Intro to Financial ModelingFinancial modeling is a process of creating mathematical representations of financial situations. It is used to make informed decisions about investments, business operations, and financial planning.
Financial Model AssumptionsFinancial model assumptions are critical to the accuracy of the model. They are the inputs that drive the calculations and can include revenue projections, cost estimates, and growth rates. Assumptions should be based on historical data, industry benchmarks, and expert opinions.
- Tweetstorm: Fixable Mistakes in Financial ModelsLeo provides tips based on the models he's seen across seed and Series A companies, covering topics such as breaking out assumptions, jumpiness, having clear hypotheses, Budgeting tips, and more. The replies also capture a number of great tips based on experience.
- The Power and Honesty in a L4M Model. Build One Now.Jason explains how many financial models are too rosy, and that a model that is constantly updated based on the trailing last four months can be highly accurate and predictive.
Financial Model TemplatesFinancial model templates are pre-built models that can be customized to fit specific business needs. They can save time and ensure consistency in modeling. However, it is important to select templates that are appropriate for the business and to customize them appropriately. Templates can also be used as a starting point for building custom models.
- Financial planning for SaaS startupsChristoph provides a "simple" template example he made for Zendesk, and links to a "V2" he made a year later that is more advanced. The template model separates signups into trackable and non-trackable sources, and calculates revenue by converting signups to customers and multiplying customers by average revenue. It accounts for costs like marketing, support, and development. Profit and cash flow are estimated simply at first. Notably, sanity checks are included to flag unrealistic projections like an EBIT margin over 90% or too few customers per support agent, helping catch planning mistakes.