Our consulting company in Switzerland focuses on investment preparation, which is directly linked to financial modeling prep. Preparing proper financials is essential when raising investments or managing company operations. Over the years, we’ve developed strategies that have helped clients raise over $50 million and generate millions in revenue.
Let’s dive into the strategies and discuss how you can use a template for your financial model prep.
Why Financial Modeling Prep Depends on the Industry and Market
Creating a model depends on the industry, market, and product. For instance, if Jeff Bezos had created a financial model for Amazon in the early days, he might have underestimated the market potential. It’s important to understand that no model is ever 100% accurate, especially for startups.
Even analysts at Wall Street provide estimates for large companies, and these companies often exceed or fall short of the predictions. So it’s essential to acknowledge the uncertainty and inaccuracies that will arise.
When You Don’t Need a Model for Your Startup
One of the first things to consider is whether you actually need a model. Many of our clients don’t require one at their early stage, and we tell them so. If your company hasn’t generated revenue or doesn’t need one at the moment, it’s best not to overanalyze or overinvest in financial modeling.
Some founders get caught up in unnecessary planning, but financial models are only necessary when they serve a purpose—whether for setting financial goals, getting a bank loan, or raising investment. When that time comes, focusing on financial modeling prep becomes critical.
Market Research: The Core of Financial Model Prep
Half of the work involved is dedicated to market research. You need to study other companies that have operated in the same space to understand how they performed. For example, if you’re building a social media platform, you can’t assume you’ll generate $50 million in the first year without understanding industry growth trends.
Trends like those experienced by BeReal or Facebook are anomalies. You need to focus on what’s normal for your industry. This involves assessing user growth, market expansion, and competitor performance. Once you have a solid understanding of the market, you can begin projecting your financials with greater accuracy.
The Time and Effort Behind Financial Model Prep
Creating a financial model takes time—over 50 hours on average for us to build one properly. This time is spent on researching the market, understanding user trends, and projecting product growth. It’s important to recognize that a product’s growth depends on several factors, including the founder’s experience and industry conditions.
New founders, for example, may not be able to generate large revenues in their early years, even if the market is favorable. Each link in the chain, from market research to founder experience, needs to be valued in the financial model.
Building Different Scenarios for Your Financial Model
A crucial is working on different scenarios—best case, average case, and worst case. These scenarios help entrepreneurs, investors, and banks understand the range of potential outcomes.
Such models are never fully accurate, but by having multiple scenarios, businesses can better manage expectations and prepare for various situations.
Financial Model Prep as a Strategy for Success
In our company, we focus on creating the best financial model prep strategy for our clients. This involves thorough market research, realistic growth projections, and building different financial scenarios. Keep all of this in mind when working on your own financial modelling.
Additionally, I’ll attach a few templates we’ve designed for you to use freely in the future. These templates will serve as a starting point for your own financial model prep journey.