Financial modelling includes forecasting profit and loss account, balance sheet and cashflow using rationale assumptions and variables. Financial projections can be made for 1-3 years or 4-10 years depending on whether short term or long-term financial results are to be presented. Looking for finance from banks or seeking equity investments from angel investors or evaluating business perspectives for one’s own decision making, financial models are very informative and significant tool to rely upon
To start with, a financial modeler must understand the business, founders, and industry. Knowledge and research with this three is the fundamental to start financial modelling as it will ensure that variables and assumptions one uses are factually correct, relevant and justifiable. Modelling can be done on Microsoft Excel or Google Sheets as it allows the creator to play around with a lot of formulas, macros, data validations and other functions provided by these applications. Tailor made models are the best one since one can create customized templates, define constraints, and play around with the model with multiple trial and errors by changing the variables.
Now-a-days, pitch decks prepared by start-up companies for fund raise contains financial summaries. Many Investors evaluate these numbers critically and asks for financial models so that they can stress test the model and see how the company will perform in best case or worst case or how the return on investments will be affected if one or two variables go contrary to the assumptions or to validate whether assumptions made by founders of startups are too good to be true or conservative or viable.
Projected Financial Statements must be prepared in accordance with the generally accepted accounting principles (GAAP), International Financial Reporting Standards (IFRS) and sound accounting policy choices which are already in place for historical financial statements or to be applicable for the preparation and presentation of financial statements. This methodology give confidence that no accounting jugglery has been made for window dressing the financial numbers.
Financial models must be accompanied by analytical financial ratios like Net Present Value (NPV), Internal Rate of Return (IRR), Discounted Cashflow (DCF), Returns on Investment (ROI), Earnings Before Interest, Depreciation and Taxes (EBIDTA), Profit after tax (PAT) and various other financial ratios. Also a consideration must be given to specifically important ratios considering the industry of the business since recipients of model will be interested in it. For instance, labor turnover ratio in service industry employee base is a significant asset.
Our financial modelling services is tailor-made and as per international standards. It is complex in terms of backend working since it contains utmost detailing. But the user interface is simple, easy to understand and offer click based options for trial and errors under multiple permutations and combinations. The foundation is that business owners will not require us every single time because the model is fairly automated and manageable by business owners who may or may not be from accounting background.