The Role of Financial Modelling in Securing Investment for Indian Startups

Recent studies conducted by the Institute of Business Value and Oxford Economics, indicate that 90% of Indian startups failed within the 5 year mark of their operations. Besides poor market research, poor marketing strategies, weak business model, one of the major reasons for this failure rate is, the lack of funding. 

Without sufficient capital, the dreams of scaling and evolving into established entities can quickly become mere fantasies. This emphasizes the need to create a sound financial plan that will enable your company to tackle the ongoing obstacle of insufficient funds.

Financial modelling is one of the most crucial methods in creating a financial plan that catches the attention of potential investors. Many Indian startups are not aware of how crucial this is while pitching to the investors. This very process is critical in building investor confidence, eventually helping secure sufficient investment for Indian startups. 

What is Financial Modelling?

Financial modelling involves forecasting a business’s revenues, expenses, profits, and cash flows over a specified period, often using historical data with assumptions about costs, growth, and market trends. This projection helps businesses assess their financial health and plan for growth or investment needs.

A strong financial model for startups includes detailed assessments of the startup’s financial health, precise revenue forecasts, and data-backed insights into areas that require improvement. Along with its benefits of offering sound financial planning, it also aids in making strategic, well-informed changes that boost profitability.

Essential Steps Involved in Creating a Financial Model for Your  Startup

1. Collect Relevant Data

Start by gathering necessary financial and non-financial data. This includes historical financial statements, market research, and industry benchmarks. Having this broad set of data will provide the much-needed robust foundation for your model.

2. Define the Purpose of Your Model  

Defining the objective of your financial model is another crucial step that assists in making decisions aligning with your goal. Take your time to clearly articulate what you want to achieve with your model. 

Are you analyzing your fund requirements, projecting future revenues, or weighing different strategic options? Whatever it is, you need to know exactly what you are aiming at, as it will help shape the structure of your financial model effectively. 

3. Identify Revenue Streams  

Outline all your revenue streams—whether from product sales, subscriptions, or service fees. Identifying where the revenue is coming from is crucial to generating accurate forecasting results.

4. Estimate Expenses  

Categorize your costs into fixed expenses (like rent and salaries) and variable expenses (like marketing and production costs). This way, you can seamlessly estimate based on how your organization functions. 

5. Create a Cash Flow Forecast 

Creating a cash flow forecast can be highly beneficial. Develop a cash flow projection that outlines expected inflows and outflows. This strategic approach will help you manage liquidity effectively and ensure your cash flow is sufficient to keep things running smoothly in the long term. 

6. Build Your Profit and Loss Statement (P&L)  

Construct a P&L statement summarizing your revenues, costs, and profits over a specific period, preferably monthly or annually. This would help give you a clear understanding of your financial performance.

7. Develop a Balance Sheet  

To get a clear overview of your financial situation at a particular moment in time, you must create a balance sheet that lists all of your assets, liabilities, and equity. This allows the stakeholders to evaluate your company’s general stability and liquidity.

8. Document Your Assumptions and Methodologies  

Keeping a record of the assumptions, methodologies, and calculations that form the core foundation of your model is paramount. Documenting them can help promote transparency and make future updates easier.

9. Test and Refine Your Model 

Regularly compare your forecasts with your actual performance data. Make timely adjustments to your assumptions to enhance the overall accuracy and relevance of the model.

10. Conduct Sensitivity Analysis 

Conducting a sensitivity analysis helps assess the intricate details. For instance, it assesses how variations in key factors, such as sales volume or costs, can influence your financial results. Through this method, you may better understand the primary drivers of your company’s success while also identifying possible hazards.

Now that you have discovered the hack to securing investment for indian startups, check out more of our insightful blogs: Take the first step towards business growth with a feasibility study 

5 key Benefits of Financial Modeling for Indian Startups with MARC

Here’s how partnering with MARC for financial modeling services can benefit you:

1. Tailored Strategies: 

MARC’s financial modelling helps startups create customized financial plans that align with their specific growth objectives and market conditions, ensuring that resources are allocated efficiently and strategically.

2. Enhanced Credibility: 

With MARC’s expertise, startups can create strong financial models that show their grasp of business dynamics and increase their credibility when pitching to investors.

3. Proactive Risk Management: 

MARC’s models incorporate sensitivity analyses, allowing startups to identify potential risks early and develop contingency plans, reducing the possibility of financial setbacks.

4. Performance Monitoring: 

By continuously updating financial models with real-time data, and with MARC’s guidance, you can easily track and compare your actual performance against forecasted projections. This empowers timely adjustments to your strategy, giving room for more improvement, eventually leading you to long-term success.

5. Informed Decision-Making: 

To empower startups in making well-informed, long-term decisions, MARC provides a clear framework for assessing the financial impact of key decisions. This ensures that every choice is analyzed for profitability, sustainability, and risk, helping founders navigate their business journey with confidence and a focus on growth.

Become a pro at B2B market research for SMEs with the help of this blog: A simplified guide to business-to-business (B2B) market research for SMEs

MARC’s Financial Modelling Services

With MARC, you get one step closer to unlocking the true potential of your business. Our comprehensive financial modelling services are not just designed to support your strategic goals, but also your financial health. 

Here’s what we offer in helping achieve the goal of obtaining investment for indian startups:

• Budgeting and Management Forecasting: To confidently navigate your financial future, make thorough predictions and budgets.
• Cash and Working Capital Management: For optimal operational efficiency and sustainability, focus on maximizing your working capital and cash flow.
• Assessing Corporate Deals: Conduct thorough financial analysis to assess possible mergers, acquisitions, and alliances.
• Strategic Options Analysis: To properly direct your business decisions, identify and evaluate a variety of strategic avenues.
• Strategic Planning and Forecasting: Develop long-term plans that align with your business goals and objectives.
• Improving Positioning with Finance Providers: Use solid financial models to increase your attractiveness to lenders and investors.
• Supporting Creditors and Bank Negotiations: Equip your business with data-driven insights to help negotiate successfully with banks and creditors.

MARC’s Assistance: The Key to Effortless Investment for Indian Startups

Financial modelling is a highly valued tool in India and an integral part of startups. It’s essential for funding and investing decisions, budgeting, financial planning, performance tracking and valuation strategies. 

At MARC, we have successfully helped businesses thrive by managing to get the required funding necessary for their growth. For example, we assisted a catering business in developing a comprehensive financial model along with a project report, enabling them to successfully operate three QSR format restaurants. This demonstrates that with the right research and insights, you can reach your goals faster.

Whether you’re seeking funding or aiming for sustainable growth, MARC is here to guide your Indian startup on the path to excellence. Reach out via our website or email us at [email protected]