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How To Create a Simple Financial Model For Your Business [keyword

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Do you understand how you make money in your business, where your money goes and what your margins are? In this video, I share the top 5 elements of any financial model that will give you clarity in your business.

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Have you ever felt stupid?

I have.

For pretty much my entire teenage existence I felt like I didn’t understand the world around me.

When I got into business at 17 it was no different.

I’d watch these “businessmen” talk and I had no clue what they were saying….

… but over time I decided to learn.

I put in the time to study books on marketing, finance, leadership, design, etc..

After a while, I could understand what they were saying and actually challenge some of their views.

Once you learn business, it’s really not that complicated.

It comes down to 5 core elements that need to be understood.

Some people call them models, but it’s really just 5 areas.

That’s what I break down in today’s video… the 5 elements of a financial business model.

Any business out there can be described and discussed using these 5 financial models:

1) Revenue Model: Who will buy? How often? How soon? At what cost? How much from each customer.

2) Gross Margin Model: How much revenue will be left after you paid the direct costs of what you have sold?

3) Operating Model: Other than the costs of the goods or services you have sold, what else must you spend money on to support the sale?

4) Working Capital Model: How early can you get customers to pay? Do you tie up money in inventory waiting to be sold? Can you push back paying suppliers till after your customers have paid?

5) Investment Model: How much cash must you spend up front before enough customers give you enough business to cover your operating costs?

What I love about constraints – not having enough money – is that you get creative about how you deliver value to your customers.

That’s what I want to hear from you!

Leave a comment letting me know how constraints brought creativity into your business model to allow you to compete against the big guys.

Did you run your operations out of your garage?

Did you partner with local organizations to promote your services? Let me know.

There’s no need to feel stupid in business.

Every day is an opportunity to push our understanding and refine our business to run better.

I hope these models serve you in a big way, and the story I shared (as embarrassing as it was) helped ground them in a way that you could integrate into your thinking.

Have an incredible day!

With gratitude,

– Dan

Don’t forget to share this entrepreneurial advice with your friends, so they can learn too:

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ABOUT DAN MARTELL
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“You can only keep what you give away.” That’s the mantra that’s shaped Dan Martell from a struggling 20-something business owner in the Canadian Maritimes (which is waaay out east) to a successful startup founder who’s raised more than $3 million in venture funding and exited not one… not two… but three tech businesses: Clarity.fm, Spheric and Flowtown.

You can only keep what you give away. That philosophy has led Dan to invest in 33+ early stage startups such as Udemy, Intercom, Unbounce and Foodspotting. It’s also helped him shape the future of Hootsuite as an advisor to the social media tour de force.

An activator, a tech geek, an adrenaline junkie and, yes, a romantic (ask his wife Renee), Dan has recently turned his attention to teaching startups a fundamental, little-discussed lesson that directly impacts their growth: how to scale. You’ll find not only incredible insights in every moment of every talk Dan gives – but also highly actionable takeaways that will propel your business forward. Because Dan gives freely of all that he knows. After all, you can only keep what you give away.

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10 comments

Zev Sklar 16/09/2021 - 1:24 Sáng

Switching pay structures almost every week lol

Reply
Canisio Pedro 16/09/2021 - 1:24 Sáng

How can I understand calculating profit and lost margins?

Reply
Md. Mostafa Asef Rafi 16/09/2021 - 1:24 Sáng

Great video Dan!This will be great guide for the undergrads like me

Reply
Lili Balfour 16/09/2021 - 1:24 Sáng

Hey Dan! Great video.

I like how you laid out the various categories.

Just a minor niggle. At 5:28, you mentioned Revenue of $4 and Cost of Goods $1 would yield a gross margin of 60%. In this example, gross margin would be 75%

Revenue
– Cost of Goods Sold
= Gross Revenue

Gross Revenue/Revenue = Gross Margin%

R&D
SG&A
= Operating Expense

Gross Revenue – Operating Expense = Operating Income (Loss)

Operating Income (Loss)/Revenue = Operating Margin%

I'm a bit of a finance dork, so I always spot things like this…overall great video. 🙂

p.s. I did a comparison of historical Dropbox and Box financials a few weeks ago. You can check it out here – How to Build a Startup Financial Model — https://www.youtube.com/watch?v=TOxocrLMeFk&list=PLz6myc3tljnT4ikZhND17SXaCx4LMf0uA

Reply
Shawn Larkin 16/09/2021 - 1:24 Sáng

Hey Dan! Like your video(s)! I search for your videos first as a come across an idea, or problem.

My question is; I need a forecast/budgeting tool. An online version would be ideal. I"d like to move away from Excel, and have a template already built to review month over month, and year over year financial data, and forecast objectives.
Is there such that you'd recommend?

Thanks!

Shawn

Reply
Sajid Wazir 16/09/2021 - 1:24 Sáng

In terms of providing advice to clients who are already starting up, is this what I think about? Say I need to develop a model myself (as a consultant/partner).

Reply
larry li 16/09/2021 - 1:24 Sáng

thanks Dan, great video as usual, keep up the great work, cheers!

Reply
Hugo Levesque 16/09/2021 - 1:24 Sáng

Love it Dan!

Here is a video that goes over some the the building blocks. Complete different space, but same core principle.

https://youtu.be/ztDvrRvh9-8?t

Reply
Geelong Cable Locations 16/09/2021 - 1:24 Sáng

Hmmm, ok well I guess I follow rule 3. But I'm actually not 100% sure on that.
Tell me Dan, can you use a combination or 1,2 & 3?

I know you only do short videos, but would love for you to deep dive into these business models more, with finer details.
Maybe even, do a video on each one and reference back to this video in it, for those that didn't watch it.
Regards Ben

Reply
Dan Martell 16/09/2021 - 1:24 Sáng

Does business speak sound chinese to you? I get it … growing up I couldn’t understand it all. Now I realized it was the businessmen, not me that didn’t understand. So I want to lay it out for you simply. Here’s how to think of the 5 financial models of your business.

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