Financial Models

A financial model is a way to take a set of assumptions (costs, revenue, etc.) and model a business to give you some semblance of what your actual operating financials might look like. One of my businesses is a software company (which is, in my opinion, the best type of business to be in but that is a post for another day). There are all sorts of metrics that apply to a SAAS (software as a service) model that can impact your financials.  Things like customer acquisition costs, churn, and lifetime value. 

If you’re thinking about pursuing an idea it makes sense to run some rough numbers to determine if your efforts might be worthwhile. I usually start with a calculator and/or a basic spreadsheet and if things start feeling good you can start to dive in a bit deeper. 

I came across a model years ago from Taylor Davidson that does an excellent job at taking an idea and determining if the economics work. He’s continued to update it and add value- it’s a really fantastic tool. You can get a copy at http://foresight.is.

One thought on “Financial Models

  1. Chon, really appreciate the note about the models. They’ve come a long way since I first launched them (and you found them). It’s hard to take something that can be really complicated and make it really simple. For bigger models, I’ll often start with the frameworks simply because it’s faster and easier, but for simple models I usually start with a blank spreadsheet, or I use parts of the frameworks to build a simpler model.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s