Why Financial Modeling is Crucial for SEIS Investment Planning
You’ve got a killer idea. You’re eyeing SEIS investment planning to leverage tax relief. But no investor wants a napkin sketch. They need numbers.
Financial modeling helps you:
– Test if your idea turns into a sustainable business.
– Check how much cash you need and when.
– Speak the same language as SEIS backers and EIS angels.
Think of your forecast as a GPS. It tells you where to steer. Without it, you’re driving blind. SEIS investment planning hinges on:
– Realistic assumptions.
– Clear outputs.
– Flexible scenarios.
No fluff. No guesswork. Just a clear road map to funding.
Top-Down vs Bottom-Up: Nailing Your SEIS Investment Planning Assumptions
Getting to the right numbers is the real trick. Two main methods help:
Top-Down Forecasting
This is outside-in. You start with the Total Available Market (TAM). Then narrow down to Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM).
Example:
– TAM for digital marketing tools: £2 billion.
– SAM (UK focus): £500 million.
– SOM (your realistic slice): £5 million.
You slice the pie. Then work back to unit sales. Great for long-term ambition. But watch out for over-optimism. A tiny percentage of a huge pie might still be a stretch.
Bottom-Up Forecasting
Inside-out. You map your key drivers:
– Website traffic.
– Conversion rates.
– Average order values.
Imagine your SaaS tool. You budget £2 000 for LinkedIn ads. You know cost-per-click and click-to-trial rate. Boom—you forecast first-year sign-ups.
Bottom-up is solid for years 1–2. It forces discipline. But it can undersell a viral spike or word-of-mouth boost.
Combine both in your SEIS investment planning model. Use bottom-up for years 1–2 and top-down for years 3–5.
Building the Core Outputs of Your SEIS Investment Planning Model
Your model needs three main outputs. They speak to investors faster than any slide.
1. Profit & Loss Statement
Shows revenues, costs, and profit. Essential metrics:
– Gross margin.
– EBITDA.
– Net profit.
For SEIS, investors want to see margins that scale. Not just bookings.
2. Balance Sheet
Lists assets, liabilities, equity:
– Working capital needs.
– Net assets.
– Debt levels.
Shows SEIS backers you know your leverage and runway.
3. Cash Flow Statement
Breaks cash flows into:
– Operations.
– Investing.
– Financing.
SEIS investors care about runway. Will you burn through SEIS relief too quickly? The cash flow forecast flags any dips.
4. Operational Cash Flow
A monthly view of cash in and out. It answers:
– When will you hit a cash crunch?
– Can you afford a late launch?
– Do payment terms bite your runway?
5. KPI Dashboard
Every model needs a snapshot. Some useful KPIs for SEIS-eligible startups:
– Burn rate.
– Runway months.
– Customer acquisition cost (CAC).
– Customer lifetime value (LTV).
– LTV/CAC ratio.
– Monthly recurring revenue (MRR).
Pick the metrics that align to your offering.
Key Inputs for SEIS Investment Planning: A 6-Part Framework
Inputs feed those outputs. Get them right:
Revenues
Combine top-down and bottom-up:
1. Define product or service lines.
2. Choose units (e.g., licences, subscriptions).
3. Set pricing via market research.
4. Forecast volumes per month or year.
Tip: Use keyword tools to gauge demand. Planning an SEO tool? Check “buy SEO tool” search volume per region.
Cost of Goods Sold (COGS)
Direct costs to deliver:
– Hardware startups: materials, labour.
– SaaS: hosting, onboarding support.
– Services: billable consultant days.
Estimate cost per unit. Multiply by units sold.
Operating Expenses (OPEX)
Day-to-day costs:
– Marketing.
– Travel.
– Office rent.
– Insurance.
Align OPEX with strategy. Growth via events? Budget for conference stands.
Personnel Plan
Map headcount by function:
– Production or R&D (COGS).
– Sales and marketing (OPEX).
– Admin and management (OPEX).
Forecast recruitment, salaries, benefits, payroll taxes. Benchmark revenue per employee.
Capital Expenditures (CapEx)
Long-term assets:
– Computers.
– Machinery.
– Office fit-out.
Depreciate costs over their useful life to avoid P&L surprises.
Financing Structure
List equity, loans, grants. Model:
– Loan amounts.
– Interest rates.
– Repayment schedules.
– SEIS/EIS tax relief timing.
Know how SEIS investment reduces your funding gap.
Supporting Schemes: Working Capital, Depreciation, Taxes, Valuation
Models grow stronger with these tweaks:
-
Working capital
Calculate receivables, payables, inventory days. A large client might pay in 90 days, leaving you cash-flat. -
Depreciation
Spread asset costs over years. A £20 000 machine over 4 years equals £5 000 annual depreciation. -
Taxes
Model corporate tax plus SEIS/EIS relief carry-forwards. Losses in year 1 offset profits in year 2. -
Valuation
Use DCF (discounted cash flow). Value your forecasted free cash flows today. SEIS investors cross-check price per share via DCF.
Scenario Analysis and Sanity Checks
Expect the unexpected. Build three scenarios:
– Base case. Your realistic forecast.
– Worst case. Slow launch, higher costs.
– Best case. Viral growth, strong uptake.
Common pitfalls:
– Forecasts misaligned with market size.
– Missing costs (e.g., VAT).
– Over-optimistic growth curves.
– Ignoring working capital impacts.
Run sanity checks. Does revenue per employee match peers? If you predict £1 million revenue with two staff, raise an eyebrow.
From Model to Money: Financing Your SEIS Investment Planning
A model alone won’t fund your business. Pick the right route:
– Equity (SEIS/EIS): Angel investors and VCs trade cash for shares. You share upside, but keep some control.
– Debt: Bank loans or peer-to-peer. Less common early on, but interest is tax-deductible.
– Grants and subsidies: Innovate UK, R&D tax credits. Non-dilutive. Perfect for deep tech.
Every path has trade-offs. Align your SEIS investment planning model to the right financing mix.
Next Steps: Put Your SEIS Investment Planning into Action
Financial modeling isn’t a one-off. It’s a living tool. Update it:
– Weekly or monthly.
– After new assumptions.
– When you close funding.
This is where Oriel IPO steps in. Our commission-free marketplace connects your SEIS investment planning to interested angels—no hefty success fees. Plus, we offer curated educational resources and real-time dashboards. You keep more and learn more.
