Really, how important is financial modelling for startup founders?
Really, how important is financial modelling for startup founders?
This is the first blog post in a series we have put together on financial modelling. Whether you’re starting, scaling or maintaining a business, Sara and Andre discuss everything you need to know. If you want to explore the rest of the series, follow the links below:
- What if my financial model isn’t accurate?
- Why founders shouldn’t pay someone to do their financial model
- Communicating with investors is key in a crisis
For now, here’s our first article on the basics of financial modelling and the Canaree journey. Happy reading!
What is a financial model? Is it Kate Moss walking down the runway holding a wad of notes? We’re sad to tell you, no it isn’t. Financial models are one of the key building blocks for any successful business, but unfortunately they have a nasty reputation of being difficult to create and even harder to interpret when talking with investors.
If you’re one of those people who gets a headache by simply opening up Excel, the thought of creating a financial model might cause an aneurysm. Last week Sara, Canaree’s CEO, spoke with our finance expert Andre, about the importance of financial modelling, but also how Canaree can relieve you of the pain of creating one all alone.
We at Canaree have gone through our fair share of ups and downs, successes and failures, and struggles and triumphs. Building our own model has certainly had its pain points! Hopefully now, we have some advice that can help you to not make some of the same mistakes that we have. Keep reading to find out more about Canaree’s inception and the need to knows about financial modelling.
Sara: Thank you so much for taking the time to have this conversation today. I wanted to have this conversation mainly because:
1. We launched Canaree last week, which I think is a huge achievement for a team during lockdown and a pandemic and an economic crisis, to reach that milestone.
2. But also, obviously we’ve been working together since I joined a little over six months ago, to build our model, and I wanted to share those insights with the listeners and viewers today.
Sara: Could you perhaps start by talking to me about who you are and why Canaree was even started originally?
Andre: I started in finance a long time ago and I’ve done a lot of financial models.
I’ve worked in investment management, in infrastructure development, in corporate finance. And all of those different facets of finance need different types of models. But there’s a fundamental model, which is used to model out a business plan.
And when I started out doing a bit of mentoring for some startups in InsurTech at Startupbootcamp - there were about 20 startups there - and at the end of it, most of them said ‘oh, could you do our modelling for us?’ and we said, ‘well, we usually do that for large businesses and it’s quite expensive and time consuming.’
So I went away and I started thinking, What could we do? What could we automate; what's the automatable in financial modelling? And that’s where the idea for Canaree came from.
“So I went away and I started thinking, what could we do? What could we automate; what's the automatable in financial modelling? And that’s where the idea for Canaree came from.”
Sara: Okay. And then what was the first step in starting up Canaree? What did you do?
Andre: What did I do? Well, I worked in Excel, haha!
I built a model in Excel to plan out whether firstly, it was realistic. I did things like Lean Canvas. I went round and interviewed people, to see whether this was a pain point. And you know what, it actually is a pain point.
Not surprisingly, people don’t like doing financial models, don’t know how to do them properly, don’t have the time to do them - don’t really care about them. But in actual fact, they’re important. Every investor that you see is going to expect a financial model.
The way I see a financial model is, it’s like if you write an outline for a story. You sketch out all the different points. And that means that you can clearly articulate why it is that you’re doing certain things or that you think you’re going to make a certain amount of money in a certain amount of time. I think that’s one of the key questions that investors are going to ask you.
Sara: Yeah. And of course Canaree will have - right now the beta is: ‘build your financial model in just a few clicks’. I’ve been continuously testing it and you can do a basic financial model in less than a minute, which is you know, much faster than what you can do in Excel, even if you download a template.
Then, obviously we add on advice on top of it so you can go in and analyse the numbers. So, we’re hoping that will be really helpful for a lot of the founders who are out there, as you say, and I’ve been one of these, just pulling out my hair because my head hurts whenever I open an Excel spreadsheet! Though I’m getting better at it.
But obviously, yeah, we’ve learned quite a lot from working together, especially on the financial modelling side.
“So, we’re hoping that will be really helpful for a lot of the founders who are out there, as you say, and I’ve been one of these, just pulling out my hair because my head hurts whenever I open an Excel spreadsheet!”
In short, the idea behind Canaree is to provide innovators and entrepreneurs with the ability to map out an intelligent blueprint for their business’ finances, that they actually understand, irrespective of their level of financial expertise. We simplify financial modelling so you can focus on growing your business without the stress of worrying if your numbers check out.
Now you know about Canaree, here’s some final takeaways from Andre that will hopefully help you to feel empowered to get to grips with financial modelling in order to level up your venture.
You can watch the video here - they even had a bit of a giggle!
Sara: Is there anything else that you want to add, from your genius financial model brain?
Andre: ‘Approximately right is better than precisely wrong’. That’s the key. Most people hate the idea of doing a model, but you need it. You’ve got to figure out a way to do it. You can either do it by yourself on Excel, which - unless you’re a sadomasochist - no one particularly enjoys that!
Sara: I think you get a little excited!
Andre: For most people, what you need is someone to hold your hand while you do it. That could be a financial advisor that charges you a lot of money or it could be Canaree that will walk you through it.
And you know what, it’s a skill that you’ll take with you for the rest of your life. If you’re an entrepreneur, you’re not going to start just one business, you might do five, you might do ten. So, this is a skill for life.
Sara: I totally agree. I was talking to a young entrepreneur who’s doing fundraising for the first time and he just asked if I could give some input and I’m obviously always happy to help. And so I also asked if he had prepared his investor deck and his financial model. And he said ‘yes, the deck is ready, but not the financial model.’
For me now, sitting on the side and having worked with you, I can’t even imagine how I would do a deck without having a financial model. Because how do you know how much you’re going to raise if you don’t have a financial model? I mean, you can’t just ask for a willy nilly number. Someone is going to ask ‘ what are you going to spend it on?’
So, not to throw him under the bus, but it’s just so clear that there’s so much anxiousness about actually creating a model and there shouldn’t be. It’s not dangerous!
“Canaree creates financial models in just a few clicks, and then holds your hand throughout the entire process.”
Essentially, a financial model is one of the most important things to create but more importantly, to understand. That way, when you speak to investors, potential partners, or whoever else about your plan, you have the confidence to discuss your roadmap, with the numbers to support you.
Canaree can guide you through this process and take away the stress that finances usually incur. 90% of startups fail, and we are here to put a stop to that.
Sign up for Canaree here. We’re sure you’ll love it. 🧡