If you start looking for the perfect financial model template to use, you’re going to find tons of them online. We at our company in Switzerland started to manufacture a few financial templates that fit the narrative. You see, whatever financial model template you purchase, it is mandatory for you to change it in order to fit your business model, your company, and so on. That’s why we created a simple financial model that could be malleable and changeable based on your company.
You can check it out right here. Download it. It’s for free. Change it. We’ll keep on enhancing it while creating different financial models.
Understanding Financial Models
But let’s talk about a financial model and its critical aspect of your business. A financial model template is only good if it’s going to project the financials in an accurate way, correct? Not really.
The truth is, financial model templates are seldom accurate, and that’s the beauty and the nature of the business world. Nobody in this world could predict what’s going to happen in a year in terms of numbers, in terms of the economy.
They can predict what might happen, but there is a certain level of inaccuracy in every statement in the business world. Keep that in mind before starting to work on your financials in your financial model template.
Only then will you be able to actually work on a financial model of value. That financial model is one that would keep your targets of sales in check. It would keep you thinking in the right way.
It would enable growth in your company while not creating a demotivational sense when you don’t reach those financial projections.
The Reality of Financial Model Projections
We have many clients who send us their financial projections for review. They’re startups who haven’t really launched a product yet. They’re projecting $50 million of revenue in the first year.
The problem with this is when you achieve $0 of revenue in the first year, which is more than you think. A lot of entrepreneurs imagine a big number yet end up still developing after the first year or burning a lot of cash.
This is absolutely normal in the business world, but when you have such big projections, it kind of is a little bit demotivational. Sometimes it really affects the founders’ mindsets and leads them to create drawbacks for the company.
It can also slow their growth and focus on other elements to just make any money whatsoever. That’s why it’s important to be reasonable when it comes to financial projections in a startup or in a company.
Researching Market Trends
The only way to do that is to study the market very well. If you’re intending to work in the health tech industry, it’s really smart to look at how Apple Watch sales are going, for example.
The Apple Watch is kind of getting into the direction of a health tech product. It’s not only that, but it’s part of it. So if you see that the Apple Watch is increasingly being sold, and this is a good sign for you, look at other health tech products that are within your exact niche.
See whether you can actually match those projections. If you’re projecting $50 million in sales in the first year and products like the Fitbit or insulin shots didn’t actually achieve this number, then it’s just unreasonable for you to put $50 million.
You need to base it on the market. Always imagine a line chart with how a successful company in your industry grew and put your own projections.
If yours are a lot higher than something, it does not make sense. Put all your competitors’ growth in the past few years and look at your own growth.
You cannot assume that you’re going to be better than everyone immediately. Now, you want to be better than everyone. You want to grow faster than everyone. But your projections have to be reasonable because they’re all operating in this market for a while.
The Importance of Reasonable Expectations
Not a lot of companies are the new Airbnb. Not a lot of companies are the new Facebook. These are anomalies over the years or generations.
You want to think that your new startup or your new company is like that. But the truth is, even if you think that it’s like that, you should plan that it is not.
You should plan that it is similar to all those other companies. That doesn’t mean it’s going to fail or go bankrupt. But that also doesn’t mean that it’s going to be growing faster than those companies.
There is an average that you’re looking for, something reasonable to stay on planet Earth. And that’s what you should always keep in mind while working on a financial model in a proper way.
The Importance of Regular Updates
Yet the fuel of a financial model, or the most crucial aspect of it, is updating it. If you don’t update it, then it’s going to be as useless as if you hadn’t created it in the first place.
Updating a financial model is similar to changing the tires of your car. If you don’t do that, something bad might happen in the future.
The car will not operate properly. The financial model has a particular objective. It needs to guide you in a specific direction.
If you don’t update it monthly— I personally update my financial documents every week— then you’re bound to be misled in terms of direction or vision for your company.
And you don’t want that.
The Purpose of a Financial Model
Finally, always remember that a financial model is meant for you to see the potential of your company. It should motivate you. It should not demotivate you.
It should give you all sorts of feelings. But at the end of the day, it’s a simple mathematical equation. It’s a number.
That’s what your company is. No matter what you’re doing in the business world, your company is simply a few numbers. As long as you keep that in mind, you’re going to be able to navigate your financial model to a proper accuracy and actually grow your company in a proper way.
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