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Why is Financial Modeling particularly necessary for startups and new small business?
- A financial models for corporate company is a key element for establishing an economically viable business. Having a suitable financial plan and building a financial model for a startup is highly critical for its survival against the already existing competitors in the industry. A financial plan can be represented systematically through a financial model and a financial model assists in identifying pathways for ensuring the financial feasibility and profitability for startups. At its best, a financial model helps in forecasting extreme financial outcomes.
- Not all startup businesses have the required financing available so startups seek out investors for raising funds. A financial model is a remarkable tool which attracts potential investors. Financial model for company startup come in many forms but even a simple one which compiles the numbers behind the path to the profitability of the startup is capable of providing high level data to potential investors. A financial model helps in answering the delicate questions which an investor might raise before plunging into a startup business case.
- Apart from raising outside capital, a financial model can be immensely useful for internal decision for investment decision making. for investment decision making. For example, a new business has an exciting new product in line which is to be launched. Here, a financial model can be a useful tool for understanding what the expenses would be and what they would amount to. It would be easier to identify what the costs would be to produce the units of the new product and the human resource they would need to handle orders. A financial model can also provide helpful information on different scenarios. For instance, by changing different variables such as price per unit, material cost, delivery cost and the forecasted gross profit, it can be readily predicted how the bottom line would be affected by changes in the variables.