Every startup needs a financial model. First, to test assumptions around its business model. Further, to raise money from investors. And last but not least, to manage the business.
A startup, especially in its early stages, can't afford to hire a CFO to take care of financial modeling, and often founders prepare a financial model for their startups. But it might make sense only if at least one of the founders has a financial background. Otherwise, it can be very beneficial to outsource financial modeling to a financial modeling expert. Here are five reasons why startup founders should consider this option:
1. It ensures solid accounting fundamentals
In order to build a financial model, it’s important to have a solid understanding of accounting principles. This includes concepts such as the matching principle, accruals, revenue recognition, non-cash items such as depreciation, amortization, and more. Founders may have some basic understanding of accounting, but there are many overlooked nuances that can affect financial modeling. For example, in SaaS startups, it is important to know when to recognize revenue and how it relates to income statement and cash-flow. Financial modeling experts possess all the necessary skills and knowledge to get it right.
2. It gives you access to the best practices your investors will appreciate
Financial modeling experts know the best practices in modeling. This knowledge comes from experience in different projects that founders might lack. A financial model built using best practices will significantly improve your preparation for discussions with potential investors. A well-designed model makes it easy and intuitive for the investor to follow the line of reasoning that makes a business case an attractive one. In this sense, applying the best practices for your model is an essential but often underrated factor.
3. It ensures a dynamic and efficient Excel-based model
Strong Excel skills are crucial for financial modeling. It is necessary to know all the main formulas and functions to perform calculations and financial analysis. It is also important to know how to build a dynamic model quickly and efficiently - and it comes from an extensive experience in financial modeling that founders might not have. Financial modeling experts know how to structure a model in Excel and where to start building it to make it dynamic and flexible.
4. It is not the best use of your time
Financial modeling is a time consuming exercise, especially if you do it for the first time and need to do extensive research before you even start. As a startup founder, you have a lot of other responsibilities like closing customers, recruiting new employees, as well as just managing your team. Financial modeling experts will not only spend fewer hours on building a model but also will free your time and energy so that you can focus on more important things.
5. You will get an independent viewpoint
Financial experts possess not only accounting and Excel skills, but also business knowledge. They will involve you in the process by asking the right questions you might not think of before. They will give you an independent opinion and share with you the knowledge they gained from the experience working with other startups.
If you decide to outsource your financial modeling, schedule a call with us to know more about the services we provide!
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