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What Makes Entrepreneurs Tick?
Why bother with a financial model?
There are several key reasons why a robust financial model is a key component to your business operations. The financial model can provide:
- clear visibility of costs and revenues to your business
- clear understanding of your realisable profit margins and cash flow requirements
- a framework for challenging your assumptions with your business. The mere discipline of documenting the assumptions enables you to question and challenge their validity
- a framework for sensitivity analysis. This can highlight the main risks to your business, the important costs to keep tightly controlled and the key revenue drivers
- a tool to check your prices are right for your business and sustainable
- confidence that you know you are on top of your business and its financial data to your investors
- a tool for assessing potential growth opportunities and decision making
Financial models do not need to be complex unwieldy black box models. In fact it is preferable they are not. People want to see simple excel based models so that they can understand all assumptions made and the inputs to the financial model. It is then possible to clearly see key drivers of revenue. It is vital your business has a financial model to ensure you are on top of your business, so if you don’t have one, you should look to develop one now.
Melissa Grafton