Introduction to Financial Modeling: What it is and Why it Matters for Startups and Established Businesses

(1 of 5) Introduction to Financial Modeling: What it is and Why it Matters for Startups and Established Businesses

(𝘙𝘦𝘮𝘪𝘯𝘥𝘦𝘳: 𝘞𝘦 𝘢𝘳𝘦 𝘨𝘰𝘪𝘯𝘨 𝘰𝘷𝘦𝘳 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘮𝘰𝘥𝘦𝘭𝘪𝘯𝘨 𝘦𝘷𝘦𝘳𝘺 𝘥𝘢𝘺 𝘵𝘩𝘪𝘴 𝘸𝘦𝘦𝘬.)

For an intro or a refresher, financial modeling at its basic level involves:

a) Historical actual finances
b) Assumptions for financials going forward
c) The math of what those assumptions project

You can Google for more details and find various answers, but at its core, that's all it is. It's you saying:

• This is what things cost.
• This is what money comes in.
• And this is how it all shakes out.

The magic lies in accurately knowing all the components of each section. Things like how much it cost to acquire a sale, the cost of selling it, the duration a customer or business stays, and the overall business expenses – ensuring that eventually, it all leads to profit.

Fun Facts:
1. Historically, financial models were created in spreadsheets, but that's not necessary anymore. There's an app for that!
2. They're also called Pro Formas, but that's not entirely accurate. Pro Forma is more of an adjective, as in "Pro Forma Financials," though the terms are often used interchangeably.

In summary, financial modeling is about proving that your business idea, and all the costs and revenues you've projected, flush out to be profitable (at some point, even if waiting to be acquired).

𝗦𝘁𝗮𝘆 𝘁𝘂𝗻𝗲𝗱 𝗳𝗼𝗿 𝗧𝘂𝗲𝘀𝗱𝗮𝘆 𝘄𝗵𝗲𝗿𝗲 𝗜'𝗹𝗹 𝘀𝗵𝗮𝗿𝗲 𝗮𝗯𝗼𝘂𝘁: 𝗞𝗲𝘆 𝗖𝗼𝗺𝗽𝗼𝗻𝗲𝗻𝘁𝘀 𝗼𝗳 𝗮 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹 - 𝗘𝘀𝘀𝗲𝗻𝘁𝗶𝗮𝗹 𝗲𝗹𝗲𝗺𝗲𝗻𝘁𝘀 𝗲𝘃𝗲𝗿𝘆 𝗺𝗼𝗱𝗲𝗹 𝘀𝗵𝗼𝘂𝗹𝗱 𝗶𝗻𝗰𝗹𝘂𝗱𝗲.

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