A SaaS Founder’s Guide to Startup Financial Statements

Well-prepared financial statements are a startup’s sword and shield. Not only do they protect against unforeseen expenses and revenue drops, but they can also be a powerful tool for enticing lenders to invest in your business.

And unless you’re using an alternative funding method like Founderpath that turns your MMR into upfront cash, seeking investors will probably be a top priority for your business.

In this article, we’ll be discussing the importance of financial statements for SaaS founders, and provide a step-by-step guide on how to create a solid financial plan that sets your startup up for success.

Ready to get your finances in order? Let’s get started. 

What Are Startup Financial Statements?

A financial statement is a report that gives investors, lenders, and management a detailed picture of your startup’s financial health and performance. Common reporting periods are monthly, quarterly, and annually.

What Are the Different Kinds of Startup Financial Statements?

There are multiple kinds of financial statements. Let’s go through them one at a time:

Income Statement 

An income statement is a document that details a business’s revenue and expenses, along with its net profit. 

This information is great for analyzing a company’s financial health (i.e., how well the company’s finances are being managed) and highlighting areas for improvement.

In addition to providing bootstrapped founders with a simple route to acquire funding, Founderpath is a great way to generate detailed, informative financial reports.

Plus, you can benefit from custom insights, benchmarking, and resources—all in one place.

Balance Sheet

Balance sheets show what a business owes versus what it owns. Unlike income statements, balance sheets are static. That means they capture a moment in time, rather than a period.

The balance sheet is an essential accounting tool—especially when it comes to financial modeling. Lenders usually want to analyze your balance sheet to see how you manage your resources.

Cash Flow Statement

A cash flow statement tracks the cash (not all assets) as it flows in and out of company accounts.

Seeing where your money comes from and how it is spent indicates how well your company manages its finances. It’s also a solid indicator of your business’s ability to cover short-term expenses.

Break-Even Analysis

A break-even analysis (as the name suggests) tells you the point at which your company’s expenses will equal its income. This is a useful tool for determining how many units of a product or service you need to sell to cover all your costs.

4 Examples of Startup Financial Statements

1. Income Statement

Here is an example of an income statement from Business Accounting Basics:

You will notice that every spend is accounted for, no matter how small. 

If you’re having difficulty keeping track of all your revenue and expenses, Founderpath offers free reporting tools for bootstrapped SaaS businesses. These generate reports on customer and business metrics, enabling you to make smarter business decisions based on your data. 

2. Balance Sheet

Here is a balance sheet example from Carbon Collective:

As you can see, your balance sheet shows a detailed breakdown of your assets, liabilities, and equity.

3. Cash Flow Statement

In the image below, Accounting Coach gives a good example of a cash flow statement:

This statement is very detailed. It even includes depreciation and amortization. 

4. Break-Even Analysis 

Finally, here is an example of a break-even analysis by WallStreetMojo:

You will see that WallStreetMojo uses a line graph to pinpoint when the ‘company’ will break even. 

Why Are Financial Statements Important For Startups?

By now, the role that financial statements play in winning over lenders is probably clear.

That isn’t the only reason why they’re important, though—here are a few more specific reasons why financial statements are important for startups:

Help You Make Better Management Decisions

Keeping detailed financial statements helps management make decisions based on real, up-to-date data. Management can analyze the statements to determine the company’s current financial position. They can also use it to perform competitor analysis.

Build Trust Between Your Company and Investors

Accurate financial statements build trust between a company and its investors. Investors want to know that the money they’re contributing is being used wisely and accurately. Plus, statements are evidence of a job well done and can be used to justify difficult decisions.

Improve Your Budget Allocation

Budget allocation is all about determining where your budget will be best spent to achieve business objectives. One effective approach to budget allocation is identifying patterns in past financial statements that show potential growth in certain areas of your business. 

How to Create a Financial Plan for Your Startup

Now we’ve learned what financial statements are and why you need them, it’s time to get practical. Let’s go through how to create your startup financial plan, step-by-step.

