The Challenge

Strategize Financial Modelling was approved to develop a financial modelling tool to assist the formulation of strategic planning and forecasting for a training company. The strategic tool needed to be as user-friendly as possible, in order to facilitate the buy-in and input of all the company’s stakeholders; especially the need for the seamless updating of financial information. The strategic model would support strategic initiatives, as well as form the basis of the valuation of the training company’s enterprise value.

To execute on this Project

Strategize worked closely with the training company’s executive team, to deduce projections under 3 forecast scenarios – base, mid and high cases. The work undertaken to model the vast array of forecasted growth metrics or key performance indicators for both the Income Statement and Balance Sheet was significant. It required more than just time spent during the model build; it also required time undertaken to review, problem solve, revise and further review.

The model was to assist a company to understand what increase in sales must be achieved, in order to reach a targeted valuation of the company at a future date. The primary challenge was to work with the client, under three scenarios of differing revenue growth. These were based on the need to anticipate forecasted number of courses, expected number of students per course, unit revenue per course and by location – for the company’s various courses.

In order for the financial model to guide management to grow future earnings, the model needed to deliver the projected financials and corporate valuations via not just financial reports, but also the more user-friendly, value-added tools such as dashboards, waterfall charts and financial ratio analysis.

Given the sophisticated nature of the strategic planning model and corporate valuation, a concise, yet thorough “Model User Guide” was incorporated into the model. The Guide contained screen shots, hyperlinks to relevant areas of the model and explained the functionality of the model.

Challenges encountered building the Strategic Plan and Corporate Valuation model

The percentage growth rates for both revenue and expenses, not to mention the percentages applied to Balance Sheet items required essentially the client’s executives making a judgement call and “owning” the numbers. The people closest to the business will inevitably be best placed to decide forecast rates.

Applying a computed weighted average cost of capital was another challenge. Evidently there are not many vanilla training companies which contain publicly available betas, nor such companies that are privately-held like this training company.

Given the lumpy cashflow and earnings nature of a nascent company, Strategize and the training company’s executive agreed to also present the financials on a quarterly time-series basis rather than just monthly. This improved the financial reporting value of the strategic planning model for the client.

Closing words from the Client

At the conclusion of the project to build a strategic planning, financial model and valuation tool, the training company client’s CEO commented how the model’s “structure is definitely what we … are after”. The client concluded Strategize Financial Modelling had delivered “an integrated strategic financial model for performance management and corporate valuation”.