Starting a business doesn’t only require an idea. What you need are all the ground rules in place when it comes to establishing your business. One of these is building your startup financial model. Your business finances play an important role in decision-making. What’s a better way than creating a financial model template for your startup to help you with this?

Creating a financial model is essential if you wish to plan out your business decisions effectively. If you’re unsure about how to build a financial model, then stay put. Here, you will find all the basics you need to figure out how to do so for your startup business.

Why Do You Need A Startup Financial Model Template?

Your startup financial model template represents your business value. As a startup, you want to ensure that you’re putting in the right time and skills to create your financial model. This is because you will want to attract investors to your business. However, creating a financial model is not a simple task.

You have to account for a multitude of things, and it can get difficult to manage everything if you do not have the right expertise. You can find a startup financial model example to help yourself get an idea of going about it. But keep in mind that every business is different, so the financial model template will also be different.

Moreover, your financial model will showcase your forecasts and help you with budgeting. It doesn’t matter whether you’re a startup or an already-running business. Creating a financial model can do wonders for your decision-making abilities.

While it may not give you exact results, it gives a pretty clear idea about your finances over the next few months or years. It will help you figure out different plans and their forecasted results. Also, it will help you create contingency plans for any future events.

Two Main Types Of Financial Models

When it comes to financial models, there are two categories that you will need to focus on. The one you chose to make depends entirely on how you wish to run your business finances. Each of them is effective in its way, depending on the startup you’re running.

Bottoms Up Startup Financial Model

The first one is the bottom-up financial model. This is where you work with around 15 assumptions and create your financial model. You can also get your hands on a financial model template to see how to incorporate the assumptions into this.

The bottoms-up model is great for startups who clearly understand the industry and how things work. It makes creating and applying assumptions easier while making sure that you’re getting sound results as well.

Top-Down Startup Financial Model

The second type of financial model is the top-down one. With this type, you will already have a clear answer to how much investment you will get. It can be time-based as you might know after how long you’ll get a particular investment sum.

Now, according to the investments, you will plan out your financial model and see what kind of decisions you can make. This will help you clear out what expansionary or growth policies you can apply to your model. You will also find a startup financial model template for this type of model. So, you can easily add all the details to the template.

How To Build Your Financial Model Template

It is easy to go over the financial model theory, but getting in the actual work is difficult. A CFO in your business can help you create an accurate model. Since they will be experienced, you will find that your financial model will also be close to the actual data.

Before getting started on your model, you will have to make sure that you have two things cleared out. The first thing that you will have to keep in check will be your business projections. These are the assumptions that will help create forecasts in your financial model. Adding the right assumptions is essential to creating a financial model.

The second thing that you will have to focus on is the design of your financial model. It should be easy-flowing and not difficult to understand. Since you will be putting this out for potential investors as a startup business, you will need to be clear about your model’s design.

When it comes to creating a financial model, you will have to look at three different aspects. These will include projections, spreadsheets, and templates. So, let’s take a look at building a financial model based on each of them.

Projections

When it comes to projections, these vary in the bottom-up and top-down approaches. In the bottom-up approach, you will find that the projections are made based on the real-life values that a business has. For instance, it has competitive prices and other relevant data that is known within the industry. This makes it more reliable, and investors are bound to feel more motivated to invest in these.

But this doesn’t mean that the top-down approach isn’t good enough. It is equally great when it comes to projecting for startups that don’t particularly have too much revenue. Your financial model template can incorporate general data to create projections.

Spreadsheets

The next thing revolves around creating spreadsheets. This is all about the calculations. You will have to find your projected values through the assumptions you make. For instance, you can incorporate any seasonal changes, the number of customers, price changes, and many other factors into your model.

All you have to do is make sure that assumptions are as accurate as possible. If your assumptions are not correct or ambiguous, you will not attract investors’ right kind. So, always make sure to add correct assumptions as you go about making your spreadsheets.

Templates

You want to ensure that your financial model is as close to accurate as possible. You can easily do this by making use of a startup financial model template. These are highly relevant and will help make things easier for you.

A financial model template can help create the right kind of model for your startup business. You will have a basic guideline as to how to go about creating your model. Moreover, you will also be able to find a relevant financial model template for your business. So, you can capture your audience better.

Common Mistakes To Avoid While Making A Financial Model Template

When it comes to creating a financial model, you can easily make a lot of mistakes. Here, we have listed down some of the common mistakes that you should avoid at all costs.

Not Doing Enough Research

The first and most common problem is that people do not do their research before starting their model. If you wish to know how to build a financial model, you must do adequate research beforehand. This includes having all the relevant industry data and then creating assumptions.

Emphasizing On Point Estimates

You will often keep a specific percentage that you want due to the assumption in your model. However, that is not the way to go about this. You should always ensure that you have a range that you can work with. This makes it easier to create and work with your model.

Wasting Time On Immaterial Data

Financial models are here to help you make better decisions. If you keep focusing on irrelevant or immaterial data, then you will find yourself wasting time. For instance, if a particular cost barely makes up 1% of your entire cost, you do not need to spend excessive time forecasting it. Instead, you should focus on items that are larger in proportion to your finances.

Not Creating A Robust Model

The last thing that you will have to realize is that your model needs to accommodate changes. Without this, you will not create different plans within your model and adjust for any changes.

Creating a financial model for your startup business might seem like a tricky task at first. But if you have the right team on board, things can become easy-flowing. We, at Oak Business Consultant, are here to help you create effortless startup financial models. Look at how our CFO service can help you with this highly technical and critical success factor.

Our services come with vast experience. Head on to our website, at Oak Business Consultants, and get a free consultation!