Step 1: Create a Revenue Forecast

Revenue forecasting involves making informed predictions about how many sales your SaaS business will make. You can forecast revenue for a month, a year, or five years. It’s up to you. 

The simplest way to create a revenue forecast is to use the Straight Line method. Using this method is fairly simple—start by multiplying your historical revenue (over an equal period) by your company’s growth rate. If your SaaS business generated $125,000 in revenue in 2022 and $100,000 in 2021, your growth rate for that year would be 25%.

To forecast next year’s revenue, you would multiply $125,000 by 1.25. This would be $156,250. You can do the same sum for future years by continuing to multiply the revenue by 1.25.

This is a basic revenue forecast framework. Beyond this, you can create more detailed forecasts by analyzing potential shifts in buying patterns or creating opportunities to increase your revenue. 

Consider doing the following:

  • Create goals with specific time-frames, number of sales, and amount of revenue. 
  • Analyze customer habits and behavior. Can you identify any patterns or aspects that might influence purchases?
  • Identify changes in industry trends and how they might impact your business. 

Step 2: Create a Budget for Your Expenses

Now that you have your sales forecast, it’s time to create your expense budget so that you have an idea of what it will cost to generate these sales.

Here is how to do this:

  1. Identify your fixed expenses: These are normally easy to determine. They are the costs that don’t change. Some examples would be your rent and insurance. 
  2. Estimate your variable expenses: In contrast to fixed expenses, variable expenses change. These can include things like marketing costs and software development. 
  3. Research industry benchmarks: Gather data on industry financial benchmarks to determine how your figures compare to your competition. Track sales revenue, gross margin, and net profit to gain a complete picture of your company’s financial success. 
  4. Prioritize expenses: Determine which expenses are the most important and will have the greatest impact on your business. 
  5. Organize and track: Use either a spreadsheet or accounting software to organize and track your expenses.

Step 3: Complete a Cash Flow Projection

A cash flow projection is similar to a cash flow statement, but instead of tracking past activity, it’s used to forecast future cash flows.

You can do this in five simple steps:

  1. Determine your opening balance: This is the amount of money you are starting the cash flow projection period with. This could be a month or a year. 
  2. Estimate receivables and payables: This is the money you estimate you will receive and pay out by the end of the period. 
  3. Work out your cash flow: To do this, you simply take away your estimated cash outflow from your estimated cash inflow.
  4. Add it all together: Add your projected cash flow to your opening balance. This will leave you with your closing balance. 

Step 4: Complete an Income Projection

An income projection uses sales forecasting to predict income for a set period of time (e.g., one year). Since SaaS solutions are usually subscription-based, things get a little complicated.

To complete an income projection for a SaaS business, take the following steps:

  1. Start by listing all your pricing plans. 
  2. Then, project the number of customers you estimate for each plan. This could be based on historical figures and growth. 
  3. Using your customer projections, calculate the amount of revenue each plan will generate. 
  4. Add together the monthly revenues for all the plans. 
  5. Do this for all the months of the year and summarize in a statement. 

You can then move on to deduct your expenses to create an expense projection to complement this. 

Step 5: Plan for Contingencies

You might have detailed forecasts and reports in place. But, you must also plan for contingencies. Things don’t always go the way you expect. Your sales could dip significantly, or you could run out of money. It will help to have emergency funding or cash reserves in place to prepare for these situations. 

Step 6: Monitor Your Progress

Finally, you must monitor your progress. The aim of this is to compare your predicted figures with your actual ones as they happen. Doing this regularly can help you determine whether your estimations were on the mark. If not, you can act quickly and adjust your reports to mitigate financial damage. 

Wrapping Up

Understanding financial statements can help startup founders with a range of tasks—from forecasting revenue to benchmarking success to acquiring funding.

At Founderpath, we know just how difficult that last part can be. That’s why we offer founders the option to transform recurring revenue into upfront capital at the click of a button.
Sign up for Founderpath and get started today.

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