In this extensive nine article series I will outline the core principals behind modelling a business from a financial and operations perspective.
The type of modelling I prefer is less based around ‘grand thinking’ and more towards known costings, industry average performances and if at all possible actuals. To be perfectly blunt, this takes a lot of the speculation out of the equation.
The model normally is normally three years, although if I have a specific milestones for capital raising in mind I may increase this to five years. After the model has been completed the variables included can be amended to forecast and predict future performance.
Additionally, the beauty of the model is that it can easy be transformed into a P&L and management report.
Outline of the Model
For the example portal business used on this website, the model will consist of the following 12 pages:
- RESULTS PAGE
- MONTHLY TRAVEL
- INDIVIDUAL SUBSCRIPTIONS MODEL
- CORPORATE SUBSCRIPTIONS MODEL
- REPORT SALES
- ADVERTISING SALES
- MARKETING PLAN
- CONTRIBUTOR PAYMENT MODEL
- HR COSTS
- ASSORTED COSTS
- BUDGET DETAIL
- CONTENT MATRIX
Now we have the structure for the model, let us build the model. For this I use Excel and logic.
This section outlines the attributes and methodology of each portion of the model used for the example business.
THE RESULTS PAGE
The results page operates as an overview of the business broken down by year. As a result, it is on this page that the annual totals for each of the individual pages are brought together and added up. Obviously, it goes without saying that depending upon your business model, the pages and attributes we are talking about here will change.
For example, your business might not sell banner inventory, it may instead sell delegate places. Alternatively, it might only have the one commercial model, be it monthly subscriptions, or e-commerce sales. In those (and indeed in all) cases simply edit to suit.
The attributes included on this page are as follows:
- INDIVIDUAL SUBSCRIPTIONS – BY YEAR
- CORPORATE SUBSCRIPTIONS – BY YEAR
- REPORT SALES – BY YEAR
- BANNER SALES – BY YEAR
- STOREFRONT SALES – BY YEAR
- LICENSING / PARTNERSHIPS – BY YEAR
- R&D GRANT – BY YEAR
- TOTAL REVENUE – BY YEAR
- EBIT $ – BY YEAR
- EBIT % – BY YEAR
- YoY REVENUE GROWTH
- YoY OPEX GROWTH
- YoY MARGIN GROWTH ($)
- YoY MARGIN GROWTH ($)
- ENTERPRISE VALUE – BY YEAR BASED ON REVENUE MULTIPLES
- ENTERPRISE VALUE – BY YEAR BASED ON EBITDA MULTIPLES
At the bottom of the page, I like to highlight each annual revenue breakdown as a pie chart.
Finally, I have always found that it is better to build this page after you have completed construction of all of the other pages. This page along with all the others within the workbook will be aailable to paying subscribers shortly.
In terms of describing the models, now we have completed this outline page, lets move on to the next page: