Financial Modelling
The Operating Leader – February 2022
Financial Modelling
I admit that I am very biased when it comes to the importance of building a reasonable set of financial projections that include, at their core, a cash budget for the activities of your company. The model, projections… whatever you wish to call them, are the manifestation of your plan to hit milestones, achieve results and move your start-up towards a sustainable and repeatable business model. Financial projections align with your plan, your business model canvas, Gantt charts or other preferred planning tools bringing them to life in a way that shows probable costs, revenue and timing. It is a powerful tool in the toolkit for all companies, whether a start-up or not.
Cash is the lifeblood of companies so having a tool that helps you understand cash needs is crucial to success. If you are an early stage or pre-revenue company then financial modelling helps you understand your cash need as you work toward your company’s unique milestones. Good, well constructed models will reveal your cash cliff (when you will run out of cash) and as importantly, how much money is needed to achieve the goals you have set for your company post financing. Investors want to know you have a plan to turn their investment into more money some day. Useful financial models that are congruent with your pitch deck and give investors confidence are gold.
Financial models go into more detail than does the pitch deck. The detail the model captures helps CEO’s and teams understand and plan for their future operations. When investors have filled out your round and are relying on regular investor updates from the company to let them know how you are progressing, the financial model can be helping to leverage the investors money with non-dilutive funding – i.e. as you pitch to and are successful in getting funds from government agencies such as ACOA or IRAP. Projections can even help you understand whether you might get a SR&ED refund from CRA well before you file your tax forms. Perhaps you are wondering when you are going to outgrow current space and want to figure out your options around that? Financial projections can help, with that and many other things. What has been your experience with how financial models have helped your company or companies you know?
Great CEOs and leadership teams are constantly questioning their strategy to achieve stated goals. And we know businesses pivot, adapt and change on their path to profitability. You should have a current, up to date and flexible financial model available as strategic and operational questions arise and not just when you are raising money.
I have been working with start-up leaders and innovators for over 20 years in Halifax, Nova Scotia. I have worked in companies as a mid-level manager, as senior and executive management, as a founder and, on and off for the last 14 years, as an embedded executive and advisor.
If would like to automatically receive this newsletter in your inbox, email me at bill.power@powerforward.ca.
