As previously described, unit economics and deriving revenue and expense assumptions form the core of a financial model. To be able to predict the three main financial statements (the income statement, the balance sheet and the cash flow statement), and even more importantly to predict the value of a company, we need to predict cash balances for every period.
Especially as the company grows, knowing EXACT cash balances becomes more and more important as you suddenly have accumulating and very complex receivable and liability situations and simply because VCs won’t fund you with millions of dollars, if you can’t credibly tell them that you know what is going on, on your bank account.
In addition, the larger the investment required, the more likely it becomes that the due diligence team will start asking you for historical financial statements, which not only need to be accurately prepared, but must reconcile nicely with the future portrayed in your financial model. Unless you have predicted financial statements, that will a be massive chore at best and almost impossible at worst. AND destroying investor confidence and deal momentum as well.
This is covered in detail in this section and we start by providing you with a more detailed look at how accounting statements and accounting profit differs from actual cash flows.