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Developing a financial plan (i.e. financial model) is an essential step in the process of creating a comprehensive business plan, setting goals and evaluating the performance against those set goals. A financial model is a tool used to forecast future financial performance based on historical data and assumptions about the business.
\n\n\n\nLet’s face it, developing a comprehensive financial plan for a company is no easy feat. There are numerous factors that must be taken into account, such as:
\n\n\n\nDeveloping a comprehensive financial plan that accounts for all of these factors can be incredibly time-consuming and requires a significant skill and investment of resources.
\n\n\n\nTo tackle this challenge, many companies turn to specialized strategy or financial consultants, if they can afford their services. These consultants are typically from Big 4 firms or similar, and are specially trained to develop complex spreadsheet models and perform financial analysis. They bring a wealth of knowledge and expertise to the planning process, helping companies develop a plan that is comprehensive, logical, flexible, and accurate.
\n\n\n\nHowever, the expertise and services of these consultants come at a steep cost. A single financial plan exercise can quickly cost $50,000 or more, making it a significant investment for any company. Despite the high cost, many companies are willing to make this investment, recognizing the importance of having a high-quality financial plan. A well-crafted financial plan can help companies achieve their financial goals, set clear targets for their employees, measure performance, identify new opportunities for growth, and stay ahead of the competition.
\n\n\n\nAnd after the consultants complete the financial model, changing it at a later stage becomes impossible for the company. The financial model was built in excel, by experts in financial modeling, so they made it quite complex.
\n\n\n\nModeliks is here to change this narrative, and give YOU and everyone else with a small or medium sized business, or a startup, the ability to develop such a plan yourself, without being a spreadsheet expert and without depending on consultants.
\n\n\n\nLet’s now get started with understanding the financial planning process. We will cover the following topics:
\n\n\n\nBy the end of this article, you will have a solid understanding of the steps involved in developing a financial model and how to use it to make informed business decisions.
\n\n\n\nThe first step in developing a financial model is to identify the purpose of the model. What are you trying to achieve with the model? Are you looking to forecast future revenue and expenses? Are you trying to determine the viability of a new business idea? Do you want to set up targets for your employees? Are you planning to share it with potential investors? Will you use it to request a loan from a bank?
\n\n\n\nOnce you have identified the purpose, you can then determine the structure of the financial model, the level of detail and complexity required. For example, a financial model used to evaluate the potential return on investment for a specific project may require more detail and complexity than a financial model used to request a loan from a bank.
\n\n\n\nThe next step is to define the structure of the financial model. This involves determining the level of detail you will want to have in your model, including:
\n\n\n\nIt is important to consider what financial outputs are relevant to your business and to include them in the model. However, you should also be careful not to include too many metrics, as this can make the model unnecessarily complex and difficult to use.
\n\n\n\nOnce you have identified the purpose and structure of the financial model, the next step is to gather relevant data. Gathering data at this stage helps with knowing what data is available so that you can build your financial model based on that data. This includes historical financial data, as well as any other data that may be relevant to the model.
\n\n\n\nExamples of historical financial data include income statements, balance sheets, and cash flow statements. Other data that may be relevant to the model includes market research, industry trends, customer data and operational metrics.
\n\n\n\nIt is important to ensure that the data you gather is accurate and reliable. This will ensure that the financial plan is as accurate as possible.
\n\n\n\nThe next step is to define the assumptions, or the drivers of your financial model. Assumptions are the inputs into your financial model that “drive” the future financial results. This is why assumptions are also called drivers. Examples of business drivers include sales growth rates, gross margin, number of employees, operating expenses, etc..
\n\n\n\nAssumptions are the most important part of the financial model because they drive all the calculations and have the highest influence on the planned financial results. However, it is important to ensure that the assumptions are realistic and based on relevant data.
