In this article you will find:
This article is part of the school of coworking course through Archie. Make sure to check out the other articles to learn more about how to start a coworking space business.
1. What's a Financial Model?
Essentially, a financial model is a forecast of your business’s financial performance in the future. Normally, your business plan should already have given you a fair idea of the financial state of your coworking space. If you haven’t previously completed your business plan we encourage you to take a moment to go read our previous article on how to create your coworking space business plan first.
Financial models are used both internally and externally for many reasons. In the context of your coworking space, you will most likely use your financial model internally for budgeting and forecasting but you may also use it to raise capital from investors or obtain a loan from the bank.
Typically, this tool uses spreadsheet software such as Excel or Google Sheets and contains your known budget and assumed projections of future revenue and expenses.
Additionally, this tool is often referred to when the time comes to make a decision about your business. A financial model allows you to test different financial scenarios and observe the different potential outcomes so that you can make better decisions for your coworking business.
Needless to say that having a strong financial model is a fundamental factor of your coworking space’s financial health. But creating such a model is a mighty task, especially for those of us who aren’t expert wizards when it comes to working with spreadsheets software.
Luckily, we’ve created a coworking space financial model template to help you get started.
Below we will review and explain each section of the Coworking Space Financial Model Template included in this article.
2. Financial Model Components
For your financial model, you will need initial costs, revenue, and operating expenses.
In the context of your coworking space, you may be creating this financial model before you open your door. If this is the case, the numbers you will enter in your model will be projected assumptions on revenue and expenses.
On the other hand, if your coworking space is already in business you will use your current numbers to base yourself on when calculating your future revenue and costs forecast.
2.1 Project Summary
Your project summary information should include your space’s total net square footage, your total project investment per square foot, and the total investments for the project. This is simply to give an overview of the baseline numbers of your project.
Below is an example of what the project summary section of your coworking space financial model should look like:
Your coworking space will most probably have more than one revenue stream. The two main sources of income for your space will be membership plans and office leasing. You will also generate revenue from other areas of your space by hosting events, conference room booking, etc. but it is not recommended that you include these as part of your revenue streams as these are more volatile and make up an insignificant portion of your total income.
A breakdown of the different revenue streams is not necessary if you’re building your model for internal reasons but if you are planning on using it for raising capital or to obtain a loan you will want to include a more detailed breakdown of your income sources.
Your revenue will be your average revenue per customer multiplied by your project’s total number of customers. If your average member revenue is $200 per month and you are projecting that you will have 50 members in your first year, your total revenue for that year would be ($200 x 12 months) x 50 members = $120 000. Your average revenue per member will most likely be at a monthly rate so you will need to multiply it by 12 to get your yearly average revenue before you can multiply it by your total number of members.
Below is an example of what the revenue section of your coworking space financial model should look like:
Your financial model should also include a section with your itemized expenses. These recurring costs, also referred to as Operating Costs (OPEX), include any cost tied to operating your coworking space including monthly rent, salaries, internet, loan repayment, taxes, and so on and so forth.
This section will only list your OPEX, your data will be entered in the following section of the financial model.
Below is an example of what the expenses section of your coworking space financial model should look like:
2.4 Coworking Model Variables
Next to this first table you will find the “Coworking Model Variables” table, this is will be your matrix. Unlike the revenue and expenses column, you will fill out this table with either current or projected numbers depending on where you are at with your coworking space.
Amongst other things, your coworking space financial model will use your OPEX and your total income to calculate your profit forecast. It is also an important tool for determining your break-even number.
By entering the respective numbers in each line, the formula will automatically generate the resulting forecasts. Doing so will allow you to test out different outcomes by tweaking the different numbers.
Below is an example of what the project variables section of your coworking space financial model should look like:
3. Using your Financial Model
As mentioned at the beginning of this article, your coworking space financial model can serve many purposes. Using this tool will allow you to visualize the financial health of your space.
Your coworking space financial model will show you if your price point is too low. For example, you will use this tool to calculate how much money your space will need to generate in order for you to make back your investment or repay a loan all the while keeping your business afloat.
Be mindful of your assumed projections. One of the most common mistakes made with financial models is to be over-optimistic with your assumptions. Instead, test out your least favourable revenue scenarios to make sure that you will be able to break even. Performing different tests with your financial model gives you a bird’s eye view of where costs can be cut without repercussion on your operations if ever you should need to.
You should run at least three different scenarios. Your ideal scenario, where your coworking space’s revenue is higher than predicted, your minimum income scenario, where your space is breaking even but you are not making a profit, and your worst-case scenario, where your space is losing money.
Examining these three different potential outcomes is important. Being prepared in face of an undesirable situation and having solutions at the ready will not only save you a lot of stress, but it could also save your business altogether.
Still, have questions or something you wish to discuss? Join our Facebook Group and enter the conversation on everything coworking.