Development of a financial model for a particular project is a unique process. A good financial model provides dependence on the project industry, business model, capital structure, stage, investors, etc.
Despite the differences in business, the structure of data remains similar to general principles of calculation. Below we highlight the fundamentals of efficient data structuring for financial models. Take that it is a bon ton to store all of your data arrays not in large databooks, but in tools with cloud storage.
Inputs
Inputs is data series on which a company has limited influence. Basically, this group includes macroeconomic parameters (interest rate, exchange rate, GDP, etc.), tax rates, tariffs for the use of infrastructure facilities and so on. Industry benchmarks can also be included in this part. For example, it can be market prices of goods and services, the average wages, the number of employees in an industry or region, etc.
Some of these arrays may directly affect the result of financial model calculations (like an interest rate), or help compare the company's results with its peers. When you plan the structure and links in the tool for the financial model, you should consider a regular update of calculated indicators.
Investment in the project
This block will include data on the cost of purchasing fixed assets, the cost of preliminary work, production volumes for the entire period of operation and additional costs associated with the launch of the project, for example, payments for the services, rent of land and facilities, payments to employees.
Based on data series, you will be able to calculate the total capital costs of the project and depreciation of project assets. Here we should mention that your planning tool has to enable you to work with detailed accounting items. On further steps, when you commence your project it will be easier for you to calculate the return on investments.
Income of the project
This part includes information about the potential cash flows of the project, for example, what goods or services will provide the major revenue stream. For further business analysis, you should build the financial model considered in multidimensional directory planning tools that help distribute each accounting item through several parameters: a business line, categories of goods and services, sales channels. In addition, an operating plan data series, including selling prices, should be prepared for each item.
Nota bene. Usually, it is better to start with marketing analysis that will provide a precise forecast of major market trends. It will help to keep in mind the plans of competitors, their production capacity, pricing and so on. Such information will allow you to make a reasonable decision on the launch of the project.
Cost of the project
Only regular costs of implementation of the project are associated with this part. It includes the general model of fixed and variable costs, such as wages, materials, energy and so on. For this purpose, it will be better to use planning tools with a multidimensional data model toolkit.
Financing
Any investor must understand the conditions for entering and exiting the project. This part contains detailed information on sources of financing. For example, loan amounts, terms, interest rates, shares in the project for potential shareholders, leasing conditions, covering cash gaps, etc.
This part is most dependable on changes in input data, which, under adverse conditions, may affect the underfunding of the project. Try to include special rules in your planning tools that will mark the possible errors and risks of decrease in investments.
Taxes
The part includes tax rates and calculations of tax payments. They may differ by the type of business activity, industry, types of trading operations, jurisdiction of incorporation.
Metrics and methods for valuation
Company valuation methods may differ depending on the requirements of the funders. This part of the financial model also depends on inputs - when some of them are changed, the enterprise value can change dramatically too.
