How to Build a Financial Model

It’s best to build your own financial model so you understand it thoroughly.

Here are the steps to build your financial model:

Define the goal for the model.  

Figure out how you will use it and what decisions you need to make.

This will determine what details you need to include in your model.

Input your historical results as this will set the format of the model.

Start with revenue and figure out what drives it such as number of customers paying or number of products sold. 

Calculate Cost of Goods Sold and include it as part of the revenue section.

Next, add salaries into the model as this is one of the biggest expenses you have.

Add in the other businesses expenses related to sales, marketing, and administration.

Set up a working capital section as you’ll need funds in the bank to pay expenses ’til the revenue comes in.

Calculate your growth projections for each month for the next 24 months.

Review the model to see if it is achievable.

Finally, choose key metrics to include in the model and capture information that calculates those metrics.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.