The “Dashboard” tab in Business Model Forecast is where you analyse your financial forecast results calculated with all informations completed in other tabs.
There are 3 main areas of information to analyse the financial forecast of a startup in this dashboard tab :
- Profit & Loss (P&L) : This area gives you an overview of the forecasted business performances of your startup. This is the most important part to build a great Business Model, as it will help you understand how your startup will perform over the years. The first line, called “Break even point“, is an indicator of the minimum revenues you need to reach to be profitable. It will help you understand the revenue goal to reach to expect profitability. As you can see, this break even point can change from one year to an other, because its calculation is based on your expenses and gross margin ratio of each year. Here is an article for more information on the break even point. Next line, your have the “Revenues” forecast based on information you completed in the “Revenues” tab. Here is an article to help you forecast your revenues. Next line, you have the “Gross profit” forecast, based on revenues forecasted minus the “cost of goods sold” you specified in the “Revenues” tab. This gross margin is the “real revenue” you generate to pay all your expenses, investsments and fundings. Here is an article to help you build a pricing and margin strategy. Next line, called the “Operating profit” or “EBITDA” (for “Earnings Before Interest, Taxes, Depreciation and Amortization”), is an important line to analyse the operating performance of a company. This EBITDA is calculated with the gross margin minus main expenses (external and internal expenses, Human Ressources expenses). The EBITDA is the “residual earnings” that will be used to pay “amortization” of investments and financial expenses. Next line, you have then the “Profit before tax” of “EBIT” (for “Earnings Before Interest, Taxes”). This is also an important ratio calculated with EBITDA minus amortization (and Depreciation). In Business Model Forecast, amortization is based on information from the “Investments” tab with a default 5 years amortization period. The EBIT is the profit generated by the company before paying taxes, interests and potential dividends. It’s of course important for any business to reach profitability sooner or later. For startups, it can be sometime a long journey before being profitable. The strategy and the funding plan need to be designed to sustain the startup during the seed and growth stage before reaching profitability.
- Fundings ratios : This area gives you some ratios to help you build a consistent and balanced funding plan. Bankers and private equity financiers take into account different financial criteria before funding a startup or any other company. Bankers mainly look at 2 ratios, which are the level of capital funds and the reimbursement capability of a company. They usually limit funds they lend to a company with a maximum of 1 to 2 times the capital and with a reimbursement level limited to a maximum of the average EBIT forecasted during the reimbursement period. So, make sure that the ratio “Debt / Capital” is globally below 200% and the ratio “EBIT / Debt” is above 20% (Business Model Forecast use a default 5 years period for reimbursement). If the first ratio is very good (if you have plenty of capital funds after a private fundraising), bankers may accept to fund a bit of your funding plan, despite an insufficient EBIT. But still, it’s pretty tough. Private equity funds have a different approach to remunerate funds they invest in startups. Early stage capitalists will mostly expect a high growth of a startup value, while mature private equity will mainly look at the capacity of the company to remunerate equity with dividends (and maybe with some growth of equity value as well, if possible). The third ratio “Dividends / Capital” will hence help you to quantify the capacity of your startup to remunerate the capital in a mid-term. Some startups will prefer to have growth strategy for many years before reaching profitability. This kind of strategy can also attract investors. Keep in mind to build a Business Model that can be in the end profitable enough to remunerate all capital funds you expect to raise. Otherwise, you may face difficulties to raise private equity funds (remember that usually only 1 startup out of 100 will succeed to raise private equity)!
- Monthly cash flow : This last area is a chart of the monthly cash flow for the 2 first years. In any startup, it’s really important to manage perfectly your treasury. This chart helps you to forecast treasury progression monthly, to make sure that you always have enough cash to face your due dates. Treasury should always be positive! So check that your monthly cash flow chart is always above zero. For more information, here is an article on how manage well your cash.
When you have analysed this 3 areas, you will have probably to iterate your financial forecast. Take the time to build a great financial plan by buidling it with multiple iteration until you are satisfied. For more information, you can also find other tips here to help you build your financial plan :
- 2 complementary ways to create a financial plan
- 80/20, a golden rule in financial planning for startup
Let’s have a look to the picture example above to better understand how to analyse this dashboard tab. Of course, this is just an imaginary example.
The P&L area gives us an understanding of the evolution of revenues and profitability of this startup. The break even point is reached during the 4th year, with a steady growth, meaning that the startup is profitable from 1.5M$ of revenues.
The funding area shows that the funding plan of the startup is quite fragile. The mid-term profitability of the startup seems a bit insufficient to raise all the capital expected. In this case, it would be important that the outlook of revenues and profitability might be even more attractive in the long-term to attract private equity funds. Debt ratios are also fragile because the profitability will arrive only in the 4th year. However, it seems still possible to convince bankers if the startup raise the capital funds expected, because the “Debt / Capital” ratio would be then pretty good. You can notice than some ratios may display a “#Div/0!” message. Don’t bother. Just make sure you have well completed all information about fundings you except to have. If this message remains, it would just mean that you don’t have debt (or that you forgot to fill-in a minimum capital amount).
The monthly cash flow chart shows us that the treasury level is not sufficient from the 4th month to the 12th. There is a serious lack of treasury. In that case, this means that the entrepreneur should consider to increase his funding plan and/or reduce his expenses. It’s really important to have always a positive treasury. And if possible, it’s even better to have always an extra margin of cash to be more confortable when managing your startup.