A Financial Model is a summary of a company's revenue and expenses. Using historical data, a Model allows the business to track KPIs such as gross and net margin, as well as forecasting future performance, based on critical metrics such as customer cost of acquisition.
For startup founders and small business owners, the Financial Model is a fundamental tool for managing the business and making educated business decisions about the company's future.
There's no need to reinvent the wheel, though. There's a standardized set of variables included on a financial model template that most executives are familiarized with.
Selling, General and Administrative Expenses summarizes the majority of the company's costs, from payroll, to marketing, sales, rent and services.
Assets owned by the company, such as cars, computers and servers are stored here and their depreciation is automatically calculated for tax purpuses.
Costs of Good Sold may be used differently across industries. It usually accounts for the cost of materials and inventory. For software companies, servers are usually accounted for here.
Estimating revenue and projecting it accurately is key. It's also relevant to connect these predictions to their associated COGS and SG&A requirements.
This is a functional model you can use to create your own formulas and project your potential business growth. Instructions will be included on the front page.