Learning financial modeling skills might look intimidating to many young founders and entrepreneurs. Many of them believe it is vital to have professional financial and accounting skills to create a plausible model. This perception might have been accurate some years ago, but not anymore.

With the passage of time and the development of easy-to-use financial modeling tools like Numberly, every founder can develop a basic model for their business without having professional expertise. You do not need to have an academic background in finance or possess an MBA to create that for yourself.

However, it does not mean you do not need any skill to create a financial model. In this piece, we are talking about five fundamental financial modeling skills that should help you build a solid and reliable revenue stream.

1. Data Analysis

Data analysis is a fundamental requirement in the numbers game. Financial modeling is the art of playing with data and making informed calculations.  Usually, there are three essential skills within analytics.

• Data collection
• Data interpretation
• Decision making

Step One

The first step in data analysis is to gather data. In a typical financial modeling exercise, revenue, expenses, and payroll are the primary data points.

There, you could collect specific metrics and variables like the performance of the digital advertising campaigns, cost per click, return on ad spend, cost per lead, bounce rate, cart abandonment rate, etc.

As a business, you need to ensure sticking to the right data points and recognizing what metrics to keep in sight, put together, and analyze.

Step Two

Once you have your data, the next step is to put it all together and make sense of it. This interpretation fundamentally means having the skills to recognize good and bad trends. For example, if you are an e-commerce retailer, your ROAS, cost per acquisition, and abandonment rate can make or break things. Hence, you must have the skill to identify good and bad trends while looking at those numbers.

One more thing in data interpretation is understanding the reasons and factors behind the trends. For example, if you are observing a higher bounce rate, cart abandonment rate, or CPC, there must be some factors leading to those. It could be your page copy, product pricing, the ad’s poor audience targeting, etc.

An analysis is incomplete without understanding the reasons behind ‘why’.

Step Three

The third and final point – after you are done with data collection and interpretation, is to put that data to some use. This means, drawing a conclusion and making informed decisions based on the insights from the data.

A financial model is exactly like that – where you have to make informed business decisions on how to grow your firm. Such models enable you to create and forecast the future course of revenue streams.

2. Prudence

A prudent businessman will keep a close eye on his assumptions about their business. If those assumptions are more comparable to reality and pragmatic, your business model will be accurate. Having the right mindset and foresight is one of the most underrated financial skills.

Let’s say – you aim to reach a MRR (monthly recurring revenue) target of $100 by the end of Sept 2022. Of course, it won’t happen itself, instead would require some planning and effort to reach there. Your ability to predict the right steps needed to achieve that goal is prudence, and that’s very much needed for financial models.

Do you have this sort of foresight? Some people have it naturally, but if you do not have it, here are some tips to help you develop this skill.

• Learn scenario building. “What if that happens” is the sort of analysis that should help you develop foresight.

• Practice critical thinking. Whenever you are faced with a situation, wear multiple hats and think from a whole range of positive and negative perspectives.

• Study historical data to identify trends. Learn what stock market brokers and analysts do – read the past to predict the future.

3. Basic Accounting

You don’t have to work hard to become a CPA to build a model — but you must understand the basic accounting principles. For example, you need to know the difference between cash and savings, how to read the three primary financial statements, and other basics.

It doesn’t matter if you do not plan to create your model; it is crucial to understand the accounting basics to know your organization’s financial situation and discuss it with key stakeholders. Assuming you’re new to the universe of business bookkeeping and funds, you can begin with a portion of the books on this rundown.

There are millions of articles, blogs, and books on basic accounting. With a little Googling, you can master most of the basic accounting abilities you want to build your SaaS business financial model.

4. Attention to Details

No financial model is perfect – but if enough attention to details is paid and common mistakes are avoided, it can serve the purpose. Conversely, if there is a slight mistake in numbers, the entire prediction can go wrong – underestimated or overestimated.

If you are like many beginners, Excel must be your starting point to create the financial model – mistakes are pretty common in spreadsheets and workbooks. In this scenario, either your own expertise and detail-orientation can help, or professional services like Numberly can save you from the mess.

Some people are naturally good at attention to detail. However, if you are not a detailed-oriented person, there are a few ways you can develop these skills – some tips are given below.

• Solve puzzles like Sudoku – It may sound silly, but it helps a lot at spotting tiny details and changing your perspective.

• Proofread your team’s work – By opting for double-checking, you develop a habit of critical thinking and detail orientation.

• Avoid distractions – When working on something important, make sure to surround yourself with a peaceful environment. Distractions lead to disrupted focus and poor decisions as a result.

5. The Art of Speaking

The last but not the least crucial financial modeling skill is the art of presentation and speaking. One of the most underrated skills is the ability to explain your plan and help others understand it.

It applies to numerous scenarios – investor pitching, advisory meeting, board meeting, team presentation, and client demos. This is not just about numbers or how your business will make money – it is much more than that.

You have to tell the story of your business – what has been done, what would be done, and how it would be done. It is like walking people through your journey and helping them understand why they should believe in your vision and be a partner.

While some people are very good at speaking and presentations, others may need to develop those skills at their own. And this is totally okay as communication and presentations are very much learnable skills. Take a look at our three core tips to improve your financial modeling presentation skills:

• Know your business and numbers. People will observe your grip on the data and how you are going to handle their questions. If you are stumbling and unable to make sense of data, this will shatter their confidence in your ability to lead.

• Build a narrative – The best of all speakers and presenters are great storytellers. They are easy to remember and follow. If you are presenting your business model, start with a picture and then paint it. If your numbers for certain quarters or months aren’t great, explain them and then connect the dots to the near future boom.

• Seek Feedback – One of the best ways to improve your presentation is to discuss it internally with the team and seek their input on the numbers, narrative, and flow. Brainstorm on the potential questions and how to answer the burning questions without sounding rude or hostile.

• Practice a Lot: As they say, practice makes a man perfect. Therefore, in order to be a good presenter and speaker, practice as much as possible. Rehearse your presentation beforehand and seek feedback from your team and spouse to help understand the weak areas.

Conclusion:

Finally, we hope this piece helps you understand some crucial financial modeling skills and get a roadmap to develop those. If others can do it, you can also do it.

As we noted above, financial modeling or public speaking are skills that can be learned by practice. The majority of founders have the basic qualifications to be good at financial modeling; it is just about the practice and putting things into action.

If you still believe there is a dearth of knowledge or lack of time at your end, dedicated tools like Numberly can help build your financial model hassle-free.

At Numberly, we are committed to helping founders with their modeling and revenue stream management. Our team includes financial and business experts who have decades of experience and international exposure, offering you real value for investment. Please schedule your free consultancy call and get your customized financial plan and projections to get started.