Reviewing a Model

Hemrock's models handle a wide variety of businesses. The hardest part is understanding how things flow, what to pay attention to, and where to get started.

Start with the Summary and Key Reports

Start with Summary and Key Reports. These are the fastest way to understand the forecast.

• Look at the slope of the revenue forecast to get a sense of scale.
• Check margins (COGS, Gross Margin, SG&A) to see how they change as a % of revenue. Do the changes in costs make sense for the business type?
• Check Net Income to understand how profitability and scale are being modeled, and whether that fits the funding story.

Then review Key Reports. Start with burn and runway: burn per month, when burn swings from negative to positive, cash position over time. Then review the operating expenses charts for composition and trends, then sources and uses. You're looking for whether the cost plan matches what you know about the business and growth strategy.

Scan the rest of Key Reports for business insights. If applicable, the cohorts chart is particularly useful for growth, churn, repeat business, and performance over time.

Review key management analyses

Check Breakdown to see if the business is split into different lines or segments. People use this to break down subscription vs. ecommerce, or software vs. hardware, down to gross margin or contribution margin. Allocating all expenses is usually not necessary or insightful.

Review assumptions and key details

Dig into Get Started, Forecast, and Statements for the details. Usually the key questions are answered by the first sheets; this pass verifies the inputs.

Building from scratch? Start with Get Started. It captures the primary inputs. Many can be modified month-to-month or overridden in specific months. The Forecast, Hooks, or Modelhooks sheet handles operating metrics and making theming easier - not critical to understand upfront.

Walk down Get Started: basic setup (company, dates, cash on hand), then revenues. The Standard Model forecasts revenues by forecasting the operations of the business - revenues are the result of growth, adoption, conversion, and retention.

Review and understand growth and revenues mechanics

The first set of important assumptions are the growth inputs, which set what you are "acquiring". Tracked as new per period: website sessions, leads, email subscribers, whatever drives your revenues.

From there the model flows through adoption and conversion, retention and churn, then revenues and cost of sales. Once those settings are in, revenues show up on Summary and Forecast.

Analyzing revenues and cost of sales depends on the business model. Specifics live on Revenues or Forecast (or a custom sheet). Check:

• Transaction vs. recurring
• How many revenue streams
• How revenues tie to operational growth
• Whether repeat usage, retention, and churn are factored in
• Major gaps in thinking

Review gross margins and the sources of cost of sales. If applicable, review inventory calculations to check if inventory has a major impact on cash flow. For recurring businesses, review the MRR or ARR build to see how components change over time (new, renewed, churned, contraction, expansion).

Review expenses

Expenses are set up on Forecast. Each row is an expense, at whatever detail level you want: total salaries, a department, a role, an individual. The category dropdowns set accounting treatment, expense category (for management analysis), and business category (used on Breakdown). Starter parameters cover initial amount, first date, and an optional growth rate expressed as a % delta from revenue growth. You can manually overwrite any expense in the appropriate months.

When analyzing expenses, look at the categories to see what the modeler chose to highlight, then check how components change in absolute and relative (% of revenue) terms. Big numbers deserve a closer look.

For an existing business, set up the opening balance sheet on Statements.

Review cash, fundraising, and overall topline growth and margins

Back to Get Started: set up the fundraising inputs and adjust balance sheet or financing assumptions (debt, equity, working capital line). Review cash position over time on the balance sheet and the components of the statement of cash flows for anything that deserves attention.

Then go to Summary and Key Reports and iterate to shape the model - the overall trends and margins of the business.