What Happens if You Don’t Build a Financial Model – Struggling to Secure Funding

This is the second article of the ‘The Hidden Cost of Ignoring Financial Modelling’ series. In this article we emphasise the importance of having an up-to-date and accurate financial model to secure funding for your business.

As we have explored in the “Financial Modelling: why your business needs it” article, financial models can help businesses attract external funding from investors. These models demonstrate the business financial viability and potential growth. They can also help businesses communicate their plan and strategy to potential funders. And, ultimately, help demonstrate a level of financial sophistication that investors and lenders are looking for.

Difficulty securing funding

Financiers – not unreasonably – expect you to have your finger right on the financial pulse. After all, they are backing you to ‘bring home the bacon’.

That you can produce up to date, accurate financial information is a good sign but on its own, it is not enough. That you are a small or medium business is no excuse.

Debt funders want to know that you can and will meet your obligations to pay fees and interest and repay the amount loaned to you (principal). Whilst equity investors want some combination of dividends and capital growth on their investment. Notice that each involves forming a view about the future performance of your business.

In both cases, you must be able to describe in detail – and engender confidence about – the future. You must be able to predict the future financial performance, position, and cash flow of your business, based on a reasonable set of assumptions. You do that with a three-way financial model.

Not only does the model tell the financial story, but it says a lot about you. About how well you know your business. How you lead and manage your organisation. How well developed your strategy is and about how conscious you are of the challenges that lie ahead. About whether you prudent are enough to sense check the funding ‘ask’ from all points of view.

If you are serious about securing funding for your business, build a financial model.

If you would like assistance in getting some financial modelling for your business, or to find out more about its benefits for your business, please contact us.

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Mitchell Turnbull

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