Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

There are two approaches to financial forecasting for startups.

The first is top-down forecasting. The second is bottom-up forecasting.

Bottom-up forecasting uses the company’s historical data for cost and sales. It takes a micro view and focuses on the core drivers in the business. 

Through experimentation, the startup learns the cost of sales and marketing through various channels.  

Having sold some units of the product will guide the revenue forecast based on the sales funnel and the sales resources available. 

The bottom-up approach may generate a forecast that looks weak to an investor. 

You may add your growth initiatives in to show what will drive the growth upwards past the organic growth rate.  

The initial growth (say 1-2 years out), comes from the current state of the business, while the future growth (say 3-5 years out), comes from your growth initiatives.

Make clear your assumptions in the spreadsheet. 

Your thought process and approach will weigh more heavily than the numbers themselves. 

Include attributions for market research such as websites, news articles, and market reports. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.