Three pillars of building a business model
Posted: Tue Jan 21, 2025 9:29 am
Drawing on his nearly two decades of working alongside banks in accounting and finance environments, Paul Van Siclen , Qlik Director of Industry Solutions, shared an interesting perspective on the three fundamental pillars that must be taken into account when creating a business model and calculating the financial impact to support investment decisions. These are:
1. Cash is king
When working on a new business plan, Paul Van Siclen remembers a piece of advice from a career mentor: “Follow the cash, cash is king.” It’s remarkable how many business cases get bogged down trying to include depreciation/amortization in the plan. Understanding the impact of generally accepted accounting principles (GAAP) on an investment is certainly advisable, but it is not inherent to a Discounted Cash Flow (DCF) model.
Taxes are also important. It can be as simple as multiplying net norway phone number lead cash flows by a tax rate, although deferring taxes on some investments will result in significant value, and therefore the cash flow timing of the model will need to be improved.
Recommended: Top 10 Solutions for Financial Services
2. The wise use of time
As stated in the book Fundamentals of Financial Management , “Of all the financial concepts, the time value of money is the most important concept in business.” Even though this is taught in the first class of Finance, it is remarkable how many capital expenditure models ignore this fundamental principle.
The following chart from techeconomyblog.com is a very simple demonstration of the importance of applying this principle:
business model
3. Think like an executive (understand risk and uncertainty)
Presenting a business case with only one outcome is a recipe for disaster. It gives decision makers the ability to challenge their assumptions and shoot arrows at a big target. On the other hand, a business model that includes scenarios and sensitivity analysis provides a structure that can be used to demonstrate the risks involved in an investment.
BI in Banking and Insurance: Whoever manages risks best wins.
“Show that you have thoroughly analyzed the project,” Van Siclen recommends. “Present the best-case scenario, the expected scenario, and the worst-case scenario… In my experience, this pillar has allowed me to take a step back and think like the person I want to convince, which is a very valuable exercise,” Van Siclen adds.
1. Cash is king
When working on a new business plan, Paul Van Siclen remembers a piece of advice from a career mentor: “Follow the cash, cash is king.” It’s remarkable how many business cases get bogged down trying to include depreciation/amortization in the plan. Understanding the impact of generally accepted accounting principles (GAAP) on an investment is certainly advisable, but it is not inherent to a Discounted Cash Flow (DCF) model.
Taxes are also important. It can be as simple as multiplying net norway phone number lead cash flows by a tax rate, although deferring taxes on some investments will result in significant value, and therefore the cash flow timing of the model will need to be improved.
Recommended: Top 10 Solutions for Financial Services
2. The wise use of time
As stated in the book Fundamentals of Financial Management , “Of all the financial concepts, the time value of money is the most important concept in business.” Even though this is taught in the first class of Finance, it is remarkable how many capital expenditure models ignore this fundamental principle.
The following chart from techeconomyblog.com is a very simple demonstration of the importance of applying this principle:
business model
3. Think like an executive (understand risk and uncertainty)
Presenting a business case with only one outcome is a recipe for disaster. It gives decision makers the ability to challenge their assumptions and shoot arrows at a big target. On the other hand, a business model that includes scenarios and sensitivity analysis provides a structure that can be used to demonstrate the risks involved in an investment.
BI in Banking and Insurance: Whoever manages risks best wins.
“Show that you have thoroughly analyzed the project,” Van Siclen recommends. “Present the best-case scenario, the expected scenario, and the worst-case scenario… In my experience, this pillar has allowed me to take a step back and think like the person I want to convince, which is a very valuable exercise,” Van Siclen adds.