Agency Financial Modeling
Your Financial Model – It Informs All Decisions
By now you better have built your 2015 Financial Model. Everything comes back to the bottom line. Wouldn’t it be great to be able to look out three, six, or twelve months to see what’s possible? That’s what financial modeling can do for you.
Financial Modeling (built correctly) will help you make key decisions that will impact your bottom line. Very importantly it will help you build a Marketing Plan/Budget – everyone needs to develop new business. What strategies and tactics can you afford?
Financial Modeling (built correctly) will help you make headcount decisions. Can you afford to hire or should you contract? Should you be providing raises, bonuses or other incentives?
Financial Modeling (built correctly) will help you determine if you can invest in professional development, product development, travel, much more.
Everyone knows to impact profitability you must either increase revenue or decrease expenses. Of course you can use QuickBooks or some other accounting software to track historical income and expenses, but have you projected revenue/expenses; Top Down and Bottoms-Up; Best Case; Worst Case; etc. That’s the hard part. What does next year look like, do you have enough Cash Flow?
Projections are just that – your best guess and I am sure they will change regularly. But, you must make them – don’t rely on gut or the assurance they will work out (“they have in the past”).
Start by projecting revenue from current clients and determine how much new business (new clients) is needed to achieve your goal.
Fixed expenses (rent, utilities, etc.) are fairly predictable, variable expenses are not. That’s where the Financial Model really helps.
The key is to make this simple – easy to update, easy to analyze, etc. You must build in the time to review the data regularly and from there, make informed decisions. Whatever you decide may take time so having the longer term vision helps!
