Startup Budgeting (And What Most Founders Get Wrong)

Key Takeaways

Hey guys, in this video I want to teach you a framework that we've been developing to correctly populate a financial model to budget how much funding a startup needs to raise and to make sure that you don't run out of money. I'm going to be working on the latest version of our Slidebean financial modeling tool. It's included on every Sidebean account under the financial section. Now, big warning before we begin. One of the biggest mistakes I see founders make is treating their financial models as this one-time homework, just something that they show investors and then completely forget about. That's not how it works. In the ideal world, the CEO and other people in your operations team will be using this, I want to say at least once a week to have visibility on the company's future, to stay up to date on what's happening, whether it's change of expenses or plans shift or new hires coming on board. Like these changes need to be reflected, need to be budgeted for. So this needs to be a live working document where at least once a week you look at budgets, you budget new hires, you evaluate your marketing campaigns, and you check that your revenue is on track against what you predicted. Now, funding for tech startups works in milestones. When you raise money as a preed company, you're budgeting enough money to get to the next fundable milestone to the seed stage, plus a few extra months to close that round and move forward. Now, we have a whole video about funding rounds if you want to check that out. But the idea is that you should always know a when you're reaching the next fundable milestone and b ensure that there's enough money to get there. But remember, closing around takes time about 6 months. Now the dashboard in the model has a few useful tools for this. This cash in the bank chart turns red if your cash balance is dipping below zero in the span of the prediction as well as these metrics that show you how much runway how many months you have left. Okay, so now let's start with the FS month sheet. This is like a summary sheet financial statements that let you see like a monthly overview of the company in the numbers not in charts. Now notice that there's a milestones line here which lets you add labels. you know that this is an input line because every input in this model is going to be highlighted as blue. Now, I'm shooting this video in June 2025. If you haven't started fundraising yet, then you should map the closing of your next round of funding at least 6 months out, let's say in January 2026, cuz raising a round of funding does take about 6 months. That means that any expense that we add this year in 2025, we're going to have to make sure that the founders can cover out of pocket or with the money the company already has because preed funding is not going to hit our bank accounts for months. The money that I raise now needs to be enough to get to seed stage to the metrics for seed and to raise the next round of funding. Now, seed rounds in this day and age are normally raised when a company has 20 to $30 million in monthly revenue. For a SAS, that'd be 20 to 30K in monthly recurring revenue. Contrary to what people believe, you don't just raise the seed round because you've launched the product. You need actual metrics. Now, for now, I'm going to assume that we're going to reach seed metrics around November 2026. Again, that means that we need to find a way to safely get to that mark 30K in revenue by then. Otherwise, the whole thing falls apart. Now, that probably means that we have to launch this product at maybe July at the latest, assuming some buffer time to figure out our growth. Now, if we hit 30K revenue in November, then we've reached seed metrics, we can start pitching our seed round, and it's going to take again about 6 months to close. Let's say in May 2027, we'll have some revenue to offset expenses this time, but we probably won't be profitable yet. So now that we have this basic timeline framework, we can begin adding expenses and see how everything fits together. Most of that stuff is going to be handled from the assumption sheet, which you want to think of as the main dashboard on your financial model. Normally, this is where we're going to be putting most of the work. Now, we have some tools for revenue forecast here, which I'm going to get to in a sec, but down here, you can find the assumptions for the founders. We might be working for this company already, but we'll only pay ourselves a salary after we close some preede funding. So, that's going to be in January 2026. Let's also add some budget. Say 500 bucks a month for some SAS tools that we might need. And maybe a $1,000 budget for accounting and legal expenses. I'm also going to add a couple of team members. I'm going to do one senior developer and one marketing person, which is only going to be hired after we've launched the product. Now, in the model's knowledge base, we have a full video about adding other staff members, about dealing with salary raises, stock options, and other expenses. But for this video, I'm just going to keep it very simple. Now, the model has also some basic revenue forecasting tools. So, let's use a SAS model to budget when we're going to launch this product. Let's set a marketing budget of 7500 at launch and then scale that at 10% every month. We're just going to assume that we can get signups for about $20 each and that 5% of those signups are going to become paying customers to this