Wed, 2 February 2022
Why Build a Financial Model?
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
In building a startup, the financial model is a key step in validating the viability of the business.
Templates can educate on what to include and how to format, but it’s best to start from scratch.
Every founder should build their own financial model at the beginning of the company so they understand it thoroughly.
In fundraising, investors use the financial model for the following:
To check how changes such as increasing or decreasing revenue will impact the business.
To check your understanding of the business with respect to costs, revenues, and growth rates.
To check how you will use the funds raised for the business, as the financial model shows expenses and impact on the revenue.
To check when you will go cash-flow positive or break even.
To check to see how much runway the proposed fundraise will give you.
This verifies you are raising sufficient funds to accomplish your goals.
You will need a detailed financial model to track your progress in running the business.
Include the financial model in your presentation but at a high level showing last year, this year, and the next three years.
Building the financial model is not about predicting the future but rather demonstrating how much you know about your business.
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