Making Money

Build a (Bad) Financial Model

By November 27, 2016 No Comments

Yes, your financial projections will be wrong.  But that doesn’t get you off the hook.  A financial model is valuable not due to its accuracy, but because building one forces you to think through every nook and cranny of your business.  All of your assumptions will be quantified in your model, helping you determine whether your business, as you currently envision it, has potential or not.  Often, businesses that make sense in the abstract are unrealistic when modeled out.  Plus, now that you have a financial model, you can use it to manage your business.  You can update your assumptions as you collect more data, and get instant feedback on how these changes affect your bottom line.

Because your model is so important, it would be a mistake to use a template.  You need to go through the process of building it yourself.  You need to know what’s going on under the hood, so you can explain how it works, and fix it if something breaks.

A financial model that incorporates all of your assumptions will help you take a holistic view of your business’s dynamics.  The financials are where the rubber meets the road in business.  So go ahead and build a bad financial model.  It’s not about the inaccurate projections, but the process that counts.

Author Matt Sand

Passionate about making a difference through innovation and entrepreneurship.

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