Business Models Explained

In today’s business environment, success takes planning.

While it’s true no business can predict the future, it’s possible to plan for it. To do so successfully, you need to map a path that accurately reflects your unique business realities and goals.

Effective business modelling and analytics can help businesses of all sizes, across all industries, plan for changes in economic factors—and improve their financing availability, cash flow management, and growth potential in the process.

What is a business model?

At a high-level, a business model is a key tool that allows you to understand potential future outcomes you might expect given a set of key assumptions. It takes budgeting and forecasting to a whole new level by providing the flexibility to see multiple forecast outcomes under many different scenarios. This allows you to plan accordingly and optimize the best way to move your business forward while having a deeper understanding of the risks.

Key parts

A functional model contains a flexible set of assumptions as well as the strategies and options being considered. With financial models, the outputs, namely, the balance sheet, income statement and cash flow statement should all be integrated. Ideally financial models will include a forecast output of any borrowing base or financial covenants. When a model is used to assess performance relative to the output, the model should also be built to automate this variance analysis.

Bespoke business models

To plan for the future, you need to consider as many business scenarios as possible. While this is unquestionably a complex undertaking, it doesn’t have to be incomprehensible. Business models are only effective if people understand them. As a result, every model should be custom designed with your needs in mind, in a format that makes sense to you.

Dynamic and results-driven

Built in a user-friendly Excel format, our models are created to align with the outputs from your company’s software systems—creating a seamless and customized experience. With a simple click of a button, businesses can view their data, while testing out scenarios in one streamlined assumption page. Convenient drop-down boxes also make it easy to input different variables and compare them to the baseline.

This functionality produces a dynamic—results-driven—business model, rather than just a bunch of formulas. Its purpose is to help companies easily uncover the answers they need—so they spend less time clicking through endless tabs, and more time making informed business decisions.

Model review and enhancement

Strategic partners, key decision makers, investors, or lenders often receive business models created by others—which are then relied on to make key decisions. While these models should be mechanically sound, oftentimes they can be prone to errors. Having a fresh set of eyes to review a model formulaically and understand the underlying business assumptions, provides additional clarity before making key decisions based on the model’s outputs.

Business models are often created to forecast an outcome given a set of key assumptions. What if those assumptions change? Are there multiple mutually exclusive opportunities being considered? An inflexible model can be upgraded and enhanced to provide the functionality you need—enabling you to see all the scenarios within one model, without creating multiple versions.