The Power of Using Financial Modeling to Complement the Business Plan

 

If you’re familiar with business plans and business presentations, you know how much relies on the numbers. Because the numbers are such a focus for nearly any audience, it stands to reason that Financial Modeling has the potential to be tremendously impactful.

Not sure how financial modeling plays into it all and can be used? Read on!

Financial Modeling is Already in the Business Plan

The first thing is to know that financial modeling already played a part in creating the Business Plan. The financial projections themselves are almost certainly the result of financial modeling. Even if you are the one that created them, you may not have realized that is what you were doing at the time. But, if you had an Excel sheet or software where you plugged in different numbers into formulas before you arrived at your final projections, that’s it!

The Power of Additional Financial Modeling in the Business Plan

So, now that we have a better understanding of what financial modeling is, we’ll get back to the main point. When used in conjunction with the business plan, they can be quite impactful. But, how?

Additional Information – There is only basic Financial Modeling that typically goes into the business plan financials. Beyond that, you may choose to have additional information that may or may not go in the plan itself.

One good example would be a valuation of your company when approaching potential buyers or investors. A valuation gives a mathematically value to the likely worth of a business in the future.

There are a few different generally accepted methods for calculating this and which is best will depend on your business and to an extent, personal preference. The important thing here is to realize that financial modeling allows you to provide additional, highly relevant and impactful monetary/mathematical information to your audience beyond what is standard.

Financial Modeling in Action – One of the most impactful ways financial modeling can be used is to present it dynamically. What does this mean exactly? Well, one example would be when you have an investor meeting to review your pitch deck or business plan.

Chances are, they are going to be very interested in their return under different scenarios. If you have a model that is ready to be used with them in real-time, it will likely make a positive impression. It also helps to speed up negotiations by eliminating some of the back and forth that may occur after a meeting otherwise.

Rely on the Best But, Make Sure You Understand

Now that you understand how the use and inclusion of financial modeling in the Business Plan can benefit you, it’s time to discuss your involvement in the model(s). Not everyone is an Excel wizard, and some people downright hate it. Unfortunately, it’s kind of a necessity.

So, the best course of action if it is not your thing, is to hire an expert to do it! Because one of the worst things that can happen to your business plan is for someone to identify your numbers are wrong. Further, professionals may see opportunities to present numbers in a way you don’t.

If you have a Professional Business Plan Writers create your financial models though, you should be certain you understand them. You will need to be able to explain them to someone but also answer questions and maybe even alter them in real-time. So, hire a professional but, make sure they include time to train/explain financial modeling, otherwise they might not be worth it.