

Ask HN: Best way to build a financial model? - spIrr

Dear HN community,<p>For my internship i need to dive into the topic of financial modelling for a technical start-up. I would be very thankful if you could share some best practices in getting the assumptions right and building a financial model generally.
Anyone who is interested in some sort of chat on that topic is also very welcome, it would really help me out!<p>Thank you in advance!
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curt
I've made half a dozen or so very detailed models for varying start-ups and
therefore have gone through the process a quite a few times.

1) Please make sure you understand accounting/finance (Income, balance sheets,
cash flow, inventory, etc).

2) Who is your target: this determines how detailed, modifiable, and annotated
the model should be.

3) Don't worry about the assumptions at first, just get best guesses and build
it. Then when done hunt through available financial models to find comparable
values. (Have all assumptions on 1-2 pages/sheets and nothing else, I usually
have 1 for revenue assumptions and 1 for cost assumptions)

4) Make sales targets/growth easy to modify (in a separate table/sheet) so a
statistical analysis can be completed easily if needed or different revenue
models can be tested.

5) After you've made the model check your calculations by hand and make sure
the values make 'sense'.

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AN447
[http://en.origoterra.com/2010/05/startup-financial-model-
is-...](http://en.origoterra.com/2010/05/startup-financial-model-is-there-a-
template/)

This may be a good starting point.

~~~
zg
I wouldn't recommend using this as a basis for building your model. Use it to
assist you by all means but you'll learn a lot more by building your own, and
it doesn't need to be anywhere near as complex as this one.

Always use relevant operational drivers for your business - this model is a
very generic one that takes income by month as an input and then just grows it
by arbitrary percentages after the first 3 months.

So e.g. for a web based business often key drivers will be traffic to your
site, conversion rates, price of product (and percentage growth rates for
these). Once you have these you can calculate revenues (which could then go
into the spreadsheet linked to here if you really wanted to use it).

But it's this operational modelling that really is key to both helping you and
any investors understand the economics of your business.

Make sure everything (revenues and costs) are broken down month by month for 3
years. Roll up to yearly totals on a summary sheet if you want.

You can build a decent model in two/three sheets. One for key
assumptions/drivers + summary results, and one for an operational model and
P+L. You could do cashflow on the 2nd sheet or separately on a 3rd.

