Financial modeling is a way for startups to predict the financial health of their business in the future. Using a manual spreadsheet, this model helps forecast by using reasonable projections based on a company’s historic financial records. It benefits startups because it shows owners how much time and cash they must spend after launching the business before the cash supply becomes depleted. It also enables business owners to assess whether new opportunities are right for them and to evaluate the impact of various success and failures.
What Makes a Good Financial Model for Startups?
When creating a financial model to predict revenue, it is not necessary to include all business details. However, you will want to take information from major assumptions to aid you in planning. Although forecasting can seem overwhelming, especially when you are new at it, you never want to just guess on the numbers. Instead, use a combination of bank statements, sales receipts, market research, and industry projections to help come up with the most accurate numbers possible.
Consider Hiring a Professional to Get Started
For most startups, focusing on the balance sheet, cash flow statement, and income statement is the best way to start the process. Hiring a recent business school graduate is often the least expensive route when finances are a concern. Whether you do the financial modeling or pay someone to do it for you, start by color-coding the spreadsheet to indicate variable formulas and hard inputs. If you feel you don’t have a basic understanding of Excel, most communities offer adult education courses at a reasonable fee.
Keep the data you input as simple as possible so others can understand it as well as you do. Be sure to take advantage of the charts and graphs feature to draw out the most important information right away. If you don’t receive clear and usable information, you will need to adjust the way you input and categorize the data.
Please don’t hesitate to reach out to Affinity Capital Funding any time during this process.