Thu, 3 February 2022
How to Build a Financial Model
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
It’s best to build your own financial model so you understand it thoroughly.
Here are the steps to build your financial model:
Define the goal for the model.
Figure out how you will use it and what decisions you need to make.
This will determine what details you need to include in your model.
Input your historical results as this will set the format of the model.
Start with revenue and figure out what drives it such as number of customers paying or number of products sold.
Calculate Cost of Goods Sold and include it as part of the revenue section.
Next, add salaries into the model as this is one of the biggest expenses you have.
Add in the other businesses expenses related to sales, marketing, and administration.
Set up a working capital section as you’ll need funds in the bank to pay expenses ‘til the revenue comes in.
Calculate your growth projections for each month for the next 24 months.
Review the model to see if it is achievable.
Finally, choose key metrics to include in the model and capture information that calculates those metrics.
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