What are the different types of financial models?
Financial modeling is woven into everything you’ll do as an entrepreneur and business owner or investor. So, how hard is it? What does it take to be good at it? Who should be doing the financial modeling for your organization?
What Goes Into A Financial Model?
When you are looking into the different types of financial models, keep in mind that financial models can be very simplified in the early idea stage of a startup. They can get very complex when you are raising big rounds of capital, or are looking at exits through startup M&A deals and initial public offerings.
Some of the basics you’ll often have in your numbers will include:
- Gross revenues
- Static expenses
- Variable expenses
- Profit margins
- Customer acquisition and sales figures
- Financial projects for the next 12 months through year five
Purposes Of Financial Modeling
There are many uses for financial modeling as well as types of financial models. Here are some of the most frequent reasons you’ll be using them.
Ensuring your business idea actually has the potential to be a viable and profitable business and not just a hobby. In the video below I explain in detail how to validate a business idea.
Out of the types of financial models, raising money is without a doubt one of the repeated reasons. Investors want to see that you know what you are doing, have put the time in, and they can expect a return in line with what they need for their portfolio. This of course also applies to borrowing through debt and estimating what you can expect to get, and the outcome of various financing terms.
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.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Even if you aren’t raising outside capital you need to be modeling your finances to ensure you aren’t going to run out of money and go bankrupt, as well as making sure you are allocating capital to the most important and high rewarding things.
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