\n\n\n\nThe next step is to build the financial model. You would now create all the formulas for calculating each line in your financial statements. All revenues, costs, assets, liabilities and cash flows will be linked with formulas to the assumptions, or drivers, that you defined earlier as inputs into the model.
\n\n\n\nUntil now, this involved creating a spreadsheet that links all of the financial outputs of the model with the drivers (inputs) you have created. In order to build your model in a way that accurately reflects the realities of your business and its interdependencies, you will need to build in a significant degree of linkages and formulaic dependencies into your model.
\n\n\n\nModeliks now allows exactly that, for you to build your financial plan based on the specific value drivers of your business, without the need of building your financial model in a spreadsheet and creating thousands of formulas.
\n\n\n\nLet’s understand what a driver-based financial model is and why it matters.
\n\n\n\nDriver-based financial planning is a process of identifying the key activities (also known as ‘drivers’) that have the highest impact on your business results, and then, building your financial plans based on those activities. When you can measure and influence these activities, you can successfully manage and grow your business.
\n\n\n\nDriver-based planning is important because it allows you to establish relationships between the financial results and the resources that you need to achieve those results (like people, marketing budgets, equipment, etc.). By connecting your financial plans to the resources required for each activity, you can allocate the right resources to achieve your goals.
\n\n\n\nExplaining this better, let me take you through an example. Let’s say that you have a SaaS software business, like Modeliks, with a target to achieve 1 million revenue next year.
\n\n\n\nThe key drivers for reaching this revenue target could be the number of clients you need, multiplied by the average price a client pays for your software. But then, the number of clients depends on two different drivers, which are, the number of leads you need to generate, and the conversion rate from a lead into a customer. Now, the number of leads will determine how many sales employees you need.
\n\n\n\nThe number of leads will also determine the marketing budget that you need to attract those leads. And, the number of clients will determine how many customer support people you need. You get the point. The 1 million revenue target drives a whole set of operational activities and required resources. A driver based financial plan allows you to logically connect all the operational activities and resources to the financial targets. And if you change your revenue target, all other resource budgets will automatically and logically change.
\n\n\n\nFinally, driver-based planning helps you set operational targets to your employees that they can control and feel accountable for. It also allows you to review your business performance along those drivers and know exactly which operational processes work well, and where you need to improve.
\n\n\n\nWhen building the model, it was always important to ensure that all of the formulas and calculations are accurate. You should also include clear instructions and labels to make the model easy to use.
\n\n\n\nOnce you have built the financial model, the next step is to validate it. This involves comparing the projections made by the model to actual financial performance.
\n\n\n\nOne way to validate the model is to compare the projections to historical financial data. This will help you determine how accurate the model is and identify any areas where the projections may be too optimistic or too conservative.
\n\n\n\nIt is also important to validate the model by testing different scenarios. This involves changing some of the assumptions and seeing how this impacts the financial projections.
\n\n\n\nValidating the model is an important step as it helps ensure that the projections made by the model are as accurate as possible. Before Modeliks, validating your model will likely have brought out many different coding issues in your spreadsheet model, which in turn take many hours or even days to fix. Today, with Modeliks, you can focus on what is really important – your business – and leave the technical formulae and background calculations, summary tabulations and balance sheet and cash flow calculations to the Modeliks tool to take care of.
\n\n\n\nYour validation work will move from fixing linking errors towards running different business scenarios.
\n\n\n\nThis is the next level and the future of financial model validation, and will enable you to make informed decisions about the business today and in the future.
\n\n\n\nOnce you have validated the model, the next step is to perform a sensitivity analysis. A sensitivity analysis involves testing how changes in one or more assumptions will impact the financial projections.
\n\n\n\nWithin Modeliks, you can run scenarios at the click of a button, whether you want to simulate increases or decreases in revenue due to changes in conversion or penetration rates, or by running profitability scenarios with varying marketing mixes and customer acquisition costs. All within Modeliks’ easy-to use interface, and presented to you with pre-defined charts that should cover 99% of your needs, while also giving you the flexibility to define your own output metrics and dashboards.
