Step 1: Define the basic parameters
Start with the basics: how much money you need to launch your startup, what your main sources of income will be, and what costs you will face. For example, if you're launching an online shop, your revenue will depend on the number of products you sell, and your expenses will depend on the cost of renting a warehouse, the purchase prices of goods, and advertising costs.

Step 2: Forecast your income
Think about how your business will grow. How many customers do you plan to attract in the first month? Six months from now? What will be the average prices for your products or services? Your projections should be realistic, but also ambitious - so that they show growth potential.
Key modelling parameters: number of customers, average check, repeat purchases. It is important to take into account that real revenues may differ from the projected ones, so it is better to lay down several scenarios.

Step 3: Estimate costs
Divide all anticipated expenses into categories: rent, salaries, marketing, equipment, and others. Think about how these costs will change as the business grows. For example, you may need to hire more employees or rent a larger office.

For a preliminary estimate of costs, the financial model should consider:

• business start-up costs (purchasing equipment, software, renting space);
• capital expenditures (long-term investments, for example, in equipment or product development).
• operating costs (fixed costs associated with the day-to-day operations of the business. These may include office rent, utilities, salaries, promotion, marketing and advertising costs).
• first purchase costs or the cost of hiring subject matter experts;
• variable costs;
• costs that may arise from the volume of purchases and turnover of goods (loans, interest to the bank, bank commissions)

Business starts with an idea. But no idea, even the most ingenious one, will make a business real. The key to success lies in thoughtful action, sound financial planning, resources and the ability to overcome difficulties.

How do you develop your business and what costs will you face? Do you need partners? What kind of income can you expect in the first year? Will you need to attract third-party sources of financing for development and look for investors? And most importantly. When will the project be able to fully pay off? Financial modelling helps you find the answers to these questions. LLC "EIFOS HUB" uses this unique forecasting tool to analyse cash flows and manage risks. In this article, we'll explain how financial modelling can help your startup.

What is financial modelling?
Financial modelling turns uncertainty into a meaningful strategy. Simply put, it allows you to visualise a business idea and its future development based on real data and thoughtful assumptions. The model allows you to play out and visualise the most likely options for business development for several months or even years ahead. Taking into account all possible revenues, expenses, investments and risks.

Key elements of financial modelling
A financial model is built on several key elements:

• Forecasting growth. To determine the speed at which the business will grow, a forecast growth model is built in advance. It uses data on market dynamics and competitors, analyses the impact of external and internal factors.
• Cost management. The financial model shows what expenses should be considered at different stages of business development. Modelling helps to control and minimise costs.
• Attracting investment. To attract financing, you need to convincingly show investors how their money will work for business development.
• Risk management. Uncertainty and unpredictability most often accompany startups not only at the beginning of their journey. With the help of a model, you can assess various scenarios and prepare for possible problems.

Financial model in 8 steps
The plan for building a financial model consists of eight steps. Each step is quite painstaking work, gathering information, analysing and monitoring. You will have to spend a lot of time, but the result will be worth your efforts.

Step 4: Develop scenarios
Create several scenarios for the development of your business. For example, an optimistic scenario when things are going better than expected, and a pessimistic scenario in case the market does not react as you planned. This will help you prepare for different scenarios.

Step 5: Build a model
Use a spreadsheet (such as Excel or Google Sheets) to build your financial model. Include all the key elements in the model: revenue, expense, capital expenditure and cash flow projections.

Step 6: Analyse and adjust
Analyse the data and adjust the model if necessary. For example, if your expenses are higher than expected, consider how to reduce them or where to find additional sources of income.

Step 7: Calculate your profit
The difference between your income and expenses is your profit. It's important to realise that startups often operate at a loss at the initial stage. But your job is to show when and how you plan to turn a profit.

Step 8: Consider investments
If you plan to attract investment, take this into account in your financial model. Consider several options for additional funding: at the beginning of operations, six months later, a year later, etc. It's important for investors to understand when your startup will reach self-sustainability and start making a profit.

Unfortunately, today there are no tools that can guarantee a hundred per cent success or predict the failure of a business idea. Despite all the advances in financial modelling and data analysis, the future of any business remains largely unpredictable.

LLC "EIFOS HUB" consultants analyse the financial drivers of clients' businesses and develop realistic financial models and development scenarios. We prepare startup teams for negotiations with potential investors. By investing time and effort in detailed modelling, LLC "EIFOS HUB" turns dreams into reality and risks into growth opportunities.