Financial Model

Once your business plan is in place, it’s time to translate your vision into numbers. A financial model sets out your historical performance and then uses assumptions to forecast performance going forward over the next few years. You will need to identify the key drivers of your business performance in order to forecast forward.

This short video introduces the concept of a financial model and walks you through the key elements you’ll need to forecast performance, assess the strength of your business, and communicate effectively with investors.

If you haven’t used a financial model before, we have an example spreadsheet which you might want to take a look at. This is just an example, and you should seek your own financial advice before relying on any information that might come out of using this spreadsheet.

Please email CommunityWealthFund@camden.gov.uk if you would like a copy of the financial model example.

This video provides a guided tour of the model and how you might want to use it:

This is a step by step guide to how this example model might be filled out by an organisation:

1. Change the Forecast Start Date in Assumptions!D12 to the start of your next accounting period. Eg if your current financial year ends on 30 May 2026, then the Forecast Start Date would be 1 June 2026
2. Enter in last year’s P&L figures and the current year’s anticipated P&L figures in the Annual Summary sheet in columns E and F. This will also help you think through what lines you will need to add in for your specific business, for example, you might have additional cost lines for your business which aren’t included in our example
3. Go back to the Assumptions page and think through whether you expect your product or service to increase in price year on year, and whether the costs you pay increase in price every year too. Sometimes people may add in more inflation lines because different costs will increase using different inflationary figures for example salary costs may grow in a different way from rent.
4. For revenue modelling, you may need to build in the revenue workings from scratch to reflect what you see and experience in your own business. Revenue modelling will always be made up of number of customers x price per customer. The numbers of customers you are forecasting forwards is often the trickiest part to calculate. You may want to draw on market data, historical data from your own organisation, or information from a pilot you might have run. Some examples of the way that different organisations might forecast number of customers are:
   1. Calculating the overall market size and then what share of that market you could anticipate holding. For example, if an organisation sells into universities in the UK and it knows that there are only 170 universities it could sell into, and in that sector the average market share is 10%, the organisation's growth plan might assume an increase from the current level up to a maximum of 17
   2. Number of tenders and success rate/conversion rate (this is the example that is currently used in the model, so if an organisation anticipates 10 tenders coming out each year and has found it usually has a success rate of 50% it would be expecting to see 5 new customers each year
   3. Year on year growth is the simplest way of forecasting growth in customer numbers. Here an organisation might have identified that historically it has grown sales by 10% each year, so it assumes it will continue to grow the number of customers by 10% each year.
   4. The number of customers may also be directly related to the resource you put into making a sale. So for example, if an organisation knows that 1 sales person makes 5 sales a year, then if it grows the sales team by 1 person a year, it will see sales increase by 5 sales a year
   5. Subscription or rolling membership balances will be appropriate for businesses who operate this type of business model. This will require modelling a corkscrew balance where you include:
      1. Opening balance – this is the current number of customers and going forward will be drawn from the closing balance
      2. New customers – calculated based on particular drivers of customer acquisition or could be a fixed assumption about new customers being brought in each year
      3. Customer churn – the number of customers leaving the business each year
      4. Closing balance – the sum of opening balance and new customers less the number of customers who have been churned
5. Cost of sales will need to be modelled according to your specific business and which costs drive sales.
6. Overhead costs are the specific costs that your business has to pay on top of the costs that drive sales. For this you might want to look at your historical P&L and identify the costs that you are currently paying for IT, rent, utilities, insurance, phone etc and make sure you are including these costs in your forecast. For staff costs you will need to remember to include the number of staff and their costs to the business. Their cost to the business will be the cost of their salary but any additional payments you need to make on their behalf such as National Insurance, pensions or Income Tax
7. Finally you need to go into the Monthly Cashflow sheet and see if you need to add any seasonality to your revenue assumptions in rows 10 and 11.

There are some more tips and advice here on modelling and using Excel here:

How to build a financial model

This material is for general information purposes only and is not intended to provide legal, tax, accounting, investment, financial or other professional advice on any matter. This material does not constitute a recommendation or advice by Camden Community Wealth Fund, London Borough of Camden of any kind. You should discuss this material with appropriate advisors in the context of your circumstances before acting in any manner on this material and make your own independent assessment (based on such advice). This material may not be comprehensive or up to date and there is no undertaking as to the accuracy, timeliness, completeness or fitness for a particular purpose of information given. Camden Community Wealth Fund and the London Borough of Camden will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice. London Borough of Camden assumes no direct or consequential liability for any errors in or reliance upon this material.