How Financial Modeling Helps Startups?

By Author: Skillfin Learning
Total Articles: 32
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One most crucial thing that founders and CEOs of startups and small businesses need to always focus on is to never run out of money. Knowing and completely understanding your business’s financial model helps the founder stay in charge and take game-changing decisions. The startup financial model improves the decision making process by allowing one to understand how and where can the business successfully scale. It also helps to predict near-future scenarios and maximizes opportunities and profitability.

Financial models are the ‘what if’ tool to test future financial scenarios of a business or a startup and predict how various factors can affect profitability.
It facilitates startups to develop what-if scenarios and evaluate the most likely outcome. Since startups do not have much of a historical data to compare, various other factors can be used for predicting the future.

Financial models are generally needed while raising outside capital. They are also useful for making internal decisions and plans like employee wage increase and hiring.

Excel and Financial Models

All financial models are Excel spreadsheets. An Excel Financial Modelling Course can be of immense help to someone who is completely new to the concept of financial modeling. Modeling can provide information on many different scenarios. By changing the variables, such as price per unit, cost of delivery, and estimated gross profit, you can readily predict which changes will most impact your bottom line.

The best part of financial modeling is that it always works for future progress. As times and business scenarios change you might need to put in new numbers to see the new outcome. A founder must know what variables will affect the financial model. This helps to detect which cells should need manual inputs. All changing variables must be in cells that can be manually recorded. This helps in predicting a future based on the latest scenarios. Like for example now after the COVID 19 crisis if a startup goes for funding round it needs to change the month old financial model and update the same based on the new situation.

How to start?

If you are ready to make a model for your business but have no idea where to begin- do not worry. An online financial modeling course or a full Business Modeling class is your answer to this. Anyone from a financial background, a Chartered Accountant (CA), a business graduate, or even a founder who understands numbers with the non-financial background is the ideal candidate for this course.

Advantages of a good startup financial model

A good financial model can also help in these ways:

Test and verify the key drivers for your business

Compare various business choices like pricing models and sale models

Calculate the amount of capital needed by a startup to survive and grow

Calculate the burn rate

Know the profitable options and projections

Be prepared while speaking to potential investors and effectively communicate profitability projections.

Financial modeling course helps to gain knowledge of Financial Analysis- a core skill for anyone dealing with business, from an entrepreneur to equity analyst or an investment banker.

Rajiv G. is a Strategy and Corporate Finance Consultant with 15+ years of experience. Previously, he has worked with the Strategy and Corporate Finance practice at McKinsey & Company. He has advised clients globally in multiple industries on various Strategy and Finance engagements. Prior to this, he has worked as an Equity Research Analyst with CRISIL. He is a CFA and Chartered Accountant.