The article provides an in-depth guide for startups and entrepreneurs on how to create a financial model that accurately projects their company’s future financial performance. The author, Blair Silverberg, emphasizes the importance of having a believable financial model when approaching investors for funding.
Here are the key takeaways from the article:
- Create a solid financial foundation: A good financial model should be based on hard data and assumptions, rather than gut feelings or best guesses.
- Understand your company’s inputs: The four key inputs to consider in a financial model are:
- Customer Acquisition Cost (CAC)
- Gross Margin
- Operating Expenses
- Revenue Growth Rate
- Use a framework to guide your modeling: Silverberg suggests using the "Hum Capital Framework" as a starting point for building a financial model.
- Talk to your team and validate assumptions: Bring the initial model back to the team to gather additional context and execution knowledge that may impact the inputs.
- Scale your model over time: As the company grows, the fundamentals of the financial model will remain the same, but the inputs will become more predictable.
Some key points from the article include:
- A good financial model should be able to predict revenue with a reasonable degree of accuracy (around 10-20% error margin).
- The model should also be able to predict cash flow and operating expenses accurately.
- It’s essential to bring the team together to validate assumptions and ensure everyone believes in the model before approaching investors.
- As the company grows, the financial model will become more precise, allowing for higher valuations.
Overall, the article provides a comprehensive guide for entrepreneurs and startups on how to create a believable financial model that accurately projects their company’s future financial performance.
