Attracting Investors: Best Practices in Financial Modeling by
Brian O'Kane
Published on: 09/01/2025
Securing investment for your business starts with a strong financial model Investors want to see precise, realistic, and well-structured numbers before committing funds. Leveraging financial models effectively can make your business more attractive and increase the chances of funding. By following best practices, entrepreneurs can present their financial story with confidence and clarity, as noted by Brian O'Kane.
A financial model is essentially a tool that forecasts a company’s future economic performance. It combines historical data, assumptions, and projections to show revenue, expenses, profits, and cash flow Investors rely on these models to understand potential returns, risks, and the viability of your business plan. A well-constructed model can communicate that you have a deep understanding of your business and its market
One best practice is to keep your model clear and transparent. Complex models with unclear assumptions can confuse investors and reduce trust Use simple formulas, label all assumptions, and provide detailed explanations for each projection. Transparency shows credibility and helps investors understand how you arrived at your figures It also makes it easier to update your model as new data becomes available
Another key practice is to base projections on realistic assumptions Overly optimistic numbers may seem appealing, but often backfire Investors seek reasonable growth expectations and well-supported market analysis. Include scenarios that show how your business might perform under different conditions By presenting both optimistic and conservative scenarios, you demonstrate careful planning and a risk-aware approach
Cash flow is a critical component of any financial model Investors want to know when your business will generate positive cash flow and how much funding is needed along the way. Highlight cash inflows and outflows, and explain how you plan to manage short-term expenses
A strong focus on cash flow reassures investors that your business can survive and grow without unexpected financial crises.
Visual clarity is also important Use charts, graphs, and tables to summarize key data Visual aids help investors quickly grasp significant trends and figures. A straightforward layout reduces the risk of misinterpretation and makes your pitch more compelling Maintain professional and consistent visuals that align with your overall presentation style.
Finally, stress-test your model Run sensitivity analyses to show how changes in revenue, costs, or market conditions affect results. This demonstrates that you understand potential risks and have considered strategies to mitigate them Investors appreciate founders who can think critically about different outcomes and adapt their plans accordingly