How financial modelling reveals your key business drivers

26 March 2018

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As you grow and scale your company, it’s important to improve the financial efficiency of your business. Financial modelling is a key tool in this process, allowing you to pin down the drivers in your business model and get the most from your finances.

But before you can begin the financial modelling process, it’s important to get understand WHY you’re in business so you can a real handle on what your key business drivers are.

Simon Williams, Finance Business Partner at FD Works, outlines how the FAST approach to  financial modelling adds core value for you and your leadership team.

Why use financial modelling?

Financial modelling is an incredibly helpful tool for any business.

Modelling helps plan when (or when not) to spend money in the business, allows you to understand your business cash-flows and assists with scenario-planning, decision-making and providing information to investors.

In short, good financial modelling gives you clarity around which direction the business is heading in – and gives you the information needed to deal with any challenges.

Why we model using the FAST methodology

At FD Works, we apply the FAST model when working on financial modelling for your business.

FAST is a way of analysing your underlying business model and efficiency, built around four essential attributes that an effective business model must include. If your business model is going to produce the best outputs is must be:

  1. Flexible
  2. Appropriate
  3. Structured
  4. Transparent

We use the FAST model because it keeps things standardised and tells a clear story about your business.

By looking at your FAST model, anyone can quickly and easily understand what the business is doing – whether that’s your management team, investors or your bank manager.

Knowing why you’re in business

Knowing WHY you’re in business is a critical element of creating an effective model. It may sound like a really simple thing for a business owner to know, but people can sometimes find it hard to give a simple explanation of that ‘why’ element.

As Simon Sinek, the motivational speaker and consultant, points out in his renowned TED talk, most businesses know WHAT they do and HOW they do – but very few know WHY they are running their business.

What we do at FD Works is get our clients to start thinking very hard about the ‘Why am I in business’ question. Once you know the ‘why’ element, that then drives everything else in the model, so it’s a crucial thing to understand and to work into the modelling process.

Stepping back to define your key drivers

To find the central vision (the WHY) behind your business means stepping back from the day-to-day running of the company and taking a more objective view of the business.

Some questions to consider will include:

  • What does your business do?
  • What are you trying to achieve?
  • What do you want to get out of your financial model?

It could be that your motivation is to make more money, or to penetrate a new market. By taking a step back and thinking about these fundamental questions, you’ll find the key drivers that will form the foundations of your financial model.

Learning to understand your business

'We gave FD Works a remit to create a sophisticated and dynamic financial model for a complex business proposition.” George Rendel, The Career Portal

Once you’ve defined your key drivers, these can be plugged into your financial model and you can start the process of accurately modelling your whole business.

We recently worked with The Career Portal to produce a detailed model for their medical eLearning and tutoring business, giving them a tangible model to forecast their finances, as co-founder, George Rendel, explains:

“We gave FD Works a remit to create a sophisticated and dynamic financial model for a complex business proposition. We needed this done in a short period of time, in order to support our ongoing fundraising efforts.

Simon and the team got to grips with the nuances of the proposition extremely quickly and turned around an excellent first iteration of the model within a week. They were then extremely responsive and efficient in adding new functionality and making any adjustments we requested. In the end, we got a highly credible financial model that impressed sophisticated investors, delivered under intense time pressure at a fair price. We were really impressed!”

By combining the simplicity and flexibility of the FAST model with the core truth that drives your company, we help you get the best possible overview of how your business works. That’s enlightening for you and your leadership team, giving you a better understanding of your finances and helping you make well-informed decisions.

And from our perspective, it gives us a huge amount of useful information about your business and the areas where we can help you improve, innovate and attain extra value.

"We got a highly credible financial model that impressed sophisticated investors, delivered under intense time pressure." George Rendel, The Career Portal

Revealing the internal workings of your business

Going through the FAST financial modelling methodology helps you to understand your business in a far more practical and logical way than before.

The process allows you to step back, take an X-ray of the business and see (possibly for the first time) the superstructure or skeleton that the whole company is based around. When you can see the true structure and drivers pinned down in this level of detail, you begin to look at the business with new eyes. The opportunities for improvement will jump out at you, and the areas where the business is being held back will become apparent.

And, with our team of financial experts on hand to advise you, you know you’ll have the insight, guidance and proactive support to take your business to the next level.

Read the full-length version of this post on Medium – with even more examples of using the FAST methodology to understand your business.

Modelling the future of your business

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Simon Williams is a Finance Business Partner at FD Works