Mistakes You Must Avoid While Building a Financial Model For Your Startup
One of the most critical factors behind a startup’s success is its financial stability. And a robust money model can ensure that in the long run. If you’ve just begun drafting the economic model for your startup, a lot of questions might be on your mind. How many and what kind of customers will I have? How will my margins improve? And so goes on the list.
A financial model holds the answers to all your queries.
More often than not, startup financial models aren’t entirely “right” in the first go – however, the variations between the projections and real results can drive insight into the company’s capability. Plus, there are some things, mistakes rather, that just can’t be ignored.
Here’s a quick look at the errors you must steer clear of while planning your startup’s financial model:
Avoid following the bottoms-up approach
Most people who are stepping into business believe that a bottoms-up approach to finances works. But that’s not necessarily true. Getting too distracted by the little details can often lead to a loss of focus. Thus, follow the simple top-down methodology. Start with your historical finances and build your KPIs from there.
Stay away from overly complicated calculations
People often confuse in-depth financial planning by making excessively intricate mathematical calculations. You should know you’re doing something wrong when you click on a cell in a spreadsheet and it leads you to fifty other cells of related calculations. Why not smoothen it out a bit? Don’t try to stuff everything in one place when it comes to financial matters because it will only lead you to errors.
Don’t stick to monochrome
One of the best things about MS Excel is that it gives you a flood of colors to choose from to make your dull spreadsheets come to life. And honestly, colors can help you segregate information much better in your financial documents. Use different shades to highlight various aspects of your financials; it will make it easy to navigate and understand things better. But take care not to get too flashy!
Don’t miss out on the correct version of important documents
Being thorough is what’s real business is all about. Often, presentations and documents are reviewed and updated repeatedly until a final copy is arrived at.
When you have a copy that’s approved by everyone and can be marked as “good-to-go,” rename it with a unique descriptor that clearly mentions what is contained inside and then email it to yourself in a new thread. That way, you will always have that final copy in your mail for quick access.
To wrap it up
Your business and financial models are the holy records for your startup’s success. They can help you achieve whatever you’ve dreamt of. So, just focus on getting them right, and everything else will just follow.
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