\n\n\n\nPerforming a sensitivity analysis is important as it helps identify the areas where the business is most vulnerable to changes in assumptions. This will enable you to develop strategies to mitigate any risks and ensure the financial health of the business.
\n\n\n\nDeveloping a financial plan is an important step in the business planning process, setting targets, and evaluating the financial performance of a company.
\n\n\n\nUp until recently, most financial plans were done in a spreadsheet. Developing a financial model in a spreadsheet is standard practice because most people are used to using spreadsheets. Also, there were no financial planning tools available (or affordable) to small and medium size companies.
\n\n\n\nDeveloping a high quality financial plan in a spreadsheet is actually a difficult and time consuming task:
\n\n\n\nThe alternative to spreadsheets are financial and business planning tools like Modeliks. Modeliks solves the issues that come with using spreadsheets, while providing step by step guidance on creating a professional, accurate and thought through financial plan.
\n\n\n\nIt is important to ensure that the financial plan is logical, driver-based and, as accurate as possible, because too many business decisions will be made based on that plan. You will set targets for all your employees and track your performance based on the plan. You will make investment decisions. You might even request funding based on it. There is too much at stake when creating a financial plan. Make sure you do it right.
\n\n\n\nA Certified Management Accountant (CMA) is a professional designation awarded to individuals who have demonstrated expertise in financial management, strategic decision-making, and performance management. The CMA certification is issued by the Institute of Management Accountants (IMA) and is recognized globally as a mark of excellence in management accounting.
\n\n\n\nCMAs possess in-depth knowledge of financial planning, analysis, risk management, internal controls, and corporate finance. Unlike Certified Public Accountants (CPAs), who focus primarily on financial reporting and compliance, CMAs specialize in using financial data to guide business strategy and improve overall organizational performance.
\n\n\n\nTo earn the CMA designation, candidates must meet specific educational and experience requirements, pass a rigorous two-part exam covering financial planning and analysis, and adhere to ethical standards set by the IMA. CMAs play a crucial role in helping businesses optimize financial operations and achieve long-term success.
\n\n\n\nCMAs provide valuable financial insights that help businesses make informed strategic decisions, ensuring sustainable growth and profitability.
\n\n\n\nWith expertise in cost control and budgeting, CMAs help organizations optimize resource allocation, minimize waste, and improve operational efficiency.
\n\n\n\nCMAs play a critical role in identifying financial risks, implementing internal controls, and ensuring compliance with financial regulations, reducing the likelihood of fraud or financial mismanagement.
\n\n\n\nBy analyzing financial data and key performance indicators (KPIs), CMAs assist businesses in setting realistic goals, measuring progress, and improving overall performance.
\n\n\n\nBusinesses considering mergers, acquisitions, or major investments rely on CMAs to conduct financial analysis, assess risks, and ensure informed decision-making.
\n\n\n\nCMAs develop and maintain financial forecasts, ensuring businesses have a clear roadmap for future growth and financial stability.
\n\n\n\nCMAs ensure that businesses adhere to financial regulations, ethical standards, and corporate governance best practices, fostering transparency and accountability.
\n\n\n\nCMAs prepare financial forecasts, conduct variance analysis, and provide insights into business trends, helping organizations plan effectively for the future.
\n\n\n\nThey assess production costs, overhead expenses, and pricing strategies to maximize profitability while maintaining cost efficiency.
\n\n\n\nCMAs assist executives and business owners in making data-driven decisions, evaluating investment opportunities, and formulating growth strategies.
\n\n\n\nBy implementing robust risk management practices and internal controls, CMAs help businesses safeguard assets and prevent financial fraud.
\n\n\n\nThey develop budgets, financial models, and projections to ensure businesses have a clear financial direction and avoid unexpected cash flow issues.
