If you followed the advice of one of our earlier blog posts and built your own financial model, you’re probably wondering what to do with it. For starters, if you’re a startup or small business that’s experiencing high growth, you should be updating your financial model on a regular basis. If your company is more established, you can probably get away with updating it quarterly, semiannually or even yearly. Give your financial model the love and attention it deserves, and here’s why:
It’s all about the wins
When you don’t update your model regularly, you’re missing out on easy wins / insights into the health of your business. Your financial model allows you to regularly notice differences between what happened and what you thought was going to happen. For example: suppose you doubled your sales for the month or you were able to upsell three of your most difficult clients. You should be able to point to the causes of gains (or losses), so that you can repeat (or adjust) the next month. This continuous feedback loop is fed by updates and tweaks to your financial model.
So, in summary, taking time to regularly “check in” on your business will affect your long-term success. By comparing your expectations (the model) to what actually happened, you can pivot and update your objectives keeping you on a path for growth..
Let’s face it - when you start a business, it quickly becomes your baby and you protect it with everything you have. However, this blind passion makes it difficult to take a step back and take a critical look at how your business is really doing. To avoid this, use data to make any and all decisions (refer back to your financial model when in doubt) - emotionally-driven decisions tend to create bad outcomes.
Furthermore, keeping your financial model up to date allows you to take a step back and observe trends. You will be able to see the ebbs and flows of your business, which will ultimately help you plan for the future and run your business better.
Who’s the boss?
Every startup and small business has stakeholders they have to answer to. And if your financial model is up to date, you’ll be prepared to respond to any inquiry they throw your way. When you’re talking to key stakeholders, the last thing you want is to create doubt by sounding naive / underprepared. In that same vein, you also must earn and maintain trust from your employees. Having a scrubbed financial model that you can share with your employees will instill confidence that the business is in good hands. Healthy employee relationships will lead to a healthy business.