You know you have a solid business plan and strategy, but you might still be struggling with finding the right investors. This can be due to expectations regarding your financial model. We have seen a multitude of different models over the years, and it can be noticed that there is often a lack of clear structure. So, what should you include to make your financial model appealing to investors?
- Assumptions and drivers: Since your financial model attempts to reflect the future financial state of your company, it is essential to include the assumptions that were made. Giving details about your assumptions can also give investors insight into what you expect from your business, and the market.
- Income statement (Profit & Loss): This statement is essential to gain insights in the income and expenses over a given period. It gives an overview of the financial performance of a company. This can massively impact the perception of a company – just look at what happens to stock price after listed companies reveal their quarterly results …
- Balance sheet: Do not confuse this one with the income statement! On the balance sheet, you include assets, liabilities and shareholder equity. In short, it gives an overview of what a company owns, and what it owes. By using the balance sheet it is possible to calculate all sorts of ratios that can give an indication of financial health of a company.
- Cash Flow Statement: The income statement reflects value that goes in and out the company, while a cash flow statement is merely focussed on where cash moves. This is very important, because it gives an idea of how a company generates cash to pay debt, and how it funds expenses.
- Charts, Graphs and Valuation: Visualization is key. By showing charts and graphs, the reader of the model has a clear overview of the evolution of different components in the model. Then follows the aspect what the financial model is all about, the valuation. When set up correctly, your model should provide an accurate valuation of the company.
