Financial modeling is the most important thing when it comes to grabbing the interest of investors. Follow the right steps in building a model and make a better impact.
In every business, financial modeling plays a significant role. In financial modeling, presentation is considered one of the most important things. When it comes to financial modeling, people only think about a spreadsheet. But in most cases, it is more than that. As an entrepreneur, when you are pitching to any certain investor, you must build the model in a different manner. You need to remember that the model needs to have the quality of attracting people easily. It is the only thing that helps to make one understand the company’s value, the potential to grow funds, and the navigation of negotiations. All of these are very much essential in every organization. In every startup, financial modeling is quite crucial. If you cannot present a proper model, then you will not get the chance to attract investors. So, let’s figure out how to create a financial model to attract the investors-
- Key performance indicators:
Key performance indicators or KPI is a major part of financial modeling. With the help of the KPI, investors will be able to understand the financial condition of the organization. A lot of times it is seen that entrepreneurs add excessive details of financial health can be a little overwhelming for all. As an entrepreneur, you need to understand what the important parts of your company are. And which factors can be helpful in understanding financial health? This way, you will be able to build an ideal model. Along with that, it will help you to communicate with the investors in a better way.
- Align KPI and the strategic goal:
Every company has a certain strategic goal, which needs to be aligned with the KPI of the company. When you are trying to make a pitch to an investor, then you need to understand that aligning these is very much important. KPI has the potential to make an impact on the growth plan. If you want to grow your company at a rapid pace, then you have to prioritize the KPI of your company for the new customers. To do so, you need to be immensely focused on the acquisition cost, customers, and the lifetime value of the customers. Along with that, you also need to figure out the cost control of your organization. If you consider all these while making a financial model, then you will get the chance to create one of the best models for your company.
- Incorporate the cap table:
If you want to build an ideal model, then you have to integrate the cap table. When you are initiating a startup, as an owner you must integrate the capitalization (cap) table. By following this method, an investor will be able to understand the equity of the organization. This way, you can make one understand the founder equity, investor’s equity, employee equity, convertible securities, and much more. If you do not provide all these, then an investor will not get any kind of idea regarding the cap table. And for that reason, it is considered one of the most important things in financial modeling.
- Build an urgency:
While making a model, you must build a sense of urgency in the model. If you do so, then the investors will also act a little fast. In this fast-paced world, if you do not take the initiative to act fast, then you will not get the chance to achieve success. There are a lot of opportunities that you will not get if you do not work fast. Along with that, if you do so, then you can get the opportunity to make a good impact on the investors. This way, you can get many advantages and grow your organization in a much faster manner. Therefore, while building your financial model, try to create a sense of urgency. It can be helpful in many cases.
- Format the model to find clarity:
You cannot build the model and present it in front of the investors directly. Before presenting the model, you must format the model and try to find more clarity. Along with that, by doing the format, you will understand its impact. While doing the format, try to avoid all the clutters and separate the major components of the financial data. Taking this initiative will help you to build an ideal financial model. Along with this, you also need to differentiate the content. Here you need to follow a few formats to present the model in a better way.
These are all the things that you need to be aware of while creating a financial model. If you follow these steps, then you can easily build the model and make a positive impact on the investors. With the help of these steps, you can attract investors and influence their decisions. So, do not ignore these steps if you want to achieve growth for your organization.
