Service Vendor Financial Model Helped In Stating A 6-Figure Biz
Steve’s business analyzing
In order to accomplish the task, it took quite an effort to thoughtfully analyze Steve’s business and understand how it works in practice. We looked at his assets, revenue structure, KPIs, relations with the borrowers, loan suppliers, customers, and contractors. We also took into consideration seasonality and other factors that can influence his business.
For Steve’s convenience, the model is very flexible and can be easily adjusted. There is a possibility to change the figures directly on the dashboard and see the impact of such changes on the whole business. Further, I will describe the most interesting and uncommon elements of the model.
One of the most important parts of the business model for Steve was the variance analysis. His aim was to constantly track the outcomes of his actual activities versus planned. This enables a quick reaction to the current business situation, offering a chance to take measures if the company fails to meet the set goals.
Financial Model Idea
The model that we built for Steve allows the import of the actual data on the costs and revenues, accounts receivable, and accounts payable from his accounting system and then comparing it to what was planned beforehand. Hence, he can see if the variance is favorable or adverse, and analyze possible causes for each result.
“What will happen if I acquire a new customer?” was one of the questions that Steve wanted to answer. At first glimpse, the answer seems to be obvious and positive. However, a closer look and consideration of different factors revealed some potential pitfalls.
The addition of a new client leads to an increase in stock and accounts payable. Moreover, all clients pay for the services provided with different delays that can be up to 90 days.
At the same time, Steve has to pay his contractors on other terms, which can be 20 or 30 days. Thus, there is a need to check if the acquisition of a new customer won’t lead to the lack of working capital, and as a result the lack of money in Steve’s account.
Business financial model analyzing
Our service business financial model allows Steve to analyze and simulate his relations with the customers and manage his cashflows. Furthermore, it provides calculations on the average monthly revenue by customer and allows forecasting the revenue generated by each client during a specific period of time.
Here is another interesting feature of the model that I created for Steve. The model takes into account the impact of seasonality on the number of monthly sales during the year. Thus, the whole model can be adjusted to the average amount of sales that can vary from month to month. There is a great ability to switch between the scenarios, with regard to the time of the year, on the dashboard.
As you can see, we did a great job with Steve and created a very interesting and effective tool to control his business. I hope some of the features described in this article will help you build a more holistic business model and consider a wide range of factors that play role in your company’s growth. Should you have any questions or comments, feel free to contact our Finmodelslab or in the comments section below.