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Creating New a Model

This guide takes you through creating a new model in Model Reef.

New Users: If you don’t have a Model Reef account, sign up by visiting [accounts.modelreef.io/signup](accounts.modelreef.io/signup).
Follow the on-screen prompts to create an account.
Existing Users: If you already have an account, proceed to log in with your credentials.

Accessing the Dashboard
Once logged in, you’ll be directed to the Model Reef dashboard. Here, you can manage your models and access various tools.

Creating a New Model

Initiate Model Creation
Look for a big purple button labeled “Add New Model” in the top right corner of your dashboard.
Name Your Model
Click on “Add New Model” to start the creation process. A prompt will appear asking you to name your model. For example, if you’re planning to create a model for a car dealership, you might name it “Car Dealership”.
Finalize Your Model
After naming your model, click “Add New Model” again to finalize. Your new model will now appear on your dashboard, ready for you to populate with data.
Begin Modeling
With your model created, you’re set to start the exciting journey of financial modeling. Model Reef is designed to be intuitive, guiding you through the process of adding financial data, forecasts, and more.

Tips for Success

Explore Model Reef: Take some time to familiarize yourself with the dashboard and available tools. Model Reef is equipped with features that cater to both beginners and experienced users.
Plan Your Model: Before diving in, consider what you aim to achieve with your model. Whether it’s forecasting sales, analyzing investments, or planning for growth, having a clear objective will streamline the modeling process.
Use Help Resources: If you encounter any difficulties or have questions, refer to Model Reef’s comprehensive help resources. Our guides, short-course and customer support are here to assist you.

Branches and Structure

Collaboration is the core of Model Reef. This guide will walk you through setting up your organizational structure through branches.

Branches
To add branches in Model Reef, follow the steps below.

Decide on the Structure
Determine the key divisions or branches that make up your organization. For instance, if operating a car dealership with locations in different cities, each location can be a separate branch. For example, to create a car dealership with three divisions, Michigan, New York, and Pennsylvania, we will need to add a division for each.
Initiate Adding a Branch
Click the purple “Add Branch” button to start adding a new division to your model.
Name Your Branch
Upon clicking “Add Branch,” a dialogue box will appear called “Create Branch. Name your branch according to its function or location, such as “New York” for the car dealership branch operating in New York. When finished, click “Add Branch in the “Create Branch dialogue box.
Repeat the Process for Additional Branches
Add other necessary branches by repeating the process. For example, add branches named “Pennsylvania” and “Michigan” for the other dealership locations.
View the Structure
After adding your branches, click the “View Structure button use the visualization feature again to review the updated structure of your organization within the model.

Inviting Collaborators and Sharing

Prepare to Invite Collaborators
With your organizational structure set, you’re now ready to invite colleagues to collaborate on the model. Each branch can have specific collaborators, such as sales managers for different dealership locations.
No Restriction on Levels or Divisions
Remember, there’s no limit to how many levels or divisions you can add. Tailor your organizational structure to meet the unique needs of your business.

Tips for Success
Here are some tips to help you get the best out of Model Reef.

Plan Your Structure Carefully: Before adding branches, consider how your organization’s structure will impact the modeling process. A well-thought-out structure makes collaboration more effective.
Engage Your Team: Discuss the organizational structure with your team before setting it up in Model Reef. This ensures everyone is on the same page and understands their role within the model.
Utilize Visualization: Use the visualization feature to check the coherence and completeness of your organizational structure.
Review Inputs: Make sure you have a good peer review process in place to ensure your team is collaborating accurately and effectively.

By following these steps, you’ll efficiently set up an organizational structure in Model Reef, enhancing collaboration and efficiency in building your financial model.

Inviting Collaborators and Sharing

Model Reef empowers your team to collaborate. This guide will walk you through how to invite your friends and colleagues to collaborate on your financial models.

Adding Collaborators

If you are looking to add a collaborator to your model, follow the steps below.

Review Your Business Structure
Before inviting collaborators, ensure your business structure is set up in Model Reef. For example, if you’re working on a “Car Dealership” model with divisions for Michigan, New York, and Pennsylvania, each division should be set-up as a branch. Visit our help guide on Branches and Structure if you have not done this yet.
Assigning Collaborators to Divisions
Identify which colleagues will manage each division. For instance, assign a Sales Manager to each of your dealership locations.
Initiating the Invitation Process
Locate the email icon associated with the division you want to assign. Hovering over this icon will display the “Share Email” prompt.
Sending Invitations
Click on the “Share email” icon to open the “Send invite” dialogue box. Here, you can type the email address of the collaborator you wish to invite. Previous collaborators will appear in the drop-down menu. Use the Enter key to finalise your selection.
Setting Permissions
Decide the level of access each collaborator should have:
– Can View: Allows the collaborator to see the model but not make changes.
– Can Edit: Collaborators can make edits to the specific branch they’re assigned to.
– Make Owner: This permission level allows collaborators to create sub-branches and invite others, offering full control over their section.
Customizing the Invitation
Personalize the invitation with a message. For example, “Hey Todd, could you please populate your forecast for New York Car Sales?” This helps clarify the collaborator’s role and expectations.
Repeat for Additional Collaborators
Follow the same process to invite more collaborators to other divisions of your model, setting appropriate permissions for each.

Finalizing Invitations
Once you’ve invited all necessary collaborators and set their permissions, your team can start inputting data and forecasts into the model. Model Reef’s collaborative environment ensures all inputs are instantly aggregated, allowing for real-time forecasting and analysis.

Tips for Successful Collaboration
To make your collaboration more successful, try to;

Communicate Cleary: Ensure all collaborators understand their roles and the expectations for their contributions to the model.

By following these steps, you can efficiently set up your Model Reef model for collaborative success, leveraging the platform’s powerful tools to streamline your financial modeling process.

View, Edit and Own Permission

This guide clarifies the differences between two key roles: Owners, Editors and Viewers in Model Reef.

Roles in Model Reef

Model Reef has three levels of access to each model that can be assigned by the Level 0 user. These levels are view, edit and own. The key features of each are outlined below.

Owner / Make Owner
Access Level: Owners have comprehensive access to the model’s functionalities. They possess the highest level of control within the model, including the creation and management of sub-branches.
Capabilities:
– Create sub-branches within the project.
– Invite new users to collaborate on the project.
– Edit any part of their branch and the sub-branches they create.
– Ideal For: Team members who need to oversee significant portions of the model, manage team contributions, and ensure the project’s structural integrity.
Editor / Can Edit
Access Level: Editors have more limited permissions compared to owners. Their capabilities are confined to editing the specific branch which they are invited.
Capabilities:
– View the designated branch or sections.
– Edit within their assigned branch or sections, based on the permissions granted by the owner.
– Ideal For: Team members who contribute to specific parts of the model without the need to oversee the project’s broader structure or manage other users.
Viewer / Can View
Access Level: Viewers have more limited permissions compared to Editors. Their capabilities are confined to viewing the specific branch or sections to which they have been invited to.
Capabilities:
– View the designated branch but cannot make changes or edits.
– Ideal For: Team members who are required to view and consume the information produced by Model Reef, such as managers, Board members or members of different divisions.

Assigning Roles

Deciding on Roles: When setting up your project in Model Reef, consider the scope of each team member’s responsibilities. Assign roles based on the level of access and control required for their contributions.
Inviting Team Members: Through the project’s settings, specify whether each new invitee should be added as an owner or a collaborator. This ensures that team members have the appropriate permissions from the outset.
Keep Up to Date: If you make a mistake, or want to change someones role, the Level 0 can always change their permission.

