You have a product that works and interested customers, yet you don’t know if your project is viable. Not because the numbers are bad, but because they don’t exist yet.
Many hardware founders move forward without an up-to-date financial model, convinced they’ll handle it “when the time comes.” The problem is that, in financing, time doesn’t wait for you.
Let’s explore the importance of a financial model with our partner Le Chiffre and learn how to keep your forecasts in order.
About our partner: Le Chiffre
Le Chiffre helps entrepreneurs build and manage their financial forecasts. Their approach is particularly well-suited to hardware companies, where cash flow, BOM, and supply chain challenges completely change the financial dynamics. They believe that understanding your numbers means understanding your business.
First things first, let’s distinguish between hardware and software
When we talk about financial projections for a startup, we often have the classic software model in mind: recurring revenue, rapid growth, few physical assets, and a burn rate that’s controlled mainly by adjusting salaries.
The rules of the game change completely as soon as a physical product enters the equation. In hardware, the revenue model is often transactional or hybrid, if you manage to make a major sale and then generate service revenue from it. You sell a product, you get paid once, and you have to sell other products to get paid again.
Your costs are directly tied to components, suppliers, and delivery times. You have to finance inventory before selling anything. And if you switch suppliers or modify a core component, it can cost months of R&D.
Then, when sales take off, you run into problems: not a marketing problem, but a production capacity problem.
In short, software and hardware are two completely different fields, and they don’t follow the same financial rules.
A financial model is, first and foremost, a survival tool
People often think of a forecast as a document designed to impress investors. In reality, it serves several purposes, including helping you anticipate cash flow gaps before they occur.
A financial model is also another storytelling tool for the company’s key milestones. To convince banks or investors, you need to be optimistic in your forecasts without being unrealistic.
In hardware, the time lag between when you pay your suppliers and when you collect from your customers can create a gap of several months. This isn’t a profitability issue, but a timing issue.
One of the three financial documents that helps you navigate this is the cash flow statement. It allows you to play with assumptions to identify the blind spots you need to focus on.
The BOM is where dreams are made of (or rather margins)
The Bill of Materials (BOM) isn’t just an engineering exercise. It’s the most powerful financial lever you have, especially in the early stages, before you start mass production. Choosing a core component can sometimes lock in your costs for years.
Le Chiffre emphasizes this point: improving your margins is best done before launching production, not after. Sure, it can be done after. But it will cost you more. And I’m sure every dollar saved today will help you in the long run.
Hardware growth has its own limits, and they’re not the same as those of software
In a software startup, the growth limit is often sales. In hardware, it is sales, but it is also production capacity.
New facilities, equipment, alternative suppliers, inventory: every stage of growth comes with a tangible cost.
A good financial model doesn’t just project revenue; it anticipates the investments needed to achieve it. Otherwise, you risk running out of money just as things start to take off.
“Revenue is vanity, profit is sanity, cash flow is reality”
During a recent workshop with Le Chiffre, Jean-Gabriel shared this quote with us. It perfectly captures the importance we must place on the metrics found in various financial statements.
Many founders manage their businesses based on revenue or accounting profitability. But what determines whether a company survives month after month is available cash (cash flow).
Keeping a financial model up to date is exactly that: managing with your eyes open.
What a startup should do right now
Take some time this week and answer these questions in an Excel file:
What are your margins per unit today?
What is your time lag between supplier payments and customer collections?
When do you reach your break-even point under different pricing scenarios?
If you can’t answer with numbers, now is the time to build, or ideally update, your model.
What if you need help?
Do you want to build a solid financial model, or validate the one you already have?
The Chiffre team works with hardware startups at every stage.
[Get in touch with them here.]