses, and cash flow based on various key drivers or underlying assumptions based on your unique situation. Every entrepreneur and company will have different drivers, and we make it, so you don't have to worry about formulas or computations. Finply does all this leg work on the back end! Let's learn how to model revenue first.
When forecasting revenue, you'll have to find values for six key assumptions. These assumptions are listed below, with a corresponding description next to them.
Segment 📍 A segment is a small breakdown of your business. It can be a single product, a geographical region or city, a subscription tier, or any other way you can think about simplifying your sales process. Most startups may only have a single segment when starting out, and that number will most likely grow as the company grows.
Opportunity 🌎 Opportunity is a more straightforward way to say total addressable market (TAM) and is the total number of people you think need your product or service. You should back this number up with external market research.
Market Share 🎯 Market share is a percentage value and simulants how much your company will penetrate the opportunity. For example, if your chance is 1,000 potential customers and your market share is 10%, then that means your initial customer base will be 100 customers (1,000 x 10% = 100). This number is substantial because we'll use it later when we start talking about growth rates!
Price 💲 Smell that? The money! This is where you determine the price you will charge your customers for each unit segment. For example, if you're selling cups of coffee, you may have a price of $3/cup. Later on, we'll be able to adjust pricing quickly to see different scenarios!
Start Month 🗓️ Start month is nothing more than the month that this new revenue stream will begin. Having a start month input allows you to plan a series of product launches and understand how each new product affect current sales.
Compound Monthly Growth Rate (or CMGR) 📈 CMGR is your expected monthly growth rate expressed in percentage terms. We'll use this number to increase (or decrease) your sales monthly. Hopefully, your idea leads to an increase and not decline!