Access to external capital is vital - and you are in competition. Larger investors and VC's receive thousands of pitch decks every year. Once your story has convinced others, your figures have to be conclusive as well.
As a founder you need constant control of your financial planning. The financial model is a decision-making tool for you and your potential business partners. Beyond that, it is the roadmap for your personal success story, enabling you to track target attainment efficiently.
The first question is whether your commercial approach is economically feasable at all. What are your funding requirements and which financial instruments can be used to meet them? What is your liquidity situation in the first months and years? Up to here, these questions might be answered using spreadsheet templates.
In the course of further development of your idea, your financial analysis must also become more sophisticated. Suddenly, potential investors want to know whether working capital is reflected in cashflows, how COGS are affected by economies of scale over time and what equity IRR they can expect in an exit scenario. After all, you mentioned the scalability of your business case.
At this point, your financial model should provide answeres to those and similar questions and inform investors and financiers in a comprehensive and clear way. In addition, you need enormous flexibility, because most startups change their business model over time.
The focus of funders' ambitions often is on excellent pitch decks and mind-blowing presentations in 120 seconds, to arouse interest in your idea. This is absolutely necessary, keeping in mind that you are in competition for venture capital or funding programmes. Nevertheless, this is nothing more than the entrance ticket to a profound analysis process, so-called due diligence. It is not unusual that promising investments are cancelled at this point, as a result of incomplete, unrealistic or incomprehensible financial planning.
taylor-made financial model
Your business case is prepared fully integrated, including each and every parameter and generates cashflow, P&L and balance sheet. In addition, KPI's and relevant analyses will be added, adjusted, inter alia, according to your branch and the intended financing instruments.
In the course of developing your business model, there will be a vast number of decisions. Build-vs-buy, sell-vs-rent, invest-vs-lease and so on. Your financial model should be capable of supporting your decision-making process by comparing all these scenarios. Even after market entry, it allows you to keep track of your target attainment.
adress your target audience
As a founder you expect flexibility and consistency, but for potential investors and funding agencies, you will need to provide specific additional information and analyses, e.g. valuation, financial sustainability or risk assessment indicators.
What is selv-evident for pitch decks and presentations, is sometimes disregarded when it comes to financials. But this is exactly where you should not miss out on a professional preparation of your business model.