Financial Modeling can seem like a mundane task. A dull process in which a spreadsheet is made containing a company's expenses and earnings. However, it is an important practice, especially when creating a business plan. It is used to make plans and decisions in a business and determine its operations. They are used to set the pricing of a product, calculate project costs, anticipate future expenses, and even evaluate the current or future value of a business.
Usually the numbers are gathered from the company's financial records and past performances. But if you are writing your business plan, do not overlook how beneficial Market Research or analysis can be for creating the most accurate financial models.
The customer is always right
Market research is a process of determining the success of a product or service. It is conducted with potential customers through surveys, product testing and focus groups, after which the company has direct feedback from the customers. This type of research is used to see how the potential customers will react to the product. The results of the research can help improve the product, and help the company better position itself in the market, compared to its competitors.
On the other hand, financial models are all about the numbers, mostly from previous sales. They are also about assumptions, predicting future growth or value of shares in the stock market. Of course, that means that having accurate numbers is necessary for better predictions. That is why market research is a valuable source for financial model numbers. and there are a few ways it can aid in making the most accurate financial model for your business plan:
Calculating value, setting the prices
The most common reason market research is used is to determine the price of a product or service. Interviewing potential customers and getting their feedback can help you identify their needs, satisfaction with your product and help you adjust the price accordingly. These numbers are a basic and crucial part of your financial modeling spreadsheet. In depth research will help you calculate the most accurate product value your customers are willing to pay for. This will in return have great significance in constructing your company’s Financial Projections.
Predicting cash flow, budgeting
After you have determined your business’s prices, you can proceed to use these numbers to predict your business cash flow and revenue. For example, financial modeling spreadsheets are helpful when creating project budgets. Ensuring the most accurate numbers through market analysis, will help create the most realistic budgets and avoid overspending and financial losses.
Predicting growth, attracting investors
Additionally, this number can be used in financial modeling to calculate and predict your company's profits and performance. This can be incredibly useful when looking to attract investors, since they are often interested in businesses’ potential and growth. Numbers provided by market research can later be used in financial modeling to predict the company's growth and future success. It will show investors exactly what they are looking for in a Business Plan, the most objective (positive) outcomes for a business and a ROI.
Market research is a lot more than it seems. It is a helpful tool for writing a good Business Plan and it is the one thing that doesn't make Financial Modeling just about crunching numbers. That is exactly what makes it the secret weapon for a “killer” business plan.
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