Models Models Models

Financial Models

As a business owner, when talking about models, you are talking about a Financial Model.  The type of financial model that shows you where your business is going to be in five years time.  The type of financial model that helps you raise capital (also read, Funding Your Dreams).

Enabling Decision Making

Financial Models are the core of every business.  They inform every decision and ultimately ensure the entrepreneur knows what makes his or her business tick.  A model is a financing, negotiating, marketing and planning tool.  Above all – the model is the core of the business plan, showing how profits are made and where costs are spent.  Every entrepreneur should strive to understand, live and breath their financial model.

A Dynamic Tool

A Financial Model isn’t static either.  It changes with the business, with moving markets and with new products and customers.  It should be continuously updated.  This also helps the entrepreneur to assess whether their forecast became reality (and if it was vastly different, to understand where the error in the modelling process is).

Cash is King

Most importantly for an entrepreneur, a Financial Model shows actual CASH FLOW.  Cash is King, and a business can only survive on actual cash flow (not cash which may or may not materialize in a few months time).  An entrepreneur needs to ensure that their cash is always sufficient to pay suppliers, staff and their expenses (plus a salary), and of course any debt.  Many a business has failed by not ensuring there is sufficient cash in the business.  Don’t fall into this trap!

Learn to Model… in Excel

Want more information?  Use the promo code ILOVEXCEL to get 50% off lifetime access to ‘Excel Tools for Financial Modeling’ course here (valid until the end of December 2018).

Good luck and happy financial modelling!

Now read all about forecasting in financial models.

Matthew


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