Building a Basic Financial Model - Step-by-Step Guide for Creating a Simple Financial Model (3 of 5)
3 of 5: Building a Basic Financial Model - Step-by-Step Guide for Creating a Simple Financial Model
(𝘙𝘦𝘮𝘪𝘯𝘥𝘦𝘳: 𝘞𝘦 𝘢𝘳𝘦 𝘨𝘰𝘪𝘯𝘨 𝘰𝘷𝘦𝘳 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘮𝘰𝘥𝘦𝘭𝘪𝘯𝘨 𝘦𝘷𝘦𝘳𝘺 𝘥𝘢𝘺 𝘵𝘩𝘪𝘴 𝘸𝘦𝘦𝘬.)
The good news - financial modeling is like filling out Mad Libs. The bad news - it takes a bit of elbow grease. That being said, you can do this!
First, use an app (we use 𝗙𝗶𝗻𝗺𝗮𝗿𝗸 by BILL with our clients) instead of a spreadsheet. Feel free to draft anything on a spreadsheet, but the app will do the heavy lifting.
Steps to Create Your Financial Model:
1. Revenue and Costs: Start by entering your direct costs and any related expenses if you know how much your service or item costs. Alternatively, if you know what you are planning to charge, fill that in.
2. Operating Expenses: Input your operating expenses, such as rent, salaries, and utilities.
3. Input or Integrate Payroll: Add your payroll information to ensure accurate expense tracking.
4. Debt or Equity Financing: Add any external financing details, including loans or investments.
5. Variables and Assumptions: Input key variables and assumptions such as growth rates, churn rates, and any other factors that impact your financial projections. The app can help with this by using built-in formulas.
7. Additional Metrics: Add any other metrics relevant to your business, such as churn rate or runway.
Finmark calculates many metrics automatically once the information is input, so keep adding more data. Once you’ve filled in these details, the app will help you visualize and adjust your model. Remember, the goal is to create a realistic, dynamic model that helps guide your business decisions.
After that, you can copy and create alternative scenarios.
Next - 𝗨𝘀𝗶𝗻𝗴 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹𝘀 𝗳𝗼𝗿 𝗗𝗲𝗰𝗶𝘀𝗶𝗼𝗻 𝗠𝗮𝗸𝗶𝗻𝗴 - 𝗛𝗼𝘄 𝘁𝗼 𝗹𝗲𝘃𝗲𝗿𝗮𝗴𝗲 𝘆𝗼𝘂𝗿 𝗺𝗼𝗱𝗲𝗹 𝗳𝗼𝗿 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗰 𝗽𝗹𝗮𝗻𝗻𝗶𝗻𝗴 𝗮𝗻𝗱 𝗳𝘂𝗻𝗱𝗿𝗮𝗶𝘀𝗶𝗻𝗴.
If you found this helpful, share it with a founder who might be interested. Let’s spread the knowledge and help more businesses succeed!
