What is the best step-by-step approach to financial modeling?
Financial modeling is one of the pillars of all businesses and startup ventures. It is an essential ingredient. For those that haven’t been through business school and have practiced it before, it may be intimidating. So, what are the steps for creating financial models to get the results you need?
Financial modeling is used in a variety of ways at different stages of business. It is used all the way from the very first seed financing of an idea through exiting and selling your business or taking it public.
This may include your actual current financial data if you are already in business and have some. Though its main use is for forecasting the future and what finances and the numbers could look like given various scenarios.
Here are the steps to follow to get from here to creating, implementing, and getting the most out of this practice.
Start With The Why
As with anything, including your whole business, it’s important to start with your why. Why do you need financial models?
Knowing this will help you make the right decisions when looking into the step-by-step approach to financial modeling.
It may be:
- Validating your startup idea
- Creating a business plan
- Completing a pitch deck for fundraising
- Evaluating new projects, lines of business, and strategy changes
- Regular goal setting
- Stress testing and identifying business cost-cutting measures in a crisis
- Analyzing acquisition opportunities
- Preparing for and optimizing the sale of a business
- Preparing for an IPO
More specifically, decide what your financial modeling should do. Does it need to prove you can hit a certain level of revenues or profit? Certain multiples and returns for investors? Know the specific results you hope to get out of this process.
Remember that storytelling plays a key role in fundraising and you will need capital to scale things up. This is being able to capture the essence of the business in 15 to 20 slides. For a winning deck, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
See How I Can Help You With Your Fundraising Efforts
- Fundraising Process : get guidance from A to Z.
- Materials : our team creates epic pitch decks and financial models
- Investor Access : connect with the right investors for your business and close them