6 Keys to Creating and Pitching Compelling Financials
Are you working on your pitch deck, but getting overwhelmed with the financials?
You are not alone.
Many startup founders spend days, if not weeks, preparing financial projections for their pitch decks. Creating a presentable financial projection takes time ... a lot of time, actually.
That’s why it is crucial for founders to understand their numbers and articulate their future business plans in the financial forecast. According to CrunchBase, in 2020, global venture funding increased by 4 percent, to $300 billion. Make sure that you're getting your slice of the pie!
Here are answers to the six most important questions you can ask before pitching your startup to investors:
1. Why do investors want to see the financial projections?
Let’s be honest, investors are motivated by the bottom line.
That means they need to understand your startup’s current financial situation, as well as your plan on how to spend the funds you receive.
Investors know that these financial projections are a guess.
However, it’s important that the projections reflect your best guess.
Investors want to know your thought process on business spending and growth. Your job as a startup founder is to create a plan, cast accurate predictions, and then execute on them!
2. How do you benefit from building a financial projection?
Financial projections aren’t just to impress potential investors.
By creating a detailed roadmap of milestones and the actionable steps you plan to take, you’ll build a mental map of how your business will work with respect to revenue, costs, and cash flow. You’ll identify gaps in your model, ask meaningful questions, and find answers to help drive your business towards its destination.
3. What should a financial projection look like?
Financial projection -- or “Pro Forma” in accounting lingo, meaning “financial forecast” -- is your startup’s plan for the future, translated into numbers. Remember these terms, in case your investors use them interchangeably, so you don’t get confused!
Almost all the financial projections look different, for the simple reason that each startup has a unique story to tell. However, here are the bare minimum of financial slides to include in your pitch deck.
3-5 years’ financial projections:
Income statement, including operating expenses (OpEx)
Headcount for hiring
Key assumptions (Usually on the first page)
On the first page of your financial projections, write down the timeline of the projects/plans that impact the financials. Make sure the projections are realistic. You don’t want investors to question the reasonability of the numbers.
Also, when it comes to pitching your financials, avoid hyperbole. Don’t promise to grow revenue by 10 times, in one year, while increasing costs for marketing, sales, or wages and salaries by only 2 times.
See the financial projection template here.
4. What questions are you trying to answer on each slide?
Be clear on the purpose of each financial slide. Ask yourself: What is the reason that you have this financial slide? Here are some questions to answer:
What is the market share you want to capture?
Understand how big the market is, and how much of that you want to capture.
How do you make money in the long run?
Show the profitability now, and the profitability in the future with the investment funding.
What will you achieve with the new funding?
Lay out the plans for how you will use the funding to accelerate growth.
What is the customer acquisition cost?
How much does it cost for you to acquire one customer now, and in the near future?
5. Want to do your financial projections faster?
Does this sound like a lot?
Don’t get overwhelmed. The best shortcut you can take is investing in good software. For example, use QuickBooks Online for accounting, and download the income statement, balance sheet, and cash flow statement to populate your 3-5 year projections.
6. How do you stand out in the startup crowd?
On a very high level, emphasize your strengths (Do you have a strong founding team? Unique technology?), and show a clear road map to success. In addition, do the four things below can also help you make a better impression to investors:
Make beautiful graphs and charts.
Visuals matter. As humans, we’re visual creatures -- and this applies to investors. Try Canva for your PowerPoint presentation; they even have premade pitch decks to save you time.
Don’t complicate things.
A financial projection is already complicated, so don’t present it in a confusing way. Focus on the important numbers and explain them clearly.
Come prepared.
Want to look better than your competitors? Prepare different scenarios, KPIs, get your “data room” ready.
Delete any slides that don't add value.
While this probably goes without saying, avoid including numbers that don’t lend credence to your proposal.
Takeaway:
You don't need to be a financial whiz to create compelling financial projections.
We prepared this article to help you understand why investors want to see the financials, how you can benefit from building the financials, what the projections look like, and the questions you need to answer via the projections.
There are shortcuts to make financials faster. You can use financials from QuickBooks Online as the starter to populate the projections, and Canva for PowerPoints.
If you have more questions, please contact us. We are happy to hear from you!