\n\n\n\nCMAs track financial performance through KPIs and suggest improvements to enhance efficiency, productivity, and profitability.
\n\n\n\nThey ensure that businesses comply with accounting standards, tax laws, and ethical guidelines, reducing the risk of legal and financial penalties.
\n\n\n\nWith the increasing reliance on digital tools and analytics, CMAs leverage financial software and data analytics to enhance decision-making and streamline financial operations.
\n\n\n\nA Certified Management Accountant (CMA) is an essential asset for any business seeking financial stability, strategic growth, and operational efficiency. With expertise in financial planning, cost management, risk assessment, and strategic decision-making, CMAs help organizations optimize financial performance and achieve long-term success. Whether you’re a small business owner or part of a large corporation, having a CMA on your team can provide the financial leadership needed to navigate today’s dynamic business landscape.
\n\n\n\nMake confident decisions with Modeliks. Plan, manage, fundraise and grow your business.
\n\n\n\nAuthor:
Modeliks Team
QuickBooks Cash Flow Forecast is a financial planning tool within QuickBooks that helps businesses predict their future cash flow based on historical data, current financial transactions, and projected income and expenses. This feature allows business owners to anticipate cash shortages or surpluses, plan for upcoming financial obligations, and make informed decisions to maintain liquidity.
\n\n\n\nBy utilizing real-time data from bank transactions, invoices, bills, and recurring expenses, QuickBooks Cash Flow Forecast creates an accurate financial outlook. Businesses can use this tool to model different financial scenarios, ensuring they are prepared for any unexpected cash flow changes.
\n\n\n\nCash flow is the lifeblood of any business. By forecasting cash flow, businesses can avoid liquidity crises and ensure they have enough funds to cover operational expenses, payroll, and debt repayments.
\n\n\n\nWith a clear view of future cash flow, business owners and financial managers can make informed decisions regarding investments, expense management, and growth strategies.
\n\n\n\nBusinesses with seasonal revenue patterns can use cash flow forecasting to prepare for slow periods by ensuring sufficient reserves are available during off-peak seasons.
\n\n\n\nBy predicting future cash flow, businesses can plan debt repayment schedules and determine the right time to apply for loans without risking financial strain.
\n\n\n\nMaintaining a positive cash flow ensures businesses can pay suppliers on time, leading to stronger relationships and potential negotiation of better payment terms.
\n\n\n\nA cash flow forecast allows businesses to align their budgeting process with actual cash movements, preventing overspending and financial mismanagement.
\n\n\n\nBy anticipating cash flow needs, businesses can set aside funds for emergency expenses, reducing the impact of unforeseen financial challenges.
\n\n\n\nQuickBooks automatically pulls financial data from linked bank accounts, credit cards, invoices, and bills, providing up-to-date cash flow forecasts without manual input.
\n\n\n\nThe tool alerts users to potential cash deficits, allowing them to take proactive measures such as adjusting expenses, securing credit, or accelerating receivables.
\n\n\n\nQuickBooks Cash Flow Forecast integrates seamlessly with other financial reports, making it easier to plan for taxes, loan repayments, and capital expenditures.
\n\n\n\nBusinesses can model different financial scenarios by adjusting variables like delayed customer payments, unexpected expenses, or increased sales to see how these factors impact cash flow.
\n\n\n\nThe automated tracking and forecasting features help businesses maintain a healthy cash flow by ensuring that receivables are collected on time and payables are managed efficiently.
\n\n\n\nSince QuickBooks automates data collection and analysis, businesses can reduce errors that occur in manual cash flow tracking, improving accuracy and efficiency.
\n\n\n\nQuickBooks Cash Flow Forecast integrates with accounting, payroll, and invoicing tools, creating a comprehensive financial management system for businesses of all sizes.
\n\n\n\nInvestors and lenders often require a detailed cash flow forecast before providing funding. QuickBooks makes it easy to generate and present accurate financial projections.
