Financial Model Development
Can You Guess That “HOW” & “IN WHAT TIME” your Business will make You HAPPY? Do some Number Crunching & get it.
What is financial modelling?
This is a kind of mathematical model based on simulation and sensitivity analysis designed to represent (a simplified version of) the performance of a financial asset or portfolio of a business, project, or any other investment.
Why do you need of financial modelling?
A Company uses Financial Modelling for following purposes:
- Valuation of a security
- Valuation of new projects
- Raising finance for projects
- For internal decision making
- Forecasting future raw material needs
- Forecasting the capital investing needs
Why is financial model useful?
Some of the benefits include:
- Easier planning and budgeting – the ability to ‘look ahead’ and plan accordingly is essential for business owners.
- Testing ideas to optimize your business – what would the impact be of changing our product mix ratios? Or distribution channel mix? Or funding structure? etc
- Running scenarios – What impact would a doubling of sales volumes have on earnings, staffing requirements, equipment needed for production, funding, etc?
- Managing financial risk – There are many sad stories of business; sometimes entry of strong competitors, product failure, marketing crash, no access to new technology etc.
What’s our approach for financial modelling?
Our approach goes in the following ways:
- Understanding the business model
- Listing down the key success factors of the industry
- Finding out the trigger point in the industry
- Listing down the strengths and weaknesses of the business
- Assessing the cost of operation and capital costs
- Forecasting the growth rate of the business
- Simulating the above inputs with sensitivity
- Preparing a mathematical model on the excel worksheet
Our Report will cover the following
- Studying historical financials of the business
- Employee recruitment plan and costs. This is to include timelines,personnel salary and wages, etc.-Staffing sheet
- Any future Capex – thoroughly vet your costs and verify the same as well as the timeline of implementation and cash flow allocation.
- List of key assumptions
- GST and taxation structure explanation
- Risk Mitigation Strategy and SWOT Analysis
- Estimation of overheads
- Contingency plans for change in the costs
- Reviewing / Making the financial projections required for valuation purpose
- What is the value of the company (basically, based on the company’s potential, what reasonable offer can be expected from a reasonable buyer). This also translates into how to calculate the value, the methodology, what does the value discounts and what forms the part of purchase consideration? That is what all items from the balance sheet are taken over.
- What do the investors or strategic acquirers value and how to maximize the value of the firm. This deals with how to add strategic value to the business, how to build the balance sheet so that the investment or acquisition proposal as a whole looks strong enough to command considerable premium
- The deal structuring, with following alternatives along with terms of the practical options you have now and options you can open up in future with constructive effort along with practical valuations associated with all these options so that you can take an informed decision over the fate of your company.
- A complete 100% acquisition, what will be Purchase consideration here, what will be the handover period and responsibilities. ( Here you are handing over the management, this will have ramifications on overall deal).
- A partial but substantial stake sale – 40-49% stake sale. Again the Purchase consideration and the management responsibilities here. ( Here you are retaining majority but bringing in a constructive partner, this will maintain your responsibility in terms of the management but also give you the diversification and a strong partner to grow the company faster).
- A partial non substantial stake sale – upto – 20%. ( Here you are selling a strategic investment, here you will get diversification plus absolute control of the company).
- A funding proposal, here whatever money comes in, it goes to the company. The promoters get diluted. The valuation will likely be on a higher side as this kind of deal shows the management and promoters confidence in the company. ( Here the company will grow much faster to a higher valuation range which will benefit both, the promoters and the investor).
- We will provide detailed dashboards of PNL, Balance sheet, cash flow and summary sheet.
- Guidance on how to improve the valuation based on the report prepared.