Finance
How to develop financial model for your business?
Step 1:- understand the business
Clarity on business's aspects is very important. It is impera ve 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:- iden fy the variables:-
It is not possible to iden fy all the variables at a me. But list out the variables as many as possible is
required. Also it is the best idea to find out the most cri cal variable. For start-ups it is bit difficult but
business understanding can help in that.
Step 3:- Assessment of impact of those variables:-
A er iden fying the variables, impact of those variables should be assessed. Impact may be upside or
downside.
Step 4:- Give quan ta ve figure to those impact:-
Th is is one of the most difficult task to convert qualita ve aspects to convert into quan ta ve figure.
But it is required because financial modeling is a mathema cal 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
tenta ve figures and as soon as any change in variable is no ced quan ta ve figures should be
incorporated.
Uses of financial modeling
The most popular use of this mathema cal model is for internal analysis for decision making. Be it
market environment or internal situa on, these are not sta c.
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 me and use it properly. Start-up should even be more proac ve in
developing it to grow faster.
www.Venture-Care.com/Magazine
October 2017
33