How financial modelling reveals your key business drivers
As you grow and scale your company, it’s important to improve the financial efficiency of your business. Financial modelling is a key tool in this process, allowing you to pin down the drivers in your business model and get the most from your finances.
But before you can begin the financial modelling process, it’s important to get understand WHY you’re in business so you can a real handle on what your key business drivers are.
Simon Williams, Finance Business Partner at FD Works, outlines how the FAST approach to financial modelling adds core value for you and your leadership team.
Why use financial modelling?
Financial modelling is an incredibly helpful tool for any business.
Modelling helps plan when (or when not) to spend money in the business, allows you to understand your business cash-flows and assists with scenario-planning, decision-making and providing information to investors.
In short, good financial modelling gives you clarity around which direction the business is heading in – and gives you the information needed to deal with any challenges.
Why we model using the FAST methodology
At FD Works, we apply the FAST model when working on financial modelling for your business.
FAST is a way of analysing your underlying business model and efficiency, built around four essential attributes that an effective business model must include. If your business model is going to produce the best outputs is must be:
- Flexible
- Appropriate
- Structured
- Transparent
We use the FAST model because it keeps things standardised and tells a clear story about your business.
By looking at your FAST model, anyone can quickly and easily understand what the business is doing – whether that’s your management team, investors or your bank manager.
Knowing why you’re in business
Knowing WHY you’re in business is a critical element of creating an effective model. It may sound like a really simple thing for a business owner to know, but people can sometimes find it hard to give a simple explanation of that ‘why’ element.
As Simon Sinek, the motivational speaker and consultant, points out in his renowned TED talk, most businesses know WHAT they do and HOW they do – but very few know WHY they are running their business.
What we do at FD Works is get our clients to start thinking very hard about the ‘Why am I in business’ question. Once you know the ‘why’ element, that then drives everything else in the model, so it’s a crucial thing to understand and to work into the modelling process.
Stepping back to define your key drivers
To find the central vision (the WHY) behind your business means stepping back from the day-to-day running of the company and taking a more objective view of the business.
Some questions to consider will include:
- What does your business do?
- What are you trying to achieve?
- What do you want to get out of your financial model?
It could be that your motivation is to make more money, or to penetrate a new market. By taking a step back and thinking about these fundamental questions, you’ll find the key drivers that will form the foundations of your financial model.
Learning to understand your business
Who are FD Works?
Here at FD Works we take a different approach to accounting and finance. Our team of experts help clients get a handle on their finances, make bold business decisions and grow their business. Located between Bristol and Bath we work nationwide.
Modelling the future of your business
Talk to FD Works about how financial modelling adds value for your business