Financial Modeling - DJK Services

Why Financial Modeling Matters

Financial projections are the backbone of your business plan. They show investors, lenders, and partners that you understand your business economics and have a viable path to profitability.

Core Financial Statements

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Profit & Loss (P&L)

Shows your revenue, expenses, and profitability over time. Also called Income Statement.

Key Components:

Revenue (sales)
Cost of Goods Sold (COGS)
Gross Profit
Operating Expenses
Net Profit

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Cash Flow Statement

Tracks cash coming in and going out. Critical for understanding liquidity.

Sections:

Operating Activities
Investing Activities
Financing Activities
Net Cash Flow

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Balance Sheet

Snapshot of your assets, liabilities, and equity at a point in time.

Formula:

Assets = Liabilities + Equity

Building Your Revenue Model

Step 1: Define Revenue Streams

What are all the ways your business makes money?

Product sales
Service fees
Subscriptions
Licensing
Advertising

Step 2: Calculate Unit Economics

Example: Product Business

Units sold per month: 500

Price per unit: $50

Monthly Revenue: 500 × $50 = $25,000

Example: Subscription Business

Subscribers: 200

Monthly price: $29

MRR (Monthly Recurring Revenue): 200 × $29 = $5,800

ARR (Annual Recurring Revenue): $5,800 × 12 = $69,600

Step 3: Project Growth

How will revenue grow over time? Base your assumptions on:

Market size and demand
Sales and marketing capacity
Production/service capacity
Competitive dynamics
Historical growth rates (if existing business)

Understanding Costs

Cost of Goods Sold (COGS)

Direct costs to produce your product or deliver your service:

Raw materials
Direct labor
Manufacturing overhead
Packaging
Shipping/freight

Formula: COGS % = (COGS ÷ Revenue) × 100

Typical Range: 30-60%

Gross Margin

Gross Margin = Revenue - COGS

Example:

Revenue: $100,000

COGS: $45,000 (45%)

Gross Margin: $55,000 (55%)

Operating Expenses (OpEx)

Category	Examples	Typical %
Personnel	Salaries, benefits, payroll taxes	20-30%
Marketing & Sales	Advertising, events, commissions	10-20%
General & Admin	Rent, insurance, legal, accounting	5-10%
Technology	Software, equipment, maintenance	3-8%

Key Financial Metrics

Gross Margin %

Formula: (Revenue - COGS) ÷ Revenue × 100

What it tells you: Profit after direct costs

Net Margin %

Formula: Net Profit ÷ Revenue × 100

Benchmark: 10-20% is healthy

Break-Even Point

Formula: Fixed Costs ÷ (Price - Variable Cost per Unit)

Calculate Now

Cash Runway

Formula: Cash Balance ÷ Monthly Burn Rate