In startup finance, maintaining a clear and organized view of your finances is critical for growth. Altitude Lab's P&L Financial Model Template helps startups and small businesses track revenue, operating costs, and profitability all in one place with a specific life science perspective. Whether you're pitching to investors or monitoring your company's performance, this tool provides essential insights. At Altitude Lab, solid financial planning is a cornerstone of startup success and an essential requirement for any startup founder. Understanding and managing your financial performance is vital to making data-driven decisions and steering your startup toward sustainable growth.
Here's a breakdown of the tabs included and what each section is designed to do:
The P&L (aka Income Statement) tab is central to understanding your business's profitability and a clear snapshot of your startup's financial health during a set period (ideally per quarter or year). This section breaks down revenues, expenses, EBITDA, depreciation, net income, and investments, allowing you to see whether your startup is operating at a profit or loss. You'll be able to track trends over time and understand how different variables (costs & revenue) impact the bottom line.
This is your financial "report card." It helps you track your company's ability to generate profit by comparing revenue against expenses. Here's how each part of this sheet breaks down:
- Revenue: This is the total amount of money generated from your core business operations, including product sales, services rendered, or other gross income streams (before expenses). The P&L aggregates revenue from various sources to give you a complete picture of total income. Most life science and healthcare startups are typically "pre-revenue" in the early stages as they are still developing their products, building for eventual market approval, and, thus, not selling in the market. Despite that fact, it is very important to note that startups operating under non-dilutive grants and/or contracts may need to record that source of funding as financial revenue (more on that topic later).?
- Operating Expenses: These are the costs needed to run your daily operations. They can include rent, utilities, wages, marketing, and administrative costs. Managing operating expenses is critical for maintaining a lean operation and ensuring expenses scale proportionally with revenue growth to avoid cash flow issues, which can impact future fundraising activities.
- EBITDA: Earnings Before Interest Taxes Debt Amortization, or EBITDA as it sounds, measures the company's core operational profitability before interest, taxes, depreciation, and amortization. EBITDA helps startup founders gauge the business's financial efficiency and appeal to investors. Investors often look at EBITDA to evaluate a startup's core performance, making it a key metric to assess for future funding or plan for sustainable growth.?
- Investment: This refers to any external contributions (e.g., pre-seed investment or Series D funding) that affect your ending cash value. Understanding your net income numbers allows you to forecast when to take on investment, setting your startup up for long-term positive net income.
2. Revenue Model (Biotech Example in Template)
This tab examines the details of your revenue model, outlining sources of income while considering variables such as sales projections, pricing strategies, market segments, and market shares.?
The revenue model tab focuses on how your startup earns money and projects future income. Here's a closer look:
- Revenue Streams: Identify and list different sources of income. For a biotech startup, this could include product sales (like diagnostic tools or therapeutics), service and/or government contracts, or licensing deals. Each revenue stream may have different pricing models—subscriptions, one-time sales, or royalties—so it's essential to map out each one separately. This template works through an anonymous asset-based pharmaceutical company modeling revenue streams of two therapeutic assets. This tab showcases the diversification of this company's revenue while projecting long-term value. This submodel helps determine which lines of business to optimize.
- Indications/Market Segments: Like many industries, the life science industry is made up of multiple market segments (i.e. therapeutics, medical devices, diagnostics, etc.). In this model, it is ideal for healthcare startups to map out their market entry based on the patient population present in the disease condition that their product is targeting (typically referred to as bottom-up market analysis). Mapping out the total disease indications by patient population helps assess the best-fit market segments for healthcare founders to maximize short- and long-term revenue.
- Market Shares: The portion of the market that your company controls within a specific segment in relation to your competitors. This allows startup founders to understand their competitive position and potential opportunities within market segments.
- Imputed Units: Estimated quantities of your product/products or services the business expects to sell based on market conditions, trends, and historical data. Accurately projecting demand levels is crucial for long-term profitability and pricing adjustments.
- Pricing: Average sales price of your product unit. Your pricing strategy directly affects revenue projections. Define pricing for each product or service and include any anticipated changes due to market conditions, scaling, or competitive adjustments. Founders should regularly check pricing against the market to optimize sales and ensure sustainable growth.
- Revenues: In this model, derived from multiplying 'Imputed Units' with 'Pricing.' Total money is generated through combined revenue streams before expenses are deducted. Founders should closely monitor revenue trends and understand the drivers behind revenue growth to make informed strategic decisions, attract investors, and ensure long-term success.
The revenue model tab helps you understand the most lucrative income streams and predict future cash inflows. Accurate forecasting is crucial for managing growth and impressing investors.
The Operating Costs section records all ongoing expenses essential to running your business. This includes fixed costs like rent and utilities and variable costs such as supplies or services. Understanding operating costs is vital to controlling expenditures and ensuring your startup's financial health.
Here are its key components:
- Fixed Costs: These are expenses that remain consistent regardless of business activity, like rent, insurance, equipment leases, and administrative salaries. Fixed costs are predictable and more straightforward to budget for.
- Variable Costs: Variable costs fluctuate with production or service levels, such as the cost of raw materials or manufacturing. Understanding variable costs helps optimize overall production and operational efficiency.
- Other Operational Expenses: These may include utilities, maintenance, travel, legal fees, and software subscriptions. While individually small, these costs can add up, so tracking them is crucial.
Operating costs provide insight into the resources required to keep your business running smoothly. Monitoring this tab allows for informed decisions about cost-cutting or efficiency improvements.
Personnel expenses often represent a significant portion of costs for startups. The staffing tab tracks salaries, wages, benefits, and other costs related to hiring and retaining talent. It also includes headcount projections to ensure labor costs align with your growth goals.
Here's an overview of the critical components:
- Headcount: This section lists your total number of employees, broken down by role or department. Tracking headcount helps allocate labor costs across the company.
- Salaries and Wages: Each role has an associated salary or wage, which is a significant fixed cost. It's essential to benchmark salaries against industry standards to remain competitive while keeping budgets in check.
- Benefits and Taxes: Beyond salary, account for employee benefits like healthcare and retirement contributions, along with employment taxes (e.g., Social Security, Medicare).
- Payroll Growth and Forecasting: As your startup scales, you'll likely increase headcount. This section helps project future staffing needs and how they'll impact overall costs.
Understanding staffing costs ensures a healthy balance between talent acquisition and financial sustainability, helping you grow your team responsibly without overstretching your budget.
By carefully filling out each tab and keeping these financials up to date, you'll gain a comprehensive view of your healthcare startup's performance and a clear understanding of how to drive future growth. This financial modeling tool simplifies complex financial tracking and helps ensure your company is on the path to sustainability.?
Stay tuned for next week's blog, where we'll explore CXO Talks - our exclusive roundtable series with biopharma industry experts. See you then!