plan which is going to be say 99 bucks a month. Now, the first thing that we want to check after the basic set of assumptions is that the business overall makes sense. So, we can go to the FS annual sheet and find the 7-year forecast for this business, which looks like the company's getting to some $44 million in annual revenue by year 7. It's exciting. It's profitable. Now, obviously, we haven't added all the expenses yet. The team's going to need to grow and so on, but for now, at least at this the core, this business makes sense. It grows to where we need it to go, and it's profitable. If you do this and you never see profitability here, there's probably something wrong. So, we might need to rethink maybe our growth channels or maybe our pricing. Now, the model includes these basic forecasting tools. a simple software as a service model for conversion and an e-commerce model. But if you need a custom model, our team can actually help build that. I'm going to drop a link below where you can find more details on that. Okay, so this business at its core makes sense. But how about the funding part? We're going to have to play around with the model a little bit. Now, the dashboard is a real handy tool to navigate through all of this because if this chart is red, it basically means that something is off about the model. This chart should never be red. It means that you've run out of money at some point. So in the monthly sheet it's easy to see where that's happening here. Uh why? Because we have a small expense and these are just basic maybe SAS tools or different expenses that you might have. In this case I just added slight bean as an expense uh for these months. But what's important is that you know we can we need to understand that we can't run out of money. The model should never be in red. You know, an easy way to solve that is to say, well, the founders are going to contribute maybe $1,000 to the company. Uh, and they're going to fund the company through this time. And by doing that, the dashboard turns green, and we know that we have we have everything working as it should. Uh, again, we can use this here to say, hey, how many months of runway do we have? And notice that this dashboard also has a drop down here that lets us see different months, right? So, for example, if we choose our launch month, which is April, uh we can start to see how that's changing and going down, we can move a little bit further to when we start pitching our seed round, right? So, by the time we reach seed metrics, that was November, we can start to see how much revenue we have, how much that's growing month over month, how many months we have left at runway if we didn't have the revenue, uh how many runs we have left at runway when we have a forecast, and just the cash in the bank, which again reaches almost zero. and it looks like zero here, but because the chart is red, we know that even at this at the lowest month, we still have cash in hand. Now, investors won't be looking at your spreadsheets, at least not in detail, until late in the fundraising process. But they will be looking at your four or fiveyear forecasts. Probably it's going to be a summary of your FS annual sheet that's going to be on your pitch deck. Now the focus of that conversation of what the investors will be looking at is first that your forecast for the next 18 to 24 months the peer that they're funding is on track. Maybe there's make sure that there's nothing missing that the that there's enough budget set aside for marketing and for all the other stuff. And second they're going to be looking at how exciting the long-term potential is of the business. Are you projecting realistic yet ambitious growth over the next 5 to seven years? Now, investors, I think, want to see a balance between ambition and realism. If you claim that the business is becoming a trillion dollar company by year three, obviously something's off. Now, I generally like to follow this 80/20 rule where I spend about 80% of my time budgeting the immediate future, the next 18 to 24 months to the next fundable milestone, what your current round of funding is going to cover, and then about 20% of my time with the longer term future. making sure that again your assumptions about it are realistic and that your team is scaling appropriately and your expenses. Now the future is of course much more harder to predict. Everybody understands that what you're adding here are estimates. But they do need to show that first there are enough customers in the world to meet all these goals. You're not going over the total possible amount of customers that exist. That'd be your town. You need to prove that the company can scale quickly and that you're going to be continue to be aggressive in your growth. But the focus should be in the immediate future with the longerterm version just for context and ambition. Now in our knowledge base, you're going to find details on how to bring everything else into the model, the rest of your team, other expenses, equipment, other costs. But the key here is that the framework is always going to remain the same. Don't run out of money. Now, this video tutorial is part of our financial modeling boot camp. This is a full multi-hour boot camp that we've set up to teach you how to develop a financial model, how to forecast revenue the right way. It's part of the Slidebean platform along with the financial model tool that I've been using through the video link below or this QR code. Hope this is useful. Thanks for watching guys. [Music]