Does your startup have a custom financial model?
A custom financial model is critical for every new business venture or startup. A simple, custom financial model is a great starting point for determining:
- the amount of investment required
- how long it will take to recover your investment (payback period)
- revenue streams and pricing strategies
- variable and fixed operating costs
- capital expenditure requirements
- cash inflows/outflows and net present value.
Benefits of a custom financial model?
- have a better understanding of the key financial drivers of their business
- be able to make critical business decisions
- have information necessary for potential investors.
How to get started?
Anyone with basic spreadsheet software skills can build a custom financial model. If you are unsure I may even help you free of charge. With over 30 years business experience I’ve prepared and reviewed many financial models. Beware of the free templates available on some websites. To ensure success your startup needs a custom financial model.
What’s the process?
- Send me an email with a brief summary of your proposed business and your contact details.
- I’ll reply by email or telephone and agree a time/date to discuss further.
- We’ll discuss in greater detail your business concept and spreadsheet experience. I’ll tell you if you qualify for a free custom financial model or provide a fixed fee quote (confirmed by email). If you wish to proceed, we’ll agree the weekday and time to meet and develop the model.
- If you wish to continue we’ll schedule weekly meetings (in person or by telephone or video conference).
- Weekly meetings (capped at 1 hour) will focus on:
- timeframe (five to ten years)
- annual revenues (top line) for each product or service line
- selling costs, such as agent commissions, advertising, customer discounts and product/service promotion
- direct costs, such as direct labour and direct materials
- indirect costs, such as office rent, management salaries and other general and administrative costs
- a simple income tax calculation.
- I will build the initial model and provide verbal guidance on how to update and maintain each week as new elements are introduced.
The aim is to keep the custom financial model as simple as possible. It is a best guess of the cash inflows and outflows of your proposed business venture. Accept it’s an estimate of the future. There will be many assumptions made that need not be verified.
My approach encompasses aspects of best practice business administration including organisation design. You will be challenged to consider alternate ways of achieving your entrepreneurial goals.
The value of a custom financial model will be in it’s high level financial ratios. For example, top line growth, gross and net margins, annual net cash flows and payback period.
On completion, we’ll use the custom financial model to:
- analyse forecast fixed and variable costs
- tweak product/service prices and volumes
to maximise net cash annual flows, especially in the first three years.
Step back from the detail and consider what picture the model paints of your startup. If it looks to good to be true it probably is.
Is it an investible business?
How can you reduce costs and/or increase revenues?
Once we have addressed these questions you will have a “Base Case” model. The Base Case represents the most likely cashflows of your startup. This is where my role in the free custom financial model ends.
It’s worthwhile creating a “Best Case” and “Worst Case” scenario models. Spreadsheets are very powerful for “what if” analysis. A custom financial model will allow for what if analysis. For example, what if you aim for a larger market share by reducing your product/service unit price?
Ensure you understand the key financial drivers of your proposed business. These will be your primary focus when you start operations. In my experience, most businesses proposer by increasing sales. Too much focus on reducing costs can be counter-productive. Start lean and stay lean for as long as possible.
For many businesses the most significant cost is staffing (salaries, wages and on-costs). Focus on keeping employee numbers low. Staffing costs tend to be fixed, so consider using contractors where possible.
What’s the catch?
No hidden surprises and no obligations. I enjoy helping budding entrepreneurs navigate the challenges of a startup. I get a kick out of sharing the business management expertise I’ve accumulated over my career.
If I do a good job a testimonial or a nice double espresso would be all I would ask.
Of course you are free to pay whatever my services were worth to you!
“I am a small business owner that was stuck in the rut of every day and didn’t know exactly what to do next to help actualise my potential. Meeting with Brett has been a beneficial experience as he provides excellent accounting insight and guidance. Working with Brett has helped me understand some challenging components of my business. He has built my confidence for tackling decision-making challenges myself as well as providing oversight to making judgments for interpreting key details. I was at a stage in my journey where I was aware that I didn’t know what I didn’t know – not only was Brett helpful with coordinating a structured financial model, he also asked me the right guiding questions. If a knowledgeable, understanding, and ethical accountant/adviser is what you’re looking for, then Brett is the right person.”
Declan Cavanagh, February 2021
If your startup or high-growth small business needs a custom financial model, please email or call me on 0418 697 701 to arrange a free, no-obligation chat to see how I can help you.