Every few months I receive an email message or telephone conversation that goes something like this: “Dave, I was wondering if you’d look over this business model (business forecast, pro-forma) and tell me what you think”. I’ve wondered what they are looking for in a second opinion and have concluded the reason is really quite basic—HAVE I MISSED ANYTHING?
The benefit of having a CFO review models and projections is that CFO’s know what they are looking for in both the variable and fixed costs sections of these models. Business owners and entrepreneurs often want to look at the “big picture” and are usually trying to judge whether the sales or marketing strategies are tenable (see Bridging the Gap between Financial Modeling and Budgeting). However, most businesses fail because they don’t understand cost. Market viability and price are only relevant when compared to cost. I often like to use the example of selling flight tickets to the moon. I’m sure there are plenty of people who would like to fly to the moon for $500, but if it costs you $5,000.00 then what does it matter?
Having a trusted CFO consultant or accountant review your model may be the most effective and efficient review you can receive prior to making the initial investment into your idea. Being prepared by a financial professional before starting a business is like an athlete who is well coached before entering the event; often success is determined by how well prepared and trained they are. Most importantly they can help answer the question, “HAVE I MISSED ANYTHING?”
Dave,
Great post. Some entrepreneurs love their idea so much that they cannot objectively look at their cost structure and figure out the most viable business model for their venture. This results in a lot of time spent “spinning the wheels” and can turn into heartache and significant loss. I beleive your point is right on…have a financial model and have an expert help you get it shored-up before you get too far into the venture.
I have used your companie’s services to do this work for me and it made all the difference. Thanks for your work. In the end, I had a clearer perspective on where to spend my time and energy, which in this market, is everything. I also loved how easy it was for me to run assumptions and scenarios from the spreadsheets you created. Thanks.