Financial Modeling for Startups: An Introduction • Hacker News Board

Re: Financial Modeling for Startups: An Introduction

#31

Post by jimnotgym » Wed, Aug 29, 2018, 5:35 PM UTC

presscast wrote: post #8

jimnotgym wrote: post #6

Finance person here, this is a good grounding of the basics. The hardest part to take forward is working out the timing of things. A company is constantly owed and owing money, and this is the real trick to working out your funding requirements. On top of the model every business needs an operational cash flow forecast going out say 3 months at least. For every day you enter the brought forward balance from yesterday…

I've heard that it's rather common to be technically profitable (i.e.: a company has a greater income than expenses), but nonetheless insolvent due to bills coming due before clients pay their invoices. From what I was told, this mostly affects supply-chain heavy companies; software companies are mostly spared this kind of consideration. What are some of the red flags that founders should be aware of when reading the…

In the UK the big risk is sales tax (VAT). It needs forecasting on top of sales receipts, and every quarter you have to pay this sum you have collected over to the exchequer. VAT is notorious for taking down businesses who spent the receipts!

Otherwise you should model what happens when the sales come late or not at the level you want, Braintree hold your cash, etc. If you can't flex your overheads to stay within your cash facilities, then you are risking insolvency.

Sales receipts, payroll and sales tax are the big numbers.

Re: Financial Modeling for Startups: An Introduction

#32

Post by jimnotgym » Wed, Aug 29, 2018, 5:39 PM UTC

ABS wrote: post #25

grenoire wrote: post #9

Earlier quoted context omitted.

I'm currently handling bookkeeping for software companies and one thing that's often overlooked is your clients consistently making late payments on their invoices. Make sure that you know who those client are and schedule accordingly.

DSO (Days Sales Outstanding) is one of the most important numbers to track for any company. If you are a small company it is arguably the most important one to manage cash flow

And it is a notoriously fickle metric, most people track it at month end, and yet their main sales receipts come in after... leading to a rather alarming result. DSO or debtor days as it is often called in the UK, needs to be read with an understanding of the payment patterns in that business.

Re: Financial Modeling for Startups: An Introduction

#33

Post by rkagerer » Wed, Aug 29, 2018, 8:37 PM UTC

Good basics but the article is too much on the simple side for me.

"There are no hard and fast rules on how to categorize your expenses"

Pro tip: Loosely aligning them within recognized tax lines can help simplify things in the early days and reduce work for your accountant.

Re: Financial Modeling for Startups: An Introduction

#34

Post by slowhand09 » Thu, Aug 30, 2018, 9:16 PM UTC

Nice writeup. A previous company had us participate in a simulation exercise. Split into teams, move around a board similar to monopoly except you were collecting accounts payable from customers, paying rent and utilities, paying payroll, paying taxes on xyz, lawsuits, etc. CashFlow was king. Losers all were paying bills as they arrived rather than on due dates. They had the money, on paper, but not on time. Timesheet-driven contracting - it showed how important it is to fill-in timesheets so customers can be billed. Miss the cutoff and your 48 hrs gets invoiced two weeks later. Your company doesn't thrive when it's borrowing money to pay you for time it can't bill yet because you forgot to sign your timecard.