Building Sound Financial Models Adam B. Harris Principal Calacles Consulting Group

Narrate Ask yourself, what story does the business plan need to tell?

Translation A good financial model is simply a translation of business plan wording into numbers.

Goal Build a financial model with variables and links between variables, creating the ability to easily manipulate both variables and links to tell your business story.

Benefits Flexibility in allowing for month to month operational changes Clarity in showing client return on investment calculations. Agility in building visualizations for pitches

Build Putting it all together.

Deduction

Induction

Variables vs. Assumptions Assumption Online Ads will drive my business revenues to 10M by year 5 Variable “Click-Through-Rates” for online ads are.05%, therefore my site, which receives 100,000 page visits, can convert roughly 50 potential sales leads per ad campaign. X 

Outline list the key driving variable of your business -- group into categories Marketing Plan Online Ads Guerilla Marketing Sales Calls Super Bowl Ad Revenue per Sales Forecast & Projections Conversion Statistics Marketing Plan Misc. Product(s) / Service(s) Cost of Goods Manufacturing Development Milestones

list how each variable fits together –begin to develop links between key factors Outline Ex:

Control Build using control inputs to drive the variables, this will allow for easy manipulation making the model useful for monthly management of the business

Key Components of a Financial Model The Core Five –Revenues: the channels from which your business generates revenue and how much from each stream Sales & Marketing Plan –Cost of Goods (COGS): the cost of selling your product or service –Operational Expenditures (OPEX): how much your business spends in order to properly operate –Income Statement: how much net profits or losses your business will incur during a period of time –Cash Flow: how much cash your business generates and uses during a given time period

Other Components of a Financial Model In a Later Phase –Capital Expenditures (CAPEX): money spent acquiring or upgrading physical assets i.e. Property –Balance Sheet: summary of a company’s assets, liabilities and share holders equity at a given time period –Working Capital: how well a company manages its current assets vs. current liabilities Note: These are all important components however each are late stage accounting statements -- mostly required by investors when raising capital or for monitoring purposes after raising a venture round

Case Study PalmerRogovHarris Laboratories Concept vs. Company

Adam B. Harris | Principal Calacles Consulting Group | E: P: