We recently worked with a client whose business ran with many long-term contracts and needed to model future growth plans.
The simple thing to do would have been to take the total of his contracts, apply say an expected 5% revenue growth, and quickly extrapolate the total into the future.
Digging into this, every customer and contract was different. Our client knew all 50 of them and could talk to you about each: whether they were big or small, how profitable they were and how they could grow.
Building the Excel model, it made sense to layer up those individual contracts, thinking carefully how to balance the detail and levers with the need for a model that was accessible and insightful. Filling in assumptions, he could tell each story knowing he had the commercial narrative to back it up.
The overall result for the expected future revenue growth for the portfolio of contracts wasn’t far from the simple 5% outcome but was better supported with granular assumptions. Our client, and his stakeholders and funders, could vary the performance of critical contracts, and see where the bigger exposures lay.
Our work here, with real thought around model layers, drove insight and integrity and helped build a successful fund-raising process.
Rob Bayliss heads our team of deal modellers that pull together beautiful forecasts for clients with important decisions to make.
To discuss modelling or forecasting in more detail, please contact Rob Bayliss.
Note: this post is part of the series "How confident are you about your financial forecasts"