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Financial Modeling 101: How to tell a compelling story with numbers

Posted by Deborah Drake

On June 17th nearly 40 attendees experienced the second of three SVP Fast Pitch Jumpstart workshops –eager to learn more about the important and often “dreaded” topic of Financial Modeling.  Presenter, Michael “Luni” Libes, a serial entrepreneur and the founder of Fledge, a “conscious company accelerator” began with a question that is the overarching theme of the series, “What makes your business venture great?”

First, have you designed for Humans?

Second, have you done Financial Modeling? (Luni would have you start on the back of an envelope, keep it simple and have your numbers tell a story that is as good as your “Pitch” but more on that below.)

Third, have you a plan for Sales, Marketing and Social Impact? (3rd in the series and happening today. Register now. J)

So how exactly do you build a financial plan for your business? According to Luni, there are three important questions to work through as one does Financial Modeling:

  • Can this business make money?
  • If so, when?
  • When, given what resources?

The point of the financial exercise an entrepreneur puts themselves through as they “guesstimate” up to three years of future potential revenue is to understand:

Will this enterprise ever be sustainable?

About a third of attendees in the room had already drafted financials. Those who hadn’t wondered if there was a master template they should be using. The advice given was to start simple with a “back of the envelope plan.”

“Ball parking the key financial ingredients provides enough information that you can logically determine if you want to fully jump in.”

Start with a single column of simplified potential revenue and expenses before you invest in hours of calculating  numbers you are essentially making up suggests Luni.

You can tell a compelling story in numbers.

As a Social Innovator, you must be able to explain your numbers as more than a collection of facts. It is a story that has a beginning, a middle, and an end (like your Pitch!)  It grabs the audience and takes them on a journey. And it must make sense from row to row with every number having a reason for being there.

Following the roadmap outlined in The Next Step: Guiding you from idea to startup, Luni walked an attentive audience through the financial example of launching a lemonade stand business, offering his tips and preferences for how to guesstimate and even format an excel spreadsheet.

Done simply but thoroughly, you as the business owner will understand it completely and be in a position to proactively and confidently explain or defend your choice of numbers as needed.

Make up your own blueprint for financial modeling and you’ll be knowledgeable about every number you put in that spreadsheet. And, if you are concerned with bias then you can always get a second opinion.

Is your idea one that can grab market share?

Is it sustainable?

Is there a reasonable story in the numbers?

Are there red flags?

Bottom line according to Luni: Using someone else’s template won’t make it easier and could make it more work than it needs to be.  Start simple and iterate more complexity (and add lines as you need them)

“The more iterations you play with the better you will understand your business potential and its story.”

Luni’s candor and matter of fact presentation was refreshing to attendees who offered immediate feedback. Those who came in nervous about the role that financials play in the Fast Pitch Application process left calmer and more confident about what mattered most and how to do it.

“This was a wonderful training for non-profit entrepreneurs needing “Business Planning 101.”  Dr. Maureen O’Shaughnessy, http://LEacademy.org

“Luni is frank about financial, and that is so positive!  This isn’t an exercise in making your financial statement complex, but rather in utilizing your own simplified process to illuminate what effect variables will have on quantitative outcomes.” Brian McDonald, Sourcerer.squarespace.com

P.S. Recommended reading by Luni to all interested in social and conscious innovation is “The Lean Start-up”