Superstar financial model: Draw a “map” to find your way! 💼
In the world of entrepreneurship, there is an indispensable tool that is often misunderstood as dry and boring: the financial model. Yet, what is the true value of such a model, and how can it help your venture succeed? In this blog post, you’ll find the answers to these questions, and we’ll also provide expert tips that will take you a step further on your journey as an entrepreneur.
Boring numbers are old school, tell a story instead
Financial models are more than just numbers in a spreadsheet. They serve as a powerful tool to outline and shape the future of your business. Even more so, drafting a model requires founders to formulate hypotheses on how their business will develop. The exercise itself is the main purpose and it enables clarifying the vision of the business and confidently advocating decisions leveraging data.
In this way, your financial model becomes a marketing tool that helps you raise funds and interact with your investors. Clarity is crucial here. A model should convey a concise message and tell a story. It allows founders to show investors and other stakeholders how they will use the money they have raised, where investments will go and how long it will take to generate positive cash flows. This type of model not only represents future results, but also tells how the company will get there.
Using data to intuitively make decisions?
Using data to support decision making is an essential aspect of a financial model. Even in unfamiliar business areas, data can help make intuitive decisions. When expectations are formulated in advance about what should change as a result of tactical or strategic projects, the results are much easier to interpret. Did it work as intended? This does not mean financial “planning” in the traditional sense. It is not a matter of aiming for a specific absolute figure. Rather, the financial model serves as a “map” that helps to continually redraw the path that leads the company to its goals.
KPI as recipe for success – also in the financial model!
A common mistake in financial models is that they only contain hard numbers rather than formula-based projections. Financial models that include non-financial key performance indicators (KPIs) to predict financial values will take you to another level. Such models provide a broader perspective and allow founders to understand the impact of non-financial factors on their financial performance. It is always a good option to project relationships between KPIs and to distinguish between leading and lagging KPIs. This enables founders to set priorities and make strategic decisions more consciously and confidently.
Conclusion: All good reasons come in threes
A financial model serves three main purposes. First, it is a marketing tool that presents the company’s goals to internal and external stakeholders. Second, it is an ideation process that helps formulate how the company can achieve its goals. Third, it forms the basis for decision-making in complex situations and gives founders confidence in their own decisions.
What does this mean for my Company? How do I apply a financial model in practice? Our practical tips for your successful use of a financial model:
🌟 Why financial models are important:
- They are not just for show! Find out how they serve as a marketing tool, idea generation process and decision compass.
- Learn why your financial story is your ultimate investment pitch.
💪 Master the art of forecasting:
- Don’t fear the future; embrace it! Discover the power of projecting relationships between KPIs and anticipating the impact of your decisions.
- Understand that it’s not about hitting a specific number but navigating the unique journey of your scaleup.
📈 Turn complexity into clarity:
- Feeling overwhelmed? Start small, think big! Understand your business model qualitatively before diving into spreadsheets.
- Identify leading variables and stay one step ahead.
🗺️ Own your way to success:
- Think of financial models as a GPS for your company. They help you constantly adapt and make informed decisions under changing conditions.
- Keep everyone on the same page with a KPI framework.
🔥 Ready to unleash the full potential of your company?
Discover the art of financial modelling and storytelling with the experts at FS Partners – The Scaleup Desk. We are happy to support you in drawing your map and finding your way. We are your reliable sparring partner, especially during the ideation process