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What is financial modelling?

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By Scaalex BlogsPublished 2 years ago 3 min read
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Financial modelling is the creation of a startup’s financial projections for a specific timeframe. By this projection, you can find out the future growth prospects of the startups. Accordingly, it is a process of creating a summarized sheet of startups’ expenses, income and anticipating future financial decisions. Thus, financial modelling is all about understanding how a startup works in the selected period and clarifying the fund utilization.

Building a financial model or plan could be overwhelming, especially when you’re venturing out new. But your investors who expect to invest in an innovative and unique business idea would be interested to know the soundness of a startup’s financial model.

The idea of the financial model is to create a positive impact by showing some credible information in numbers which the new venture can achieve. Investors usually put considerable time into validating the numbers presented because the soundness of the numbers and the logic behind the same is the way to identify whether it is worth investing in. Further, With a suitable financial model, investors will evaluate the potential value of a business idea and how well they can compete with similar industries.

Creating a financial model is entirely dependent on the nature of the startups. Each startup will have a different flavour and hence another way to represent its financial model contemplations. Financial Modelling is the core element to make vital financial decisions in a corporate world. This guide takes you through all the tiny details of getting to your perfect financial model.

Financial models pave the way to make better financial decisions. The following are the major applications of financial modelling;

Where is it used?

The financial model is used to decide startup valuation, the fair value for a startup.

Enhance financial decisions by planning their long-term goals according to different possible scenarios.

Helps in decision making on matters relating to the cost of capital when investing in a new project.

Helps to allocate resources for investment or expenditure.

Further benefits to raise funds from investors by validating the numbers presented in financials.

Who needs one? or When do you need one?

Preparing the financial model has a variety of reasons. The following pointers help you to understand the users and their need for financial models;

Investment banks use financial modelling to compute the valuation in M&A or fundraising transactions.

• Bankers and credit analysts use financial models to make decisions regarding the credit rating of a project or company.

• Accountants and valuation advisors use financial models to develop valuation projections.

Financial models help the Research analyst to determine a buy or sell rating on a particular security.

• Most companies use financial models to create funding plans and to assess their finances and projects.

• New entrepreneurs (startups) use financial models to impress potential investors to get funding by presenting their plans and strategies.

How does Scaalex come into the picture?

Most startups fail to raise funds from investors because new entrepreneurs don’t know how to execute the right numbers in financial models to validate that they are worth investing. Further, they are destined to struggle without proper market research, financial plan, business model and so on.

Scaalex is a team of highly driven domain experts and financial consultants. We closely worked with 270+ startups to build the financial projections, valuation report, business plan, and funding advisory. We stand for an expert team in-depth market search and also understand the expectations of new entrepreneurs. If you are one among the startups who lack adequate financial insights, reach out to us to attain exceptional execution and fundraising results!

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About the Creator

Scaalex Blogs

Scaalex brings fundraising insights to you, from profit & loss to cash flow planning. Build a robust financial model to make strategic fundraising decisions that impact your startup growth.

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