Here are some common mistakes that founders make in their first financial model:

1. Overestimating revenue: One of the most common mistakes that founders make is to overestimate revenue. This can happen when founders are overly optimistic about the market or their product’s potential.
2. Underestimating costs: Another common mistake is underestimating costs. This can happen when founders don’t take into account all the expenses associated with running a business or don’t fully understand the cost structure of their business.
3. Ignoring cash flow: Cash flow is critical for startups, but it’s often overlooked by founders in their financial model. It is crucial to model not only how much you pay or receive for something, but also the timing of those payments (i.e. when the cash leaves or arrives in your bank account). Ignoring cash flow can lead you to underestimate funding requirements, and running out of money, which is disastrous for a startup.
4. Failing to consider different scenarios: Financial models allow you to consider different scenarios, such as best-case, worst-case, and base-case. Failing to consider more challenging scenarios can lead to unrealistic expectations and leave founders unprepared if things don’t go entirely to plan.
5. Making unrealistic assumptions: Financial models are only as good as the assumptions they are based on. Making unrealistic assumptions can lead to inaccurate projections and poor decision-making. Product development inevitably takes longer than you expect, and over optimism can even kill your business if you grow staff and costs quickly, but revenues fall behind.
6. Making too detailed assumptions: In the early stages of your business, there’s so much that you haven’t tested and market validated yet. So it is important to stay focused on the few key drivers of your business. A model is only as good as its weakest assumption, so don’t get lost in the detail or confuse potential investors by over complicating things.

Overall, founders should take the time to think through the main factors that will impact the success of their business. Your financial model is supposed to work like a compass (e.g. are we heading in the direction), not like a Google Maps (e.g. we are exactly 7.569 degrees off-course). By avoiding these common mistakes, founders can make better-informed decisions and set themselves up for success.