written by Anna Magiera, Senior Partner, Startups & Venture Business
During my workshops, I always say that when developing a financial model, use available templates: there is no need to reinvent a bicycle. Just find a template that you like the most and improve it.
But my recent interactions with several teams proved that having a financial model template doesn’t guarantee you’ll be able to develop a working model.
Let me share my insights with you, and hopefully, they will help you get it right.
Usually, there is an instruction attached to the template, don’t skip reading it. Often startups fail to manage the template, and it doesn’t work the way it should.
When you build a financial model from scratch, you also develop a logic behind the numbers. You must understand how assumptions, metrics, and formulas work and what affects what. If you are increasing the sales, you need to add more to the Sales & Marketing budget and secure enough employees in your customer care team. Make sure you understand the logic of the template and everything is clear to you. Otherwise, find another template.
The template doesn’t mean that you have all the required information.
You still need to analyze the market, competitors, trends, and best practices. Gather all the data to build the model. Numbers in the template might be irrelevant for your case.
Sometimes having a template eases you, and you become less careful. It’s not enough to fill in the cells. Remember to check that everything works well, and the numbers are not corrupted. Not all templates will highlight the errors, so ensure that the SUM function is summing up all the figures you need, the final result makes sense, etc.
Don’t be afraid to ask for help. There are people, who are good with numbers, experts in the domain. You can easily find support and ensure that the model will meet your needs and answer all the investors’ questions.