Best Practices

Clear Designation: Clearly define and communicate the roles and responsibilities of all project participants to prevent confusion and ensure productive collaboration.
Review Permissions Regularly: As your project evolves, periodically review, and adjust roles and permissions as necessary to accommodate changing needs and responsibilities.
Secure Your Project: Limit owner roles to those who genuinely need comprehensive access to safeguard your project’s integrity and prevent unauthorized changes.

Navigating Model Reef

This guide provides an overview of the navigation features and functionalities available to you in Model Reef, focusing on setting up and managing your models.

Navigating the Task Bar

Home Button
The Model Reef logo acts as a home button, taking you back to the dashboard where all your models are listed. It’s a quick way to navigate between different projects.
Task Bar
The task bar contains six different options which allow you to construct your model;

Operations, Investment, Financing: collaborators contribute data on revenues, expenses, assets, and liabilities. It’s the core area where most of your model’s financial details are inputted. If you are having trouble with a section, try using our help guides or short course to better familiarise yourself with Model Reef’s capabilities.
Valuation: Exclusive to the model’s creator and Level 0 user, this section allows for the addition of discount rates, terminal values, and purchase prices to assess valuation metrics. It’s vital for calculating valuation returns based on the model’s ending Cashflows.
Reports: Generate comprehensive reports, including Profit and Loss, Balance Sheet, and Cashflow statements. Model Reef’s ability to aggregate inputs instantly from all collaborators provides a dynamic and real-time forecasting capability, enabling you to compile detailed financial reports swiftly.

Setting Up Your Model Structure

This guide teaches you the process of setting up your model’s structure, ensuring that all users involved in the project work from a consistent and aligned basis.

Setting Up Model Structure
Follow the steps below to add a model structure for you model;

1.Start Date

Navigate to the top left of the Model Structure screen and click into the “Start Date” field. This action will enable you to select the date you wish your model to commence.
Pick the date that best represents the beginning of your financial model’s timeline.
The first calculation in your model will be made on this date.

2. Model Length

Input the length of your model in the Model Length field
If you are looking to make a 12-month budget model, type “12” in the input field and select “months” from the drop-down
If you are looking to make a 10-year model, type “10” in the input field and select “years” from the drop-down
Choose any combination that is relevant to your business

3. Financial Year End Selection

Select your fiscal / financial year end from the drop-down menu
This will set the fiscal / financial year end for your financial statements and any financial year calculations in the model
Year end is automatically set to the end of the month
For example, if you select December, your financial year end will be set to 31 December. If you select June, your financial year end will be set to 30 June

4. Choosing Model Calculation Period

Decide the period you would like to see in your financial outputs
For instance, if you’d like to look at your monthly budget, select “Monthly” from the dropdown
If you’d like to look at quarterly sales forecasts, select “Quarterly”

5. Change If Necessary

Your model structure can be edited at any time
All the fields in Model Reef update instantaneously. If you decide you’d like to edit any of the parameters, you can do so instantaneously and it will be updated for all users once you make the change

Consistency Across Users

Level 0 User Responsibilities: The initial setup, including start/end dates, financial year end, and calculation period, is determined by the Level 0 user. This foundational setup applies universally to all collaborators, ensuring uniformity in forecasting and reporting.
Importance of Consistency: It’s critical for the integrity of your financial model that all users work within the same structural parameters. This uniformity ensures that when data is aggregated, it reflects a cohesive and accurate representation of the financial forecast.

Best Practices for Model Structure Setup

Review and Confirm: Double-check your model structure settings to ensure they accurately reflect your project’s timeline and financial reporting requirements.
Communicate with Your Team: Ensure all collaborators are aware of the model’s structural parameters and understand the impact on their contributions.
Adjust as Necessary: While initial setup is crucial, be prepared to adjust your model’s structure as your project evolves or as new information becomes available.

Revenues

This guide teaches you the process of adding one of the five fundamental categories of Model Reef: revenue.

Adding Revenue

Follow the steps below to add a new revenue;

1. Go to Operations Section

To begin adding revenue to your Model Reef model, navigate to the Operations section and select Revenue.

2. Add a New Category or Sub-category

Categories and sub-categories allow you to group the revenues of your division.

Category: categories are the highest-level category. If you are creating model for a car dealership, your Category might be “Toyota” or “Tesla”. Categories are only names and must have at least one sub-category
Sub-category: sub-categories contain your forecasts and have both the ability to add forecasts for revenues and cost of goods sold.

3. Dates
Set the date range for your revenue to specify when it starts and ends. Options include:

From the start to the end of the model: this sets the date to the start and end date to the first and last dates of your model from your model structure
Specific set of dates: allows you to set a specific start or end date for the revenue stream
One-off revenue: if you have a revenue that only occurs on a specific date, such as a one-off contact, you can input a one-off date.

4. Amounts
Next, input the amounts for your revenue stream. These amounts will flow through your financial statements and result in your revenue calculations:

Fixed Revenue: is a constant revenue amount that doesn’t change over time. You can specify a growth rate for this revenue. For example, if you have $10,000 in monthly rent and are expecting this to grow at 3% per year, you could input this as a Fixed Revenue.
Revenue per Unit: is for revenues that vary directly with sale quantity.
Price: input the price you expect to sell each unit for, and the rate you expect to grow at. For instance, you sell shirts for $100 and you expect growth in line with inflation at 3%
Volume: input the number you expect to sell and the rate you expect it to grow. If you expect to sell 1,000 shirts this year, and the number of shirts sold each year to grow by 10% each year
Revenue Yield: Applies to assets generating revenue, such as a property or investment. Input the value of the asset base, the growth rate, and the yield.
Used for businesses with fixed asset bases. For example, you have a property worth $10,000,000, where the valuation grows at 5% per year, and you earn a 6% rental yield
One-off Revenue: For singular revenue events that don’t recur, such as a one-off contract

5. Timing
Specify the timing of your revenue to align with Cashflow. If you expect to bill a customer this month, and to receive the Cashflow next month, you will enter “1” in the input field and select “month” from the dropdown

6.Tax
Tax is used to ensure consistency in the treatment of your revenues. If you select;

Includes GST/VAT: if your revenue numbers include GST/VAT, then choose this option
Excludes GST/VAT: if your revenue numbers exclude GST/VAT, then choose this option

Use Cases
Some example use cases for revenue are outlined below;

Fixed Revenue Example: $500 per month growing at 5% per year. This setup is straightforward and useful for stable revenue sources.
Revenue per Unit Example: Selling cars at $20,000 each, with an expectation of price increase over time, demonstrates how to model revenue growth from sales.
One-off Revenue Example: A single, significant payment for a particular event or sale.

Finalizing Your Revenue Entries

After inputting your revenue details, review the financial statements generated by Model Reef to ensure accuracy. The platform automatically integrates these revenues into your Profit and Loss, Balance Sheet, and Cashflow statements, providing a dynamic view of your business’s financial health.

Remember, the flexibility in adding revenue types allows for a detailed and tailored financial model that accurately reflects your business operations.

Cost of Goods Sold (COGS)

This guide outlines how to add Cost of Goods Sold, which are variable costs associated with revenues in your model.

Adding COGS

Adding Cost of Goods Sold (COGS) involves linking your selling expenses directly to the revenue streams they are associated with. Navigate to the Operations section and select the COGS category related to your defined revenue streams.

1. Go to Operations Section
To begin adding revenue to your Model Reef model, navigate to the Operations section and select Revenue.

2. Select the Revenue which COGS relates to

Cost of Goods Sold are attached to each revenue sub-category. By default, each revenue category has a Cost of Goods Sold. Select the revenue you want to attach a COGS to.

3. Dates

The dates you have defined for your revenue sub-category will automatically be used for the relevant COGS. This ensures that your COGS matches to your revenue in your financial statements.

