You Still Need the Basics…Don’t Be Sold on Fluff
Let me just get to the point. Build a financial model before you go out there quitting your job to pursue this new great idea you’ve had. Let’s talk about this for a minute….
You’ll see thousands of ads online that promise to show you how to make money for your business. Everything from trainings on creating Facebooks ads, writing great email copy, creating engaging graphics for social media, and the list goes on. But you are missing an entire step! Why would you start buying Facebook ads and you haven’t even set a marketing budget for the year? Why would you worry about creating great email copy if you don’t even know what you’re trying to sell, who you’re selling to, and how many sales you need to make to meet your financial goals for the business?
There are business fundamentals that most marketing aimed at entrepreneurs miss by miles! You have to build your business on a foundation that allows it to be sustainable for the long run. If you are only interested in short term, sometimes lucky, unpredictable gains, this post will be of no interest to you…absolutely none. If you’re not interested in doing the up-front work required to build a sustainable business, then you wouldn’t be interested in financial forecasting. You wouldn’t be interested in creating a financial model for your business plans. Completing these types of tasks for a business, requires the entrepreneur to have a REAL commitment to creating a REAL business, not a “fly-by-the-seat-of-your-pants, out of business next year” startup.
Let’s give this perspective:
Do you just hop in the car and start driving without knowing where you are going, how long it will take you to get there, or without knowing the directions?
Well you shouldn’t do that either when you are starting a business. It’s one of the most important decisions you will make in your life and you want to start off prepared, with directions in hand, and an idea of how long it will take to get there.
What is a financial model?
A financial model is a numerical way to represent your vision for your business. It’s a roadmap that helps you understand where you are and where you’re going. It drives your decision-making as it’s meant to assure your financial goals and milestones are met. Yes, there are calculations involved, but the most important components of the financial model involve you documenting your goals numerically and being able to communicate what you’re trying accomplish, figure out the resources you’ll need to reach the goals, knowing how much those resources will cost and how you will attain the resources, and then forecasting the next 1 to 3 years of your business financials. Seems hard? Well it’s not hard, but it requires some work. Sure, it’s harder than putting together a Facebook ad, but it’s much more important.
Building your financial model will make you actually think through stuff before you jump out there quitting your job and spending money on a dream yet to be realized. The process of building your financial model requires you to get in the weeds and materialize your ambitious thoughts. You’ll be surprised how when you speak your thoughts out loud or write them down, many make no sense at all and you have to reset. But that’s okay! It’s part of the process of creating something out of nothing — a true startup.
Your financial model is your scorecard. It helps you keep track of where you are in comparison to your plans. If you are falling behind in your milestones, you will be informed enough to strategize and get back on track. If you are well ahead, you’ll keep doing more of what’s working and exceed expectations for the year. This builds confidence and team morale. Who doesn’t like to be on a winning team?
Your financial model can help you gain leverage. Do you have plans to get a small business loan? Banks will want to see it. Do you want to raise capital from angel investors or VC’s? Investors will want to see it. So, as you can see, it’s very important to have if you want to be taken seriously about your business plans.
I am Monique Mills, a technology entrepreneur and Principal of TPM Focus. As the Principal of TPM Focus, my goal is to help new entrepreneurs build a sustainable business on a strong foundation….none of this fluff stuff people are selling online. I’m known to assertively speak on topics I’m passionate about and this is one of many.