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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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