What Are The Best Financial Modeling Tools?
Trying to grow a successful startup without a financial model is like driving across the country without a map—it’s going to be extremely difficult to reach your destination.
With your model, you can plan what route you’re going to take and course correct whenever you veer off track.
Before you head out on your startup journey, you need to choose the right navigation tool (your financial modeling tool) to guide you along the trip. And that’s what we’re going to help you with today.
In this article, we’ll walk you through:
- How financial modeling tools work
- The old-school financial modeling tool that way too many founders still use
- A smarter alternative to old-school tools
- The best financial modeling tool on the market
What are Financial Modeling Tools?
Building a financial model requires data about your revenue, expenses, and payroll.
All this data comes from separate sources. You might have revenue data stored in Stripe, expenses in Quickbooks, and use Gusto to manage employees and payroll.
Think of your financial modeling tool as the “hub” where all these data sources get combined and speak to each other, allowing you to create a financial model for your business.
For example, look at a metric like burn rate. In order to calculate and forecast what your burn rate will be for the next 6-12 months, you need to know your revenue and expenses.
If that data is stored in two different tools (Stripe and Quickbooks for instance), you need a place to combine them so you can calculate your burn rate. You would use your financial modeling tool to do that.
Speaking of calculating, the other reason financial modeling tools are important is that building a financial model involves a lot of math. From calculating metrics to forecasting what those metrics will look like years down the road, you need dozens of calculations in order to pull it all together.
Unless you plan to do all that math manually and know the right formulas off the top of your head, a financial modeling tool is going to save you hours of work.
Right now, there are two main types of financial modeling tools:
- Template-based tools built with Excel
- Dedicated financial modeling software
Which do you think is the most common?
The Most Common Financial Modeling Tool
Believe it or not, most startups currently rely on spreadsheets as their financial modeling tool. We wrote an entire article about how financial modeling templates are hurting your startup, so our stance on Excel-built models is pretty clear.
But here’s how financial modeling spreadsheets work.
Generally, you’ll start with a template. That template will have several tabs and placeholders, like this.
In order to build your model, you’ll pull up your data sources and manually input all of your historicals/actuals. It can be a very time-consuming and tedious process.
The plus side is the formulas and calculations should already be built into the template, so you won’t have to do as much math. The downside is that since you’re working in a spreadsheet, some of those formulas can break, or not even be relevant to your business.
Spreadsheets were the best (or pretty much only) option for decades, particularly for early-stage startups because:
- Most founders are already used to working in spreadsheets
- Templates are generally cheap (or free)
- Dedicated financial modeling software has primarily been built for large enterprises in the past
However, things are changing. This brings me to my next point!
Why Financial Modeling Software is Better
Let’s go back to our analogy of driving across the country.
Using spreadsheets as financial modeling tools is the equivalent of printing out Mapquest directions to navigate your way to your destination. You have your directions planned out for you, but if you go off the set path or need to make a detour, you’ll either need to figure out how to get back on track yourself or print new directions. And in some cases, you won’t even realize you went off track until it’s too late.
On the other end of the spectrum, we have GPS apps like Google Maps. You plug in your destination, and as you drive you can update your route in real-time. If you take a wrong turn, the app re-routes you. If you want to figure out an alternate route to avoid traffic or tolls, you can adjust your settings. If your plans change along the way and you need to add new stops to your trip, you can do it in real-time. That’s what dedicated financial modeling software is like.
With financial modeling software, you can connect data sources like Stripe and Quickbooks and automatically feed in your inputs like historical revenue and expenses. You can easily update your model and plan and analyze different scenarios without doing a bunch of copying/pasting and creating new formulas.
All of the math and calculations happen on the backend, so you don’t have to stress over whether or not you’re using the right formulas or if inputting a number in one place “breaks” something somewhere else.
Plus, the UI of financial modeling software is much more user-friendly than financial modeling tools built in spreadsheets.
I mean, which one would you rather look at?
As I mentioned earlier, spreadsheets have been the go-to financial modeling tool for a long time. But the same reason we stopped using paper maps and printed out directions is the same reason more founders are starting to break away from using spreadsheets as financial modeling tools—something better came along.
The benefit is you have more financial modeling tools than ever to choose from. The downside is it’s more difficult to choose a tool that’ll actually fit your needs.
The Best Financial Modeling Software
Ok, we might be a little biased, but we’d be doing you a disservice if we didn’t recommend our own financial modeling tool.
Finmark is a financial modeling tool we built after experiencing the frustrations of using Excel-based models first-hand.
Our goal was to create founder-friendly financial modeling software that doesn’t require as much manual work to build and update your model.
Whether you’re switching from a model you made in a spreadsheet, or you’re starting from scratch, we make it easier to build an accurate model that you can use to project growth, pitch investors, and share financial plans with your team.
I won’t dive deep into all of our features, but some of the key advantages to using Finmark over other financial modeling tools are:
- Easy to use: You don’t have to be a financial analyst or accountant to use Finmark. We purposefully built our software so that founders can build their models and understand what everything means.
- Flexible: No two startups are exactly alike, so their financial models shouldn’t be either. With Finmark, we don’t force you into a confined box. Whether you’re an early-stage SaaS company, a membership website, a service-based company, or another business model, you can build a model that reflects your business.
- Collaboration: Financial models shouldn’t be built in isolation. Getting input from co-founders, investors, and other stakeholders allows you to account for different assumptions and get insights you might’ve otherwise missed. You can easily share and collaborate on your financial plans with a couple of clicks in Finmark.
Again, I don’t want to hard-sell you on everything you can do with Finmark. But if you’re looking for a financial modeling tool, I highly suggest giving Finmark a try. You can see a demo of it here.
Choose the Best Financial Modeling Tool for Your Startup
A financial model is a necessity for startups. Being able to reflect and analyze past performance, see where you stand today, and forecast the future makes it easier to plan for growth, get funding, or achieve any of your other goals.
In order to get the most accurate data though, you need to choose the right financial modeling tool. Whether you go with a spreadsheet or financial modeling software, make sure you’re choosing a tool that not only works for your startup today, but something you’ll be able to use long term.
If you’re interested in giving Finmark a try or want to see it in action, get a free 30-day trial here.