Financial Modelling & Analysis
We develop bullet-proof financial models for startups looking to raise funds and for businesses that want to analyze their financials
Helping startups stay focused on building great products
Clearly communicating the startups business potential to investors, business partners and other stakeholders is critical to winning their support, guidance and resources for building a successful venture.
Having a well thought through business backed with sound budgets & financials is not enough anymore to attract and retain stakeholder attention. Investors’ time to evaluate a startup is constantly reducing, and more startups are vying for them. It is imperative to answer the important questions of the investors in the least amount of time and still ensure to be memorable.
Our experience as startup founders and as advisors to the investment fraternity and corporations gives us a good understanding of the habits & challenges in the board rooms of investors/decision-makers and in the cubicles of startup founders.
What does financial modelling entail?
Macro to micro view approach (TAM, SAM, SOM metrics) for forecasting the startup business
An inside-out view that extrapolates internal assumptions to form a macro view
Pro forma statements
Profit and Loss Statement (P&L), Balance Sheet and Cash Flow Statement for fundraising
Operational cash flow
A crucial part of the fundraising packet, unearths the monthly cash inflows and outflows
Key metrics / KPIs
Revenue growth, EBITDA, Burn rate, and LTV/CAC, and several others to boost investor's confidence
Scenario-analysis and stress-test methods that enable institutional investors to have a plan that considers adversities
How can Pitttch Advisors help?
Our team has experience in constructing robust financial plans for different startup business models including SaaS, consumer internet and subscription.
Comprehensive financial models for fundraising
We have experience in creating bullet-proof financial models for startups across verticals and geographies. If you are looking to raise funds, you need to have financial projections that are not only ambitious but also well-tested. We conduct stress testing of the assumptions before presenting it to the VCs.
Financial model review and analysis
If you have an existing model built by your team or a consultant, we can provide independent evaluation and analysis. We revamp the existing financial models by conducting a thorough investigation and bringing out the key insights with the help of an impactful dashboard. We also perform independent stress-testing to examine the strength of the plan.
We provide independent valuation service to early-mid stage startups as well as conventional businesses. Startup valuation is an art, and it often gets messy when dealing with an early-stage startup with little or no history of revenues. Many variables demand consideration while doing comps or recent transactions analysis in such cases. Pitttch team offers reliable and comprehensive business valuation service.
Contact us if you have any queries regarding our financial analysis and modelling services
Financial Modelling Service
1. Top-down forecasting
Using this approach, we work from the macro view towards a micro view of the business/startup. Often referred to as TAM, SAM and SOM, these metrics are critical for early-stage investors. These metrics form the basis of any financial model assumption. Investors like to weigh the worst-case and best-case scenarios based on these metrics.
- Total Addressable Market (TAM): This is the total market demand for the subject product/services which is estimated using the top-down approach, bottom-up approach, or value theory.
- Serviceable Addressable Market (SAM): It is the segment of TAM that the company can achieve through its current products/services and sales channels.
- Serviceable Obtainable Market (SOM): This is the portion of SAM that the business can capture within a specified timeframe
2. Bottom-up forecasting
The bottom approach is less dependent on external factors such as industry vertical and economy. Unlike top-down forecasting, we build an inside out view and form a macro perspective. Hence, the essence of this approach lies in extrapolating the internal assumptions to create a set of numbers that seem reasonable and could be substantiated. The method is useful to project revenues, expenses and cash flows over a short-term period [18-24 months].
When building a financial model, we often combine the two methods to counter the shortfalls of each technique.
3. Pro forma statements
A professional business plan presented to investors or banks for fundraising includes three statements, i.e. Profit and Loss Statement, Balance Sheet and Cash Flow Statement.
P&L statement projects the performance of a startup/business over a period of 3-5 years. The P&L is critical because it shows investors the potential of the startup’s scale (revenue), expenses and profitability. Other key indicators that the VCs typically assess are EBITDA, gross margin and net margin.
The balance sheet reflects the financial position of a business at a point in time. In other words, it exhibits what a company owns (assets) and what it owes (liabilities).
Cash flow statement exhibits the inflow and outflow of cash over a specific period (reporting period). Cash flow statement is divided into three parts, i.e. cash flow from operations, cash flow from financing and cash flow from investing. Operational cash flow is of more interest to early-stage startups as it reflects the cash inflow and outflow from core business operations.
4. Operational cash flow
A crucial part of the fundraising packet is Operational cash flow statement. While the pro forma financial statements include cash flow statement, the projections in it are annual. While P&L statements can overstate a business’s potential, operational cash flow statement can unearth the underlying challenges pertaining to the timing of the cash inflows and outflows every month.
5. Key metrics / KPIs
Regular analysis of Key Performance Indicators is crucial, and inclusion of this in the fundraising packet could help boost investor’s confidence. Broadly some key indicators that businesses must track and present are Revenue growth, Gross margin, EBITDA, Burn rate, and cash runway. Some startups may also be required to present vertical-specific indicators. For instance, SaaS startups usually track and report MRR, churn, LTV/CAC for SaaS.
The projected statements portray the performance, efficiency and sustainability of the business. Not only it helps us price our products/services but also strategise best to yield the highest possible return for all stakeholders. However, for institutional investors, it’s imperative to have a plan that considers adversities.
Scenario Analysis: Here, we create a best-case, base-case and worst-case scenario where we change some key variables to analyse the impact it lays on the rest of the business parameters. The change in the set of variables represents a hypothetical scenario which has a probability of occurrence sometime in the future.
Stress Test: This is an enhanced version of scenario analysis where we change multiple parameters to their worst possible levels and analyse their impact on the business. The tests forecast the business’s resilience and sustainability in extreme macroeconomic and microeconomic environments.