http://www.caycon.com/blog/2007/07/what-makes-a-good-financial-model/ The Secret Sauce for Entrepreneurs Mon, 6 Sep 2010 16:37:00 -0400 hourly 1 http://wordpress.org/?v=3.0.1 http://www.caycon.com/blog/2007/07/what-makes-a-good-financial-model/comment-page-1/#comment-155 Blacher, Josh Mon, 25 Jan 2010 19:18:54 +0000 http://www.caycon.com/new/blog/?p=17#comment-155 All valid points. Also keep in mind that no matter how much homework you’ve done on the underlying assumptions and how defensible they are, your perspective investors will always want to beat you up on them. For that reason, it’s a great idea to preempt this by stressing a number of the key assumptions. And when I say stress them, really take a hatchet to them. Make sure your model has built-in sensitivity tables which analyzes the major output items (DCF, NPV, IRR, etc.) relative to the key revenue and expense drivers. All valid points. Also keep in mind that no matter how much homework you’ve done on the underlying assumptions and how defensible they are, your perspective investors will always want to beat you up on them. For that reason, it’s a great idea to preempt this by stressing a number of the key assumptions. And when I say stress them, really take a hatchet to them. Make sure your model has built-in sensitivity tables which analyzes the major output items (DCF, NPV, IRR, etc.) relative to the key revenue and expense drivers.

]]> http://www.caycon.com/blog/2007/07/what-makes-a-good-financial-model/comment-page-1/#comment-151 Ryan Chester Mon, 25 Jan 2010 13:05:12 +0000 http://www.caycon.com/new/blog/?p=17#comment-151 I absolutely agree. A good financial spreadsheet must be error free and easy to understand. One of the most important driving forces in a superior financial model is the quality and depth of the underlying assumptions. Forecasting is not based on the number of units sold or the number of subscribers acquired and measured exponentially over time. It is also not focusing on a revenue model to the exclusion of a rigorous operating model. The majority of forecasts that I see are focused on revenue generation with minimal-to-no operating costs. A simple profit and loss statement just does not provide a good enough view of business expenditures. Investors of all types look for a financial forecast that focuses on the big picture, which identifies and explains all root assumptions, and above all demonstrates competence that the strategy is attainable and executable. In my opinion, the financial strategy is the most important part of the business planning process. Marc Suster, venture capitalist with GRP Partners and former entrepreneur, has written a good synopsis on the importance of financial modeling and particularly its’ underlying assumptions. He writes, "Financial models are the Lingua Franca of investors. But they should also be the map and the Lingua Franca of your management discussions." Source: http://www.bothsidesofthetable.com/2009/11/03/are-business-plans-still-necessary/ I absolutely agree. A good financial spreadsheet must be error free and easy to understand. One of the most important driving forces in a superior financial model is the quality and depth of the underlying assumptions. Forecasting is not based on the number of units sold or the number of subscribers acquired and measured exponentially over time. It is also not focusing on a revenue model to the exclusion of a rigorous operating model. The majority of forecasts that I see are focused on revenue generation with minimal-to-no operating costs. A simple profit and loss statement just does not provide a good enough view of business expenditures.
Investors of all types look for a financial forecast that focuses on the big picture, which identifies and explains all root assumptions, and above all demonstrates competence that the strategy is attainable and executable. In my opinion, the financial strategy is the most important part of the business planning process.
Marc Suster, venture capitalist with GRP Partners and former entrepreneur, has written a good synopsis on the importance of financial modeling and particularly its’ underlying assumptions. He writes, “Financial models are the Lingua Franca of investors. But they should also be the map and the Lingua Franca of your management discussions.”
Source: http://www.bothsidesofthetable.com/2009/11/03/are-business-plans-still-necessary/

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