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Business model analysis - quantitative
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Running the business model numbers Upon completion of the qualitative review, it is essential that a comprehensive quantitative review is then undertaken. Our experience is that far too many business owners and managers ignore this vital stage of business model assessment. Unfortunately, many believe the hard work is done once they have established a credible story about how they will make money from their proposed business or project. For each possible business model, there is a unique set of variables - both technical and financial - which will impact upon the performance of the business. It is not enough to test movements in one key variable at a time. When testing new business models, it is imperative that any combination of key variables can be tested simultaneously and rapidly in order to assess the likely impact upon financial performance. This can only be achieved through the use of a customised, integrated model which has been designed for this purpose. Financial models - financial projection models At Wingarra BMI, we specialise in assisting clients to identify all key drivers underpinning, and variables likely to impact upon, the financial performance of a new business, business unit or project. This process is also crucial when an expansion, a merger or an acquisition is being contemplated. Comprehensive, sophisticated and customised financial projection models are then designed and constructed to incorporate these drivers and variables in order to project likely financial performance across a selected period, usually five years. These financial feasibility assessment (FFA) models become valuable management tools which can be run repeatedly in order to project financial performance by month and year in all anticipated operating circumstances. Of particular importance, cashflow patterns can be mapped and analysed to identify likely maximum cash requirements under all scenarios contemplated, thereby allowing debt and/or equity financing requirements to be planned on a timely basis. All businesses differ in the scope and range of variables likely to impact upon financial performance. Comprehensive, well-designed and well-constructed financial models should be able to easily and repeatedly test for the effects of changes in all variables likely to impact upon the financial performance of the business, project or investee entity. Importantly, they should also be able to test all relevant permutations and combinations of relevant variable sets, and to estimate the effects of both upside and downside departures from the anticipated scenario. Having been unable to find any off-the-shelf financial modelling packages which can be used across a wide range of business types, Wingarra BMI has spent several years building a range of models which can be customised to the particular circumstances of any business or project. In customising these models, Wingarra BMI works with the business owner and/or manager to undertake a detailed assessment of the particular business model from the ground up. As well as forcing an understanding of the key drivers underpinning the business, this process also highlights any previously unrecognised strengths and weaknesses. Among scores of customised financial models designed and constructed by Wingarra BMI in order to undertake FFAs for clients in a wide range of business and project scenarios, the following are a few examples:
Please refer to the Financial models - financial projection models page for more detailed information about these models. That page also links to the Financial models - customisation examples and Financial models - general examples pages which outline a number of examples and a wide range of screenshots from numerous models based on actual client assignments.
Financial models - life cycle comparative cost (L3C) models Some products and services are so outstandingly innovative, and their benefits so obvious, that they virtually sell themselves. Regrettably, most are not. In their rush to work up new product or service ideas which they assume to be superior to those of competitors, entrepreneurs and innovators can easily lose sight of the fact that it is often a very big step for potential customers - already fully occupied in their own businesses - to take a decision to buy a new product or replace an existing supplier. It is often easier for them to stay with the status quo, even if they can appreciate the inherent benefits of a new offering. The only way to break through this inertia - which can be a surprisingly formidable barrier to commercial success - is to have ready and compelling answers to the obvious question: Why should I buy your new product or service or replace my existing supplier? Wingarra BMI's L3C models are specifically designed to assist clients answer just such questions. Where product or market circumstances are appropriate, these models are developed in order to assess the full life cycle costs and benefits of new products and services against independent criteria and/or their current and anticipated major competitors. They can accommodate product/service cycles from several months up to 20 or more years and can either include or exclude variable sets common to both the new and existing product/service regimes. They focus specifically, however, on differential variable sets. After all comparative costs and benefits have been precisely defined and calculated, they are totalled for the life cycle specified and defined in both current $ terms and in discounted cashflow (DCF) terms. Please go to the Financial models - life cycle comparative cost (L3C) models page to view example screenshots of this type of model.
Financial models - budgeting By their nature, 5YFP models are ideal for budgeting purposes for SMEs. For more information about this, please see the Financial models - budgeting models page.
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