\n\n\n\nAnd after Q1 2025 QuickBooks Accounting Integrations is coming to Modeliks. Stay tuned.
\n\n\n\nQuickBooks Cash Flow Forecast is an essential tool for businesses looking to maintain financial stability and plan for the future. By leveraging real-time data and automation, this tool provides accurate cash flow projections, helping businesses make informed decisions, manage liquidity, and prepare for financial uncertainties. Whether you are a small business owner or a finance professional, incorporating cash flow forecasting into your financial strategy can improve business resilience and growth potential.
\n\n\n\nMake confident decisions with Modeliks. Plan, manage, fundraise and grow your business.
\n\n\n\nAuthor:
Modeliks Team
A 3-statement financial model is a structured financial tool that integrates a company’s three core financial statements: the income statement, balance sheet, and cash flow statement. This model provides a comprehensive view of a company’s financial health by linking these three statements dynamically, ensuring that changes in one statement reflect accurately in the others.
\n\n\n\nThe income statement shows profitability over a period, the balance sheet provides a snapshot of the company’s financial position, and the cash flow statement tracks the movement of cash within the business. By using a 3-statement financial model, businesses can analyze past performance, forecast future financial trends, and make informed strategic decisions.
\n\n\n\nBy integrating all three financial statements, the model offers a complete financial picture, helping businesses understand profitability, liquidity, and overall stability.
\n\n\n\nExecutives and financial analysts rely on the 3-statement model to make data-driven decisions regarding investments, expansion, cost-cutting, and financial planning.
\n\n\n\nBusinesses use the model to project future revenues, expenses, and cash flows, allowing for more accurate budgeting and long-term planning.
\n\n\n\nInvestors and lenders often require a 3-statement financial model to assess a company’s financial viability before providing funding. A well-structured model increases transparency and credibility.
\n\n\n\nCompanies involved in mergers, acquisitions, or valuations use the model to estimate future financial performance and determine fair market value.
\n\n\n\nThe integration of cash flow projections helps businesses optimize working capital, plan for capital expenditures, and ensure liquidity for operational needs.
\n\n\n\nBy adjusting key variables, businesses can simulate different financial scenarios, preparing for best-case and worst-case situations.
\n\n\n\nA well-built financial model streamlines data input and analysis, reducing manual errors and saving time for finance teams.
\n\n\n\nBy continuously updating financial data, companies can monitor their financial performance in real-time and adjust strategies accordingly.
\n\n\n\nBusinesses can present structured financial models to investors, board members, and stakeholders, making financial discussions more transparent and effective.
\n\n\n\nThe model helps pinpoint key revenue streams, cost structures, and profit margins, allowing companies to refine pricing strategies and operational efficiencies.
\n\n\n\nCompanies can plan capital allocation, debt repayment schedules, and cost management strategies more effectively with a well-integrated model.
\n\n\n\nBy running sensitivity analysis, businesses can anticipate potential risks and implement measures to mitigate financial uncertainties.
\n\n\n\nA structured financial model ensures that financial reporting aligns with accounting standards and regulatory requirements.
\n\n\n\nCompanies use the model to evaluate expansion plans, new product launches, and market entry strategies based on financial feasibility.
\n\n\n\nAnd right-after Q1 2025 QuickBooks Accounting Integrations is coming to Modeliks. Stay tuned.
\n\n\n\nThe 3-statement financial model is an essential tool for businesses of all sizes. By integrating the income statement, balance sheet, and cash flow statement, companies gain a comprehensive view of their financial health, enabling informed decision-making and strategic planning. Whether for securing investments, improving cash flow management, or conducting scenario analysis, a well-built 3-statement model is crucial for financial success. Investing time in developing and maintaining this model can lead to better financial stability and long-term growth.
\n\n\n\nMake confident decisions with Modeliks. Plan, manage, fundraise and grow your business.
\n\n\n\nAuthor:
Modeliks Team