How different companies have used them and what they have achieved
One of the best parts of our job at Sapling is seeing the positive impacts that our models have in our client’s companies., whether by helping our clients successfully accomplish their objectives, avoid costly mistakes or by support in their expansion & growth.
All of the success cases that we have seen over the years have been an indicator that, when used correctly, financial models can significantly impact the operations of a company.
The positive effects we have observed almost always impact multiple time periods: the company looks back into its past and consolidates historical data and performance indicators and from here makes successful predictions of future trends and possible outcomes of various scenarios. Finally, the company leverages this work to make correct decisions strictly based on the facts, in the present.
All of these positive outcomes, through the use of financial models, can be seen in some of our clients’ success stories:
A rapidly growing Tech startup beginning a second round of equity financing was looking to evaluate several different business opportunities. They were looking to present them, along with the existing business, to investors to assist with maximizing their current financing. The company had multiple business lines and when we started working on the model, we had to analyze all of them in order to build a comprehensive model.
We developed the financial model showing all the new opportunities as well as the existing business. The model had dynamic features which allow the quick testing of various scenarios. They used this financial model to present to several investment banks.
The investment banks presented the company with an investor, which shortly after provided the company with a term sheet. Since the company had used the model to have a clear understanding of their potential upside and corresponding valuation, they realized that it would be better to not accept this proposal.
After the startup rejected the first proposal, the investment bank shopped the model around again, and the organization was able to receive and accept an offer for three times the amount and a better valuation.
The company continues to grow exponentially and is one of the fastest growing startups in the country, with significant expansion plans abroad this year.
A startup importer/exporter approached Sapling when they were presented with the deal of a lifetime. One of their clients (a blue-chip Canadian company) wanted to sign a contract for significant quantities of their product. This was by far the biggest project that the organization had undertaken since their inception, by orders of magnitude.
The company, however, was concerned about their cash flow situation and not having enough cash to be able to fulfill orders. The main reason was their existing business model and the fact that it did not allow the company much leeway in liquidity. Their existing business model was premised on the idea that the company’s clients would first request the products and make a down payment, and then the company would place the order and have them manufactured.
With this new client, willing to throw its weight around as most large organizations do, the company would have to first pay the manufacturing provider and only once the products were shipped to the client would they receive payment some 60 days after the initial purchase order.
We built a detailed financial model that summarized the inflow/outflow of cash on a week by week basis, with detailed calculations of several unique trade credit facilities provided by an alternative lender. The financial model helped the company answer key operational and financial questions, such as: How much volume could they sell with their existing cash flow and facilities? Does the company have enough money to keep running before their next payment is received? At what point in time would the money run out?
The company continues to use the financial model on a weekly basis to see how much they spend, earn and borrow. Additionally, the model has an automated warning system, which notifies the company five weeks in advance of when they will run out of cash/liquidity.Financial model success stories 1