Building Financial Models
March 24, 2022
Holly Howard is the brain behind Ask Holly How, a business consultancy founded on the principle that successful entrepreneurship resides at the intersection of self-evolution, business growth, and the creative pursuit. Holly works with creative entrepreneurs who are building locally and growing globally. They are risk-takers by nature, with an expansive mindset for growth, driven by a sense of possibility.

By catalyzing culture change, constructing a stable infrastructure, unifying teams, and clarifying the company vision, her clients gain creative freedom, financial prosperity, and a clear path towards generating their legacy. Since launching Ask Holly How in 2012, Holly has worked with over 1,000 businesses through her private consulting and business growth program. In the following discussion, she teaches us how to use our data, create solid financial models and understand our expenses.

Concepts to consider when building out our financial models

The first one is you. What are your personal needs as the owner-operator? Sometimes as founders, we might not put ourselves at a market rate salary or we'll push our compensation off for a while. Our businesses should be working for us and not the other way around. Next is the data. There is nuance in each of our numbers. Our numbers tell us many different things about our business' potential growth.

There is nuance in each of our numbers. Data in business is not just about financial planning, it tells us many different things about our business's potential growth.

The impact of big picture costs

Never set financial models without first setting marketing goals. Everyone likely has seasonality in their businesses and it's valuable information to take note of for our finances and the efforts we put into marketing and production. Whether you have a product-based or service-based business, your marketing efforts tie into your financial model. Sometimes we're very siloed in those things, but they speak to each other. Our marketing efforts are the building blocks of our financial goals, so we want to look at them together.

Bible business costs include employee benefits, professional development, culture-building initiatives, livable wages, business emergency funds and your salary. These costs should line up with our values, like taking care of our employees and taking care of ourselves. Our budgets and our values need to align when making our projections.

Top four financial roadblocks

  1. In our accounting books - QuickBooks or any other accounting software - often our data isn't detailed enough or updated frequently enough. If financial modeling is not your strength, a great book to read is Financial Intelligence for Entrepreneurs. It's required reading in the business growth class that I teach because it's so good at helping you understand all of the language and essential concepts in financial planning.
  2. When we believe that acquiring more customers will result in a bigger market share when it could actually limit our growth opportunities.
  3. When we fail to break numbers down into the slightest change. A helpful practice is to take that year and ask yourself, what is it by every month, week, day and hour that my business is open? If we break it down to the smallest numbers, it can help us understand how to make change attainable.
  4. When we aren't transparent about the books. Our goal should be open book finance and there are many books and articles on the subject if you want to learn more.

An explanation of micro and macro numbers

Pay attention to the details. Examples of micro-numbers include the number of customers that we serve any year, the total number of sales, our customer conversion rate and the number of repeat sales. We look at these data points to gain insight into what's working and what's not. From there, we can better understand the efficiency of our production and marketing efforts.

Whether you have a product-based or service-based business, your marketing efforts tie into your financial model. Our marketing efforts are the building blocks of our financial goals, so we want to look at them together.

On a macro level, we’re looking at big picture things and always want to understand our historical growth rates before we project forward. Doing so gives us information about what's happened in the past and how we could do things differently in the future.

Deciding on KPIs

When deciding which KPIs (key performance indicators) to track for your company, consider your vision and goals. It will vary from company to company. You want to think about what you are performing towards. From there, you can pick the most important KPIs to record. Then use that data to assess whether or not you reached your goals.



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