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Finance
How to develop financial model for your business ?
Step 1 : - understand the business
Clarity on business ' s aspects is very important . It is imperative to know the product ' s worth , industry aspects , change in dynamics of the industry , funds as and when required and impact of any kind of change on business . Step 2 : - identify the variables : -
It is not possible to identify all the variables at a time . But list out the variables as many as possible is required . Also it is the best idea to find out the most critical variable . For start-ups it is bit difficult but business understanding can help in that .
Step 3 : - Assessment of impact of those variables : -
After identifying the variables , impact of those variables should be assessed . Impact may be upside or downside .
Step 4 : - Give quantitative figure to those impact : -
This is one of the most difficult task to convert qualitative aspects to convert into quantitative figure . But it is required because financial modeling is a mathematical model . For already running businesses , it is bit easier because previous impact is known but for start-ups it is difficult . The way out is to keep tentative figures and as soon as any change in variable is noticed quantitative figures should be incorporated .
Uses of financial modeling
The most popular use of this mathematical model is for internal analysis for decision making . Be it market environment or internal situation , these are not static .
Financial model can be presented to the investors / fund providers to provide them to have fair view so that they can have good confidence to invest in the business .
To conclude , business owners should appreciate the value derived from financial model . It will help in growth of the business and will keep minimum risk with maximum return . Let us not considered developing a model waste of time and use it properly . Start-up should even be more proactive in developing it to grow faster .
www . Venture-Care . com / Magazine December 2017
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