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.