We now want to show you one of the most useful tools for anyone looking to raise social investment: the Financial Model. A it’s a spreadsheet which provides a forecast of your venture’s future cash flow (i.e. incoming revenues and outgoing expenses during a year) and summarises key financial and social impact results for social investors.
The Model is an invaluable tool you can use to show investors the financial potential of your business as well as quantify your social impact. You can use the Financial Model to answer questions such as:
- How many customers/beneficiaries do you plan to reach?
- What is your projected income and expenditure over the lifetime of the investment?
- How much external funding do you need?
- How much profit do you expect to generate, and by when?
- What level of financial return can you offer to investors?
- When can any investment be fully repaid?
- How much is your business worth? (i.e. also known as valuation)
- How much social impact will you create?
We believe that you will find the Financial Model an indispensable tool in your own business planning. You can use it to refine your pricing, for example, or to work out which products are the most profitable or impactful (however measured), and plan accordingly. The model can also be used to help both you and your investors agree future budgets, and measure financial and social impact performance against those plans.
The simplest way for us to explain how a this Model works is to show you one. We have therefore created a demonstration Model as an example. If you are not familiar with Financial Models, we highly recommend that you take the time to work through this workbook for yourself using our demonstration Model. Once you see how our example Model works, you will be able to more easily build and run your own.