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Forward-looking

:

Are the core underlying assumptions in the financial model and operational budget sound? How do overheads increase with scale? Comment on the cash runway the company has on completion both in an upside case where growth comes through and the team is grown accordingly and in a downside case where the company has to reduce increased spend in line with slower growth. When will additional investment be needed?

Description of financial model

The financial projections presented by X are based on a top-down model, driven by growth in gross revenues in each territory. A month-on-month growth figure has been estimated by management based on their assumptions over historical figures, speed of roll out and target markets. This is the key driver of the model.
All cost figures have been estimated as a percentage of gross revenues taken other than staff costs, which have been estimated on a bottom-up approach.

1️⃣ Underlying Assumptions

Highlight any assumptions that are particularly aggressive / judgemental

Gross Revenue

Historically, in 2019, month-on-month gross revenue growth averaged: 10.0% (min. 3.2% and max 20.5%)
Growth rate in the US is aggressive in the first 6months - 100-130% (av. CAGR of 60% in year 1). Management supported this assumption based on it being the growth of small revenues (£20k in mth1) and the US being a less established market with fast moving customers.
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Note: Seasonality of growth in revenues can be seen in January and September each year.

Gross Revenue Assumptions
0
MoM Gross Revenue Growth
Max.
Min.
Av.
Growth profile
Comments
1
UK
30%
1%
9%
6 months of high-growth at 20-30% settling to an average MoM growth rate of 7%
30% Growth is ambitious in Q1/2 of 2020 but X have confirmed this growth will come from onboarding 6 UK clients awaiting go-live date.
2
US
130%
2%
22%
6 months of extreme growth in the US market, followed by 3 months of high growth settling to an average MoM growth rate of 6%
100-130% growth comes from an entry into the US market followed by rapid expansion, monthly CAGR 61% from £20k to £5.8m in year 1.
3
Canada
20%
2%
10%
6 months of high-growth (20%), dropping 5% each year to settle at average MoM growth rate of 5%
Growth in Canada is steady and tails off less quickly than in other markets
4
Portugal & Spain
20%
5%
9%
6 months of high-growth (20%), dropping to 5% growth over year 2 to average MoM growth rate of 5%
Growth in Portugal & Spain is steady and tails off quickly in year 2.
5
ROW
20%
0%
8-11%
12 months of high-growth (20%), dropping to 5% by year 3 to average MoM growth rate of 5%
Each new territory is staggered according to the timetable below.
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Count

Churn

Gross revenues are estimated based on month-on-month growth without consideration of the churn of customers from the platform over time.

Customer Growth

X expects its customer growth to come from 16 clients that have an agreement in place and are awaiting the go-live of their service. This includes customers in the UK, US and Canada. Management expect £588k of monthly gross revenue across these 16 clients - the largest three are:
Client Pipeline
0
Client
Territory
Status
Est Annual Revenues
Est Monthly revenues
1
Inbev
Global
90% Close Won
£2,000,000.00
£166,000
2
Fabric
USA
90% Close Won
£850,000.00
£71,000
3
Subway
UK
90% Close Won
£800,000.00
£67,000
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3
Count
£304,000
Sum

Volumes from clients are estimated based on average delivery of £6 (historically this has fluctuated between £5-15) and the estimated number of sites that will go live. However, this bottom-up approach does not feed directly into their financial forecast.
Launch
0
UK
Canada
UAE
USA
France
Spain & Portugal
Germany
Japan
South Korea
Australia
Mexico
Oct 2023
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Nov 2023
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Dec 2023
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Jan 2024
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Feb 2024
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Mar 2024
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Apr 2024
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May 2024
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Jun 2024
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UK
Canada
UAE
USA
France
Spain & Portugal
Germany
Japan
South Korea
Australia
Mexico
Month
TodayFit
Note: Launch timelines have slipped due to delayed fundraising round and will be re-focused on the markets that management consider to have the best opportunity: UK, US, Canada, Spain & Portugal.

2️⃣ Overheads/Cost Ratios

Compare forecast cost ratios to historic cost ratios
Compare overhead ratios to industry average

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Cost Ratios
0
Cost ratios
Historic
Yr1
Yr2
Yr3
Yr4
Av. Forecast
Comments
1
Delivery outsourcing as % of Gross NDS Rev
85.0%
84.0%
84.0%
84.0%
84.0%
84%
This is in line with historic percentages and fluctuates on a territory by territory basis from 84% to 87% based on the competition Lineten expect in each market.
2
Staff costs as % of Gross Rev
54.0%
14.9%
5.2%
2.1%
0.9%
1.7%
Gross revenues scale exponentially while the cost of staff grows linearly with volume. The overall percentage staff cost spend appears low
3
Sales & Marketing as % of Gross Rev
1.6%
4.4%
2.8%
2.5%
2.2%
2.4%
Sales commission and marketing costs scale with gross revenues achieved
4
Customer Support as % of Gross Rev
0.0%
1.7%
1.6%
1.5%
1.5%
1.5%
Customer support costs scale with gross revenue achieved
5
General & Admin as % of Gross Rev
15.9%
5.2%
3.8%
3.9%
3.9%
3.9%
High general and admin costs to set up entities and scale into markets. On-going general & admin costs are lower than historic as they will not necessarily scale with revenues though the overall percentage is low
6
Professional fees as a % of Gross Rev
7.2%
1.1%
1.0%
1.0%
1.0%
1%
High professional fess to set up entities and scale into markets
7
Bad Debt as a % of Gross Rev
0.0%
0.5%
0.5%
0.5%
0.5%
0.5%
Bad debt scales with gross revenues achieved
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3️⃣ Cashflow and runway

Produce some relatively simple calculations and draw conclusions as appropriate. Comment on historic working capital cycle and how it compares to forecast assumptions

Burn
Average monthly burn for the first 6 months of yr1 (2020) is expected to be: £935k.

Runway scenarios:

At Dec 2019, X had:
Cash: £2.7m
NWC: £0.5m
Total raise: £7m

1. Status quo
Using December 2019 figures: £735k in gross revenue and £97k in contribution to overheads
MoM Growth in revenue: 0%
Overheads: Flat at December 2019 figures:
Runway is: 24.5 months.
2. Slower growth, slower hiring
Revenue starts at December 2019 figures: £735k in gross revenue and £97k in contribution to overheads
MoM Growth in revenue: 10%
Overheads: at 25% growth expected in OB
Runway is: 18.8 months.
3. At current growth
Revenue starts at December 2019 figures: £735k in gross revenue and £97k in contribution to overheads
MoM Growth in revenue: 13%
Overheads: at 75% growth expected in OB
Runway is: 12.2 months

Working Capital:

Historic monthly NWC taken from X December management accounts shows a positive profile and indicates good management of creditors and debtors within the business. Forecast assumptions for debtor/ creditor positions haven't been modelled.
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