Reflecting your plan in a financial model
A sound financial model should be a foundation for your business. A good model will help to make better decisions about pricing, investment and other strategic decisions, such as focusing on your end market and defining your goals better. On top of that, if you engage in a sales process, any buyer will expect to see a financial model and projections over five years in most cases.
From a structural perspective, some characteristics of a good business plan are that it is granular and detailed, but also easy to follow and auditable for someone who has not built it.
From a commercial perspective, a good financial model should be ambitious on one hand, but also credible and underpinned by observable trends and data. This means gathering a lot of quite granular information on your business.
For instance, in order you build your company's sales projections, you will likely need several years of historical data on the volume of sales (sometimes by channel) and pricing information. In addition, if you are an e-commerce or a subscription business, you might want to look at customer data to identify patterns around customer behaviour, such as retention, churn, repeat customers and average order value.
The cost structure can also be complex and entail looking at such as the split between fixed and variable costs. You will have to look at the breakdown of costs by department and at the salary base for your whole company.
Once you have collected all of the required information, you can begin to build your model. However, besides collecting and analysing the data, which in itself can be a time-consuming exercise, you will also have to factor in the opportunity cost of building a well-structured financial model in Excel.
Importance of forecasts
To build some projections, you will have to include all the historical data, developing sometimes complex formulae to calculate forecast revenue and costs. In addition, if you are looking to build a three-statement model, you will have to include a balance sheet and cash flow.
If you're looking for someone to just write your business plan for you, a traditional financial advisor is probably not the best option. Unless they are advising on a full sale of the company, most financial advisors will not be interested in only writing a business plan for you.
On the other hand network of vetted modelling specialists can deliver a business plan, either as a standalone deliverable or as part of a broader project. Our specialists will work with you to understand the nuts and bolts of your business in detail and prepare a plan which can help you achieve your objectives - whether that be internal budgeting or looking credible in front of investors.
If done properly, preparing a financial model can be a time-consuming process. By outsourcing this to an Ithaca specialist, you can focus on what you enjoy: growing your business!