It's just for bigger companies, right?
A common misconception about financial modelling is that it's only for the bigger companies or that it's only for big changes. Sure, it can be used for that, but it can also be used to:
- Help inform decision making
- Determine what your margins on a product really are
- Look at the value of small tweaks across the product line
- Assess staff capacity
- The costs and benefits on charging or not charging surcharge
And that's just the start. As a business owner, you know that everything you do has an impact on your bottom line, one way or the other. Financial modelling can be as big or as small as the circumstances require.
As more and more systems are being used, from accounting software to inventory management to payment platforms, there's more data available than ever before. Just because something wasn't able to be quantified before, it doesn't mean it isn't possible to look at it now.
The best kind of financial modelling shows clear results in a language you understand and not every industry looks at the same metrics, nor will every business need to see the same outputs. You may have additional considerations, such as KPIs, a triple bottom line approach or a view to reduce physical waste that goes beyond just a dollar figure.
It's important to make sure that the modelling suits you and your needs, that it's not just a minor tweak to the standard template that some companies sell to everyone, whether you're selling flowers or running a bookkeeping firm.
The solution should also go beyond just showing you data you can understand to showing it in the format you desire. Your business might not want a spreadsheet where multiple copies could end up existing and there's the inevitable confusion over which one is the most up to date. You may want it to be viewable in Power BI or another solution, and this needs to be a consideration when you're considering choosing a modeller.
It's more than a one-off
If you're introducing a new product line, it's likely you're following the steps you've undertaken the last time you introduced a product line. Costing, sourcing materials, production, marketing, etc., the steps aren't too different so often models can be reusable, so that you can keep making informed decisions again and again.