What Is The Point Of A Financial Model?

Reach new heights

News And Articles

What Is The Point Of A Financial Model?

What Is The Point Of A Financial Model?

Table of Contents

Dr Thommie Burger is the Founder of JTB Consulting

Author

Short and simple answer… To tell the story about your business with math.

A great financial model isn’t just a spreadsheet: it’s an outline of your fundamental business model that can be used to understand your business. A lot of stakeholders tend to say that financial models are irrelevant for start-up companies. I agree that financial models are rarely accurate, especially if they are prepared by an individual that has a narrow grasp of basic accounting.

But accuracy is a misguided goal. Unfortunately, any business plan needs the inclusion of a comprehensive financial model. There is no way around that! The importance is to start with well-grounded assumptions, create a structure that allows you to understand how your business works, and create a model that helps you make the decisions you need to: that’s the goal. 

I often advise people to create a “Minimum Viable Model”; the minimum amount of a model they need to make an important decision in their business. Products always come before spreadsheets, but there does come a point when spreadsheets are important and necessary to help you make business decisions. And that’s typically when we need to validate the business models we are contemplating for our products. In my opinion, you need to focus on business models before financial models. Start by reading a couple articles on business models and then answer the two questions below. Just write them down in any document you want, and save it so you can revisit as you build your financial model.

Read:

Top 10 Business Models for your Start-Up

http://jtbconsulting.co.za/top-business-models-for-your-new-start-up/

Top 10 Questions Investors Will Ask you when you Present your Business Plan

http://jtbconsulting.co.za/beware-of-the-top-10-questions-that-investors-will-ask-you-when-you-present-your-business-plan-funding-application/

Answer:

  1. What is your Business Model? Explain your business and business model in one paragraph. Explain the problem being solved and how the business solves it. Then explain how it spends money, acquires users, and earns revenue.
  2. What are your costs? List out your major cost items. Staff, offices, travel, equipment, inventory, etc. Listing out the major items here helps frame out what to pay attention to on the Costs sheet.

Established in 2006, we have successfully written hundreds of bankable and world-class Business Plans for clients across 25 countries. As South Africa’s Leading Business Plan Company, we are confident that we would be able to assist you too. Kindly note that we also offer “Investor Pitch Decks”, “Excel-based Financial Models”, and “Proposal/Tender Writing Services” in addition to our Custom Business Plan Writing Service. Please visit our Services page for more information.

We look forward to being of service to you. Please feel free to contact our Founder, Dr Thommie Burger, on +27 79 300 8984 should you have any questions. He is also available via email and LinkedIn.

JTB – Your Business Planning Partner.

Share this article…

Recent Articles

SWOT Analysis and 50 Urgent Questions to Ask (Our Free Checklist)

SWOT Analysis and 50 Urgent Questions to Ask (Our Free Checklist)

Every business owner should conduct a regular SWOT Analysis to assess the company’s strengths, weaknesses, opportunities, and threats in relation to its competition. A SWOT Analysis helps evaluate where a company stands in a competitive market and what steps need to be taken for further strategic planning, helping decision makers draw a future roadmap for the company.

Top 3 Reasons Why A Business Plan Is Essential For SMEs

Top 3 Reasons Why A Business Plan Is Essential For SMEs

For entrepreneurs, especially small businesses, a Business Plan can act as a strategic tool to make informed decisions, especially better planning decisions, and meet short- and long-term business objectives. A business plan is often referred to as a blueprint or roadmap; without it, one can still travel, but with a map, one can reach a destination much quicker and easier. Companies rely on Business Plan Writing Services to keep businesses on track for a more detailed and strategic guide. Let’s look at how having a business plan can help your business in the competitive global market.

How to Hire an Effective Business Consultant

How to Hire an Effective Business Consultant

The role of a Business Consultant is often misunderstood. Some business owners see them as snake oil salesmen only out for their own good. In this blog post, we explore what exactly a business consultant does, how they can help you and some tips on how to find the right one for you.

What we do.

We are South Africa’s leading Business Plan Company providing world-class Professional Business Plans to local and international clients, ensuring total satisfaction at every step. With extensive industry experience and the latest market insights, our qualified team of Business Plan Consultants are the first choice of serious entrepreneurs.

Subscribe to our newsletter.

Stay informed and opt-in for our newsletter via email. We respect your privacy and we never spam.