If you’re looking to create a financial model of your business, then you might be wondering where to start.
It’s very easy to say you’ll go ahead and create a financial model, but actually doing it isn’t so easy – or many people think it isn’t.
The truth is, if you don’t have your data together, creating a financial model will be difficult.
New businesses will need to have a written down list of your costs and what’ll charge for your products/services.
Existing businesses will need to gather this information from past data and use previous year trends to create a sales forecast.
What is a financial model?
A financial model is a flexible, living & breathing picture of your business. It shows your Cash Flow, Profit & Loss and Balance Sheet all in one place.
Why should you build one?
Financial models are great tools to help you plan your business’ strategic growth, reduce risk and test scenarios.
Excel vs Dedicated Tools
Let me preface what I’m about to say with this: many people are successfully modelling their businesses in Excel.
Excel is a popular tool because of its versatility, but that doesn’t mean it’s great for financial modelling.
The reason why Excel isn’t so great for modelling is that it’s just not flexible enough. You have linked formulae and cell-specific charts that will break when you add/remove or change anything in your model.
This will lead to you not wanting to change anything at all in your model, in fear of breaking it, which defeats the whole point of modelling in the first place!
We fear that people will spend hours or even days setting up their model in Excel, but never use it!
To get the most out of a financial model, you need to be able to update it on the fly, quickly change things and test out different scenarios easily. Which leads me nicely into talking about specialist tools, like Brixx.
With the whole idea of financial modelling being to flex and stress test your business, the tool you use has to be flexible and up to the challenge, more importantly you need to be able to trust it.
There’s no getting around the fact that an Excel spreadsheet will take a while to set up and often require someone with in-depth knowledge of Excel’s formulae and charts to make it work well.
Now, if you’re a startup with no historical data, setting up in a tool like Brixx will take a couple of hours too, a fraction of the time compared to Excel but it will still take time.
The difference here is that tools like Brixx make it easy, you don’t need to understand jargon, formulae or how a spreadsheet’s chart system works, Brixx does all that for you. Just put your numbers into Brixx ‘components’ which represent individual business activities, for example, income from a product line, staff salaries, funding sources or assets.
Unlike a spreadsheet, Brixx models are built on the language of business, easy to delve into, share and collaborate with others, excellent for planning board meetings around.
We understand some businesses and entrepreneurs just don’t have the cash for a specialist tool like Brixx, so If you do plan on using Excel, we wrote an article dedicated to reducing the frustration.
Naturally we are a bit biased. But we know and understand the pain that comes with creating a financial model in Excel. Countless times people have come to us and expressed their amazement at how easy Brixx is to use in comparison.
Dare we say it, Brixx makes your financial modelling fun and not a chore!
Start modelling your business today with a free Brixx trial.