First step is for the Fractional CFO to go through your company's historical data to get a better understanding of your business and it's historical performance. Also, is crucial to make sure financial data is accurate and insightful enough.

Next step is to understand what for you need a financial model, do you need to raise money, take a loan, sale your business, etc. Most common scenario is when founders wants to raise money so we will focus on this example. In this case, a fractional CFO has to understand what are the investor's return expectations.

For example, if you raise from some angel investors they might expect a 10x return in 5 years while raising from VC requires a lot higher return.

A 3 to 5 years financial modelling must be linked with the historical financial performance. You can't have a 15% YoY Revenue growth and show that from now one your YoY Revenue will increase by 60%. Investors won't trust such financial modelling unless you have a very solid plan on how to do that jump in revenue growth.

A fractional CFO must understand the correlation between hirings and your revenue. For example, hiring 1 customer success specialist for every new 15 b2b customers.

Building the actual financial modelling starts with forecasting the revenue, number of new customers, number of customer that might leave the business, work on a sales and marketing plan with the founders.

After you forecast the revenue, next step are the company's spending. First, is hiring then the rest of spending. Financial modelling is built on three scenarios: worst, base, best. For each scenario there will be different hirings.

There will be separate sheets for forecasting revenue, hiring, other spending then you build the company's financial statements.

Once you have the financial statements and check they make sense you compare the spending vs revenue. For example:

• Does your revenue growth make sense?
• Do you spend enough money on sales and marketing to scale the revenue?
• Do your financial metrics make sense? For example, for a software company the gross profit margin should eventually be at least 70%. There are also plenty of other metrics like Magic Number, CAC, etc.
• When are you becoming profitable? Is capital using efficient enough?

There are plenty of other checks that you need to go through to make sure you have the financial modelling ready for your investors.

If you need a financial modelling book a discovery call with us:)

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