4. Amounts

Like revenues, there are several methods available to calculate and input COGS, depending on the nature of your costs and business operations:

Fixed Cost: is a constant COGS amount that doesn’t change over time. You can specify a growth rate for this revenue. For example, if you have $10,000 in variable monthly machinery costs and are expecting this to grow at 3% per year, you could input this as a Fixed Revenue.
Cost per Unit: is for revenues that vary directly with sale quantity.
Price: input the price you expect to sell each unit for, and the rate you expect to grow at. For instance, the cost of fabric for your shirts is $50 per unit and you expect this cost to grow in line with inflation at 3%
Volume: input the number you expect to sell and the rate you expect it to grow. If you expect to sell 1,000 shirts this year, and the number of shirts sold each year to grow by 10% each year
Percentage of Revenue: If COGS is a consistent percentage of revenue, specify this percentage to automatically calculate based on revenue figures.
One-off Cost: For singular expenses directly tied to specific sales or events, such as a one-off invoice

5. Timing
Specify the timing of your revenue to align with Cashflow. If you expect to pay an invoice 1 month after it is received, then you should enter “1” in the input field and select “month” from the dropdown

6. Tax
Tax is used to ensure consistency in the treatment of your expenses. If you select;

Includes GST/VAT: if your expense numbers include GST/VAT, then choose this option
Excludes GST/VAT: if your expense numbers exclude GST/VAT, then choose this option

Use Cases

Let’s explore practical applications of these COGS settings:

Fixed COGS Example: If COGS for car sales are $200 per month, increasing by 5% annually, this method ensures a consistent cost basis for profitability analysis.
Cost per Unit Example: For businesses selling items (e.g., cars) at a variable rate, defining a cost per unit that grows annually can provide realistic cost projections.
Percentage of Revenue Example: This method is ideal for businesses with COGS directly tied to sales volume, automatically adjusting as revenue changes.
One-off Cost Example: Use this for specific, non-recurring costs associated with sales events or transactions.

Final Thoughts

After setting up your COGS, review your financial statements in Model Reef to assess how these costs impact your overall financial model. Adjustments to your COGS inputs can significantly affect your gross margin calculations and financial forecasts, underscoring the importance of precise and thoughtful setup. Remember, the goal is to create a realistic financial model that accurately reflects the costs associated with generating revenue, enabling informed decision-making and strategic planning.

Operating Expenses

This guide details how to add and manage these expenses within Model Reef, ensuring your financial model accurately mirrors operational realities.

Operating Costs
In Model Reef, navigate to the Operations menu to access and manage your operating expenses. This section allows you to categorize and detail expenses associated with the day-to-day operations of your business.

1. Go to Operations Section
To begin adding an Operating Cost to your model, navigate to the Operations section and select Expense>Operating Cost.

2. Add a New Category or Sub-category

Categories and sub-categories allow you to group the Operating Costs of your division.

Category: categories are the highest-level category. If you are creating model for a car dealership, your Category might be “Fixed Costs” or “Office Costs”. Categories are only names and must have at least one sub-category
Sub-category: sub-categories contain your forecasts and have both the ability to add forecasts for Operating Costs. An example would be to create an individual item to forecast your Rent expense

3. Dates
Set the date range for your Operating Cost to specify when it starts and ends. Options include:

From the start to the end of the model: this sets the date to the start and end date to the first and last dates of your model from your model structure
Specific set of dates: allows you to set a specific start or end date for the cost
One-off revenue: if you have an Operating Cost that only occurs on a specific date, such as a one-off contact, you can input a one-off date.

4. Amounts
There are two options for adding amounts to Operating Costs. Note: if you have an expense that varies with Revenue, please see the section on Cost of Goods Sold.

Recurring: is a constant Operating Expense that doesn’t change over time. You can specify a growth rate for this Operating Expense. For example, if you have $10,000 in monthly rent and are expecting this to grow at 3% per year, you could input this as a Recurring Expense.
One-off Revenue: For singular revenue events that don’t recur, such as a one-off payment on a specific date.

6. Tax
Tax is used to ensure consistency in the treatment of your expenses. If you select;

Includes GST/VAT: if your expense numbers include GST/VAT, then choose this option
Excludes GST/VAT: if your expense numbers exclude GST/VAT, then choose this option

Use Cases

Marketing Expenses: For a marketing campaign with Saatchi & Saatchi, input a recurring monthly expense, adjusting for growth and payment timing. This might be $20,000 per month, growing at 5% per year
Rent Expenses: Regular rent payments can be set as recurring expenses with no delay if paid in advance, ensuring they’re accurately reflected in your P&L and Cashflow statements.
One-off Invoice: For unique expenses, such as a significant marketing project, specify the cost and payment delay to see its impact on your financials.

Finalizing Your Operating Expenses

After adding your Operating Costs, review your financial reports within Model Reef to assess their impact. Operating expenses directly affect your P&L, Cashflow, and balance sheet, highlighting the importance of precise and comprehensive input. Adjustments can be made as needed to reflect changes in your business operations or to correct any inaccuracies. This iterative process ensures your financial model remains a valuable tool for decision-making and strategic planning.

Staff Expenses

This guide outlines the steps to input staff-related expenses, covering everything from salaries to superannuation.

Expenses – Staff
Navigate to the Operations menu and select the Expenses tab, then choose Staff to start adding employee costs to your model.

1. Go to Operations Section
To begin adding a Staff Cost to your model, navigate to the Operations section, and select Expense>Staff.

2. Add a New Category or Sub-category

Categories and sub-categories allow you to group the Operating Costs of your division.

Category: categories are the highest-level category. If you are creating model for a car dealership, your Category might be “Sales Staff” or “Management”. Categories are only names and must have at least one sub-category
Sub-category: sub-categories contain your forecasts and have both the ability to add forecasts for Operating Costs. An example would be to create an individual item to forecast your salaries for operational staff, such as “Junior Sales Team Member” or “CEO”

3. Dates

Set the date range for your Staff Cost to specify when it starts and ends. Options include:

From the start to the end of the model: this sets the date to the start and end date to the first and last dates of your model from your model structure. Use this is your staff members are already working in your business
Specific set of dates: allows you to set a specific start or end date for the staff member or category
One-off revenue: if you have a staff member revenue that only gets paid occurs on a specific date, such as a one-off contact, you can input a one-off date.

4. Salary

Input the salary details for individual employees or groups:

Specific Roles: You can input roles individually, such as CEO, where you can set the Salary, and expected growth rate. To do this, you would select “1” employee in this role, input the salary per month, for instance $20,000 per month and the annual growth rate (eg. 5%)
Groups: if you have more than 1 employee in a role, set the number of employees to >1. If you have 5 sales staff, each being paid $70,000 per year, set the parameters to achieve this.

5. Superannuation

Indicate whether the salary includes superannuation or if it should be added on top.

Includes superannuation: select this box if the salary you input includes superannuation
Excludes superannuation: select this if the salary you input doesn’t include superannuation. Model Reef will automatically calculate the applicable superannuation based on the rate you input

6. Tax

Consider any payroll taxes that apply to staff expenses. Input the payroll tax rate if applicable or select ‘No payroll taxes’ if your employees are not subject to these.

7. Timing

Specify the timing of your revenue to align with Cashflow. If you expect to pay an invoice 1 month after it is received, then you should enter “1” in the input field and select “month” from the dropdown

Use Cases

Key Management Personnel: Create categories for high-level positions (CEO, CIO, CFO) and input their salaries, superannuation, taxes, and payment timing. Review how these expenses affect your financial statements.
Retail Workers: If managing a group of employees, such as cashiers, input their combined salaries, superannuation rates, and any applicable taxes. Observe the impact on payroll expenses in your financial reports.

Finalizing Staff Expenses

After entering all relevant details for your staff expenses, examine your financial statements to assess the overall impact. Adjustments can be made to refine your model further, ensuring it accurately reflects the cost of employment within your business. This process helps in strategic planning, budgeting, and financial forecasting, making Model Reef a comprehensive tool for managing your business’s financial future.

Tax

This guide provides a step-by-step approach to inputting tax details, helping you manage tax implications on your business’s profits effectively.

1. Go to Operations > Tax Section

To begin adding revenue to your Model Reef model, navigate to the Operations section and select Tax.

2. Tax Rate

Start by setting the tax rate that applies to your business. Tax will be paid out of business profits based on this rate.

Default: Set the default tax rate applicable to your business profits. For instance, you might choose a common rate like 30%. This rate will be applied to all taxable profits generated in your forecast.
Do Not Apply Tax to This Division: Use this option if a specific division is exempt from tax. Checking this box will remove tax considerations from the selected division and all its sub-branches.
Consolidate This Division with Level Above for Tax Purposes: Select this if you wish to consolidate tax calculations with the parent division, useful for corporate groups or subsidiaries that are taxed at a consolidated level.

3. Timing

Determine when tax payments are made within your model by selecting them from the drop-down menu. Common tax periods are;

Quarterly: Tax payments are made quarterly, following the financial year-end calendar.
Annually: Choose this option for annual tax payments. Ensure to select what aligns with your tax payment schedule.

4. Tax Losses

Input any tax losses to be considered in the model. Tax losses will be offset against profits in your financial model, and no tax will be paid until all tax losses are utilized.

For example, entering $1000 with 100% utilization means the entire amount will be used to offset taxable income until depleted. Adjusting the utilization rate changes how tax losses are applied against profits.

Finalize Your Tax Settings

After setting your tax rate, timing, and losses, review how these configurations impact your financial statements. Model Reef’s dynamic forecasting allows you to see the immediate effect of tax settings on your profit and loss, Cashflow, and other financial reports.

Assets

This section guides you through the process of adding your business’ assets to your financial plan, covering everything from the initial addition of an asset to its eventual sale.

Adding Assets

1. Go to Investments Section

To begin adding revenue to your Model Reef model, navigate to the Investment section and select Assets.

2. Add a New Category or Sub-category

Categories and sub-categories allow you to group the assets of your division.

Category: categories are the highest-level category. If you are creating model for a car dealership, your Category might be “Buildings” or “Property, Plant and Equipment”. Categories are only names and must have at least one sub-category
Sub-category: sub-categories contain your forecasts and have both the ability to add forecasts for individual assets.

3. Opening Asset Base

Opening Asset Base is the initial balance of the asset before depreciation. For instance, if the building’s opening asset base is $1,000,000, this value is recorded and saved as the starting point for depreciation calculations.

4. Capital Expenditures

Capital expenditures allow for the enhancement and maintenance of the asset. These will be added to the Asset value for the asset sub-category. The options for selecting Capital Expenditures are:

One-off Purchase: This could be a significant improvement, such as a $20,000 expense for new flooring, expected to be finished off on a specific date.
Ongoing Investment: This allows the input of regular, recurring maintenance or improvements, like $500 per month growing at 3% per year for “Improvements” to ensure the asset maintains value and functionality over time.
Percentage of Revenue: Capital expenditures can be linked to a revenue category, for example allocating 1% of car sales revenue towards building refurbishment expected to be conducted in future. This expenditure reflects on the Cashflow statement and affects the asset’s value and depreciation profile.

5. Depreciation

To set the depreciation, set the methodology based on one of the three options:

Straight Line: The most common methodology, where the asset depreciates evenly over its useful life. For example, depreciating a $1,000,000 building over thirty years with an expected residual value of $25,000.
Reducing Balance: This method accelerates depreciation in the early years and slows down later, requiring the specification of useful life, ending balance, and a declining balance multiplier.
Units of Production: Links depreciation to the volume of production, adjusting the depreciation expense based on actual use.

