Using Financial Modelling to boost clarity in business decision-making
Affintive was approached for our financial modelling service to help produce the projections and valuation, which supported our clients certainty in making business decisions.
Disclaimer
As the project is highly sensitive and confidential, our client has requested that all sensitive data and information be redacted.
Background
As Carebridge is growing they have made considerations to receive funding from investors. Affintive was approached for our financial modelling service to help produce the projections and valuation.
Carebridge’s accounts and financial data was reviewed and possible scenarios projected on their financial outcomes were created. These projections then facilitate the preparation of an enterprise valuation for pre-seed funding.
Business Problem
Investors will need to assess certain metrics of businesses before deciding on funding them, hence Carebridge needs to prepare a Business Canvas Model where financial projections and valuations are fundamental components. These data and information will then assist investors in assessing Carebridge’s financial health and status to make decisions.
Carebridge’s accountant made attempts at forecasting projections to produce a valuation. However, the process and outcome of the exercise was not satisfactory as it seemed to have lapses and uncertainties in the financial figures.
Unable to proceed further as financial modelling was not within their specialisation and capability, extra assistance and consultation was then considered to conduct the financial projection and valuation project.
A mid-tier accounting firm was then sought out but there was a misalignment on the fees quoted and Carebridge’s budget. Further concerns were brought up due to a lack of specificity and tangibility in the proposal, this then arose more concerns regarding extra costs when requesting assistance for small tasks outside of scope.
Solution
Commencement: data & information
Financial Modelling is typically done for specific operational models that use financial data such as a Revenue Model, Business Model, Cost Model, or even a Payroll Model.
To start the financial modelling exercise we will use all of Carebridge’s historical financial data and revenue models to project trends that they are currently on. After that we would have a consultation session with Carebridge leaders and stakeholders to discuss their ideal projected scenario. Drilling them with questions such as:
- What are Carebridge’s current plans?
- Where does Carebridge want to go next?
- What data supports their revenue growth?
With the answers we will project scenarios to meet the desired goals and plans of Carebridge along with conservative and prudent alternatives. Then with the projected data we assess whether the scenarios are realistic or not. If the projected outcome is aligned with the historical trend then we can use it as a projection.
Execution: projection and valuation
Making time and effort to understand Carebridge’s business operation process, we spoke with them to learn their current process instead of using common knowledge, industry norms, or secondary research to prepare the model. This ensures Carebridge receives our expert opinions based on their business instead of others in similar categories within the industry, and makes the financial modelling especially customised and exceptionally relevant for them.
For example, while speaking with Carebridge to learn more about the financial traffic, we discovered together where the bulk of their cost is coming from. We even asked for product deadlines and outputs to have a better idea on their revenue model along with how often and how much time they spend to fix or debug their software on a weekly basis.
At Affintive, we want to go beyond focusing on the current and historical facts. Studying Carebridge in detail to avoid uncontrollable factors, such as industry, segmented, and penetrating market shares, that may result in the models becoming too optimistic.
To come up with the projections we needed to cast assumptions on some factors as future events are uncertain and unpredictable. Factors that specifically affected Carebridge were the risks of macroeconomic changes, geolocation, and geological business sentiments. For example healthcare job-seekers, government policies, healthcare funding, or skill shortages within their operating premises.
Other factors that affect Carebridge were:
- risks of microeconomic changes,
- risks of strategies succession,
- timing of completing required tasks
- timing of executing required tasks
With the data and information in place paired with possible risks after careful diagnoses from consultation sessions with Carebridge we then came up with 3 scenario projections for Carebridge:
- Best-case — the most optimistic scenario, where one has to be aggressive to achieve
- As is — a linear growth scenario based on historical data and existing growth rate
- Worst-case — using the aggressive projection but increasing the risk to be higher for prudence and suitability to the client’s historical trends, this is the most conservatie scenario
Recommendations: prudence to prevail
To conclude the financial modelling project, we discussed the positive and negative sides, highlighted limitations of what we discovered, and elaborated on the consequences and benefits of each projection by providing our perspectives for recommendations.
In most cases, businesses are drawn towards the aggressive projection as it presents rewarding promises, and Carebridge is no exception. Our goal at Affintive is to subtract financial burdens from our clients, and to achieve that we are mindful of being as honest and grounded with our decisions, suggestions, and recommendations. Through our discussions and understanding of Carebridge’s business operations and models, we recommended what we usually suggest to most businesses, the conservative projection.
Conclusion
The projection that we recommended may be conservative, but we aim to make the projections achievable in practical settings. It may not be as appealing as the aggressive projection, but we are honest and prudent with our decisions to reduce and subtract financial burden.
We understand that sometimes being too conservative can lead clients to miss the point of their projected scenarios and make them think they could have projected such scenarios on their own. However, most projections without the proper processes and considerations would possibly be founded on mostly assumptions, anecdotes, and subjective opinions.
Therefore, the objectivity of the projections needs to have a good balance of technical processes and predictions on the economy with regards to the business so that it will not be merely just an exercise.
Impact
At the end of the financial modelling project Affintive was able to help address Carebridge’s main challenge in preparing for their Business Model Canvas and pre-seed funding by providing them with projections, valuations, and a business growth report.
Carebridge received a total of 3 scenarios, 3 forecasts and 3 valuations from us which they will then use to present to the board to form strategic decisions.
With the financial modelling done, Carebridge is now able to make validated and justified business decisions based on objectivity and facts on their business operations. This offers them clarity and guidance on their financial status, assisting them in making better decisions, and saving more time.
Obtain new insights and gain more clarity on how to plan your business using financial insights like our happy clients.
Pave the way of your business with objective financial data paired with insights from current affairs.
We get it, you’re a business owner, we know you started this business with a purpose separate from managing finance operations. So we add extra care and attention to your dreams and goals when optimising and supporting your finance operations because we believe young businesses deserve the quality service of matured businesses.
We know that taking on many roles as a business owner is taxing, especially when it comes to working on everyday finance operations that you are not familiar with. As qualified chartered accountants and certified Xero advisors, we are engrossed with your financial processes.
With daily finance operations performing smoothly, you can focus on the favourite parts of your business.
Focus more on your business instead of financial management like our happy clients.
Pave the way of your business with objective financial data paired with insights from current affairs.
We get it, you’re a business owner, we know you started this business with a purpose separate from managing finance operations. So we add extra care and attention to your dreams and goals when optimising and supporting your finance operations because we believe young businesses deserve the quality service of matured businesses.
We know that taking on many roles as a business owner is taxing, especially when it comes to working on everyday finance operations that you are not familiar with. As qualified chartered accountants and certified Xero advisors, we are engrossed with your financial processes.
With daily finance operations performing smoothly, you can focus on the favourite parts of your business.
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