What is a financial model and what is its purpose?

A financial model is necessary to map out where the company is standing and how it will fair in the future. A financial model clearly presents a company’s revenues and expenses, allowing the company to see where it should be investing most, as well as what is pushing their business ahead, and holding it back the most. The model also breaks down key unit economics for the company and maps out when they hit KPIs (Key Performance Indicators = metrics). This allows the company to better focus their efforts and reach their goals. Overall, a financial model translates the vision and action of running a business into a quantitative illustration that allows the company to plan and budget in a way that will maximize its success.