I recently wrote a client a message that essentially said: “Do you understand now why I kept insisting on the numbers and the terms of the agreement?”
We had spent weeks preparing a proposal to develop a network of twelve operations in a Caribbean country. There was an interested company, international suppliers, significant investment and a commercial opportunity that could completely change the scale of the business.
The project looked very promising. But my concern was always the same: it is one thing for an opportunity to sound attractive and quite another for it to withstand the questions that arise when the conversation becomes serious.
Those questions came. The counterparty wanted to understand how the investment would be made, how long implementation would take, how the operation would work and what would happen if results differed from the projections. These were exactly the conversations we had been preparing for.
A financial model is not only meant to calculate how much a business might earn. It must help people make decisions and sustain a difficult conversation.
The headline number never tells the whole story
When we began reviewing the project, an estimated investment figure already existed. The problem was that it combined equipment, installation, civil works, technology, transportation, contingencies and other components. They could not all be treated in the same way or financed through the same source.
We began separating the pieces: how much truly related to the core equipment, how much was needed to prepare each location, what the counterparty would contribute, which infrastructure could be reused and which costs were still only estimates.
That exercise changed the conversation. We were no longer discussing only how much the project cost. We were understanding what had to happen to launch it and where the risks were. That is the first job of a good model: forcing us to look beneath the headline number.
A projection is not a promise
Every project begins with expectations about sales, customers and growth. We need them to evaluate the opportunity, but we must be careful about how we use them.
Commercial potential is one thing. Actual performance during the first few months is another. Building the entire viability of a business around an unvalidated scenario is something else entirely.
The model should help us understand the difference: what happens if demand takes longer to grow, how much cash the operation requires during the initial period and which expenses continue even when sales fall below expectations.
The right decision is not always the one that produces the most attractive result in a presentation. It is the one that allows the business to pursue the opportunity without putting its continuity at risk.
Cash flow must speak to the contract
We were evaluating a location-specific investment for sites the operator did not own. Recovering that capital required time, continued access to the space and clear rules for what would happen if a location stopped being available.
The contractual term could not be defined in isolation. The model had to show how long the operation would need to recover the investment, and the agreement had to provide enough stability to make that recovery possible.
We also had to consider what would happen if a site became unviable, required remodeling or the project needed to relocate. A term may sound reasonable in a meeting, but it only makes sense when connected to investment, cash flow, equipment ownership and exit conditions.
A serious financial model does not end at EBITDA. It must speak to both operations and the contract.
Not all CAPEX is financed in the same way
When we began exploring international financing for the equipment, the first temptation could have been to take the total project value and assume that one financing source would cover a percentage of everything. That is not how it works.
We had to distinguish imported equipment, installation, local costs, civil works and the capital the company itself would contribute. This forced us to reorganize the budget and prepare a different conversation with suppliers.
Instead of arriving with “this is our number,” we began requesting recommended configurations, volume pricing, delivery timelines, installation support and potential financing alternatives. The model stopped being a static file and became a tool for negotiating with suppliers, banks and potential partners.
The numbers must change when reality changes
The scope evolved as conversations progressed. The equipment mix changed, installation budgets were revised and an initial location was selected to test the operating model before continuing with the rest of the network. Every change required us to revisit the numbers.
This sounds obvious, yet many companies fall in love with the first version of a model. They update the presentation, change the commercial story and leave the original projections untouched as if nothing had happened.
If the number of locations changes, the investment changes.
If the type of equipment changes, the budget changes.
If the opening schedule changes, cash flow changes.
If new responsibilities emerge, the risk changes.
And if reality changes, the model must change too.
What should a model demonstrate?
A model prepared for a capital conversation should clearly answer:
- Where revenue comes from and what must happen to reach the projected volume.
- How much money is truly needed, when it is needed and what it will fund.
- Which part of the investment relates to equipment, works and working capital.
- How long the operation can sustain itself while it grows.
- What happens if sales are lower or the opening is delayed.
- Which commitments the company can make without putting the project at risk.
- How the numbers connect with the contract and execution.
If it cannot answer those questions, it is not ready. It does not matter how many tabs it has or how sophisticated its formulas appear.
What I learned from this project
I do not consider myself the most financial person in the world. My strength has always been closer to business development: understanding the opportunity, connecting the right people and moving conversations forward.
That is precisely why I need the numbers to be clear. I need to sit down with the client, supplier, bank or investor and explain what we are proposing without hiding behind a spreadsheet.
The numbers must help me ask better questions. They must show me where the project could break. And they must give me enough clarity to say, “we can commit to this” or “we are not yet ready to promise it.”
That is the model’s real value: not predicting the future, but preparing us for the questions that will inevitably come.
Before raising capital
Before presenting an opportunity, it is worth answering honestly:
- Can we explain how the business works without opening the spreadsheet?
- Do we know which figures are real and which remain assumptions?
- Do we understand how much capital we need and what it will fund?
- Does our contract protect the investment we are proposing?
- Do we have a scenario for when things do not go exactly as expected?
If the answer is no, it does not mean the project is bad. It means the project still needs work.
At GMD Consulting, we support that process: organizing the opportunity, challenging assumptions, connecting the numbers with commercial reality and preparing the client for the conversations that follow.
Because raising capital does not begin when you send the presentation. It begins when your project is ready to withstand the questions.