Presented by Mr Curtis Mayers of NEDCO.

1. W E B I NA R # 3
J U N E 2 7, 2 01 3
How to Create a Comprehensive
Financial Model

2. What is a Financial Model?
A quantitative representation of financial
information, from e.g. a
business, organization or branch of
government
It is used by the financial analyst and may be
constructed for many purposes including:
 valuation of a security
 forecasting future raw material need
 determining benefits of a takeover or merger.

3. What is a Financial Model?
 A financial model is designed to represent in
mathematical terms the relationships
among the variables of a financial problem
so that it can be used to answer "what if"
questions or make projections.

4. What is a Financial Model?
 A model is a simplified representation of a
situation or problem and modeling is the
process of building, refining and analyzing
that representation for greater insight and
improved decision making.
(Source: Mastering Financial Modeling – Financial Times series)

5. Why Create a Model?
 A tool to assist you to forecast when you will
start to generate revenue and how much you
will need to spend to get there.
 Allows you to predict and continuously
modify the assumptions (with a great deal of
flexibility) underpinning the financial
performance of your business.

6. Why Create a Model?
 To present your business to potential
investors or other partners - reasonably
identify how much the company will need to
spend in the early phases to achieve a level of
income in excess of expenditure.
 The financial model can also be used to try
out new ideas and even test other business
models.

7. Tools necessary for forecasting
 Decide on software – Excel, VBA, Customized
or “off the shelf” programmes
 Cash Flow Projections
 Sales / Income
 Expenditure
 Variable Costs
 Operating Expenses
 Net Income
 Integrate with Business Plan / Business Model

8. Steps in Creating the Model
First Step:
Define and Structure the proposal
 Define why the model is needed and determine questions
that need to be answered
 Determine how accurate or realistic outputs will need to
be
 Quantify relationships among variables

9. Steps in Creating the Model
Second Step:
Define the input and output variables
 List all inputs and identify who will provide them
 You may use reasonable assumptions based on precedent
or established practices but avoid arbitrary guesswork
 Compile list of tabular, graphical or other outputs the
model will need to generate

10. Steps in Creating the Model
Third Step:
Determine who will use the model and frequency of
usage
 Consideration for level of detail
 User interface requirements

11. Cash Flow Projections
 Enter monthly revenue
 Enter monthly expenditure
 Variable costs
 Operating costs
 Debt servicing
 Calculate net income

12. Completing the process
 Risks
 Identify possible risks & show how mitigated
 Cash flow projections – (3 years)
 Income statement
 Balance sheet
 Opening statement or personal financial statement
 Projected balance sheet
 Funding Requirements
 State amount & type – debt or equity

13. Applications
Basis for sound business activities
Financial negotiations
Grant funding
Investment promotion
Feasibility studies
Due diligence analysis
Management reports

14. Benefits for Business
(Used in conjunction with Business Plan)
 Identify possible weaknesses in project concept and develop
improvements to mitigate effects of such weaknesses
 Optimize level of profitability / returns on project
 Identify and evaluate possible associated risks and their
quantitative impact
 Develop strategy to mitigate above risks
 Time saving in preparation of project documentation to
ensure compliance with evaluation criteria and process

15. Benefits for Business Owners
 Understand how personal and business strategies can work
together
 Explore liquidation opportunities and financial alternatives
before implementing change
 Explore options and alternatives that can add significant future
value
 Consolidate financial information for decision making
 Evaluate personal investments, estate planning and even
retirement strategies
 Examine possible exit strategies

16. Benefits for Professionals
 Maximize retirement benefit options
 Explore possible financial alternatives before implementing
change
 Gain better understanding of your financial circumstances
and direction
 Explore options and alternatives that may add future value
 Consolidate financial information to better enable timely and
well informed decisions
 Integrate executive compensation strategies with personal
investment, insurance, estate planning and retirement
planning

17. The End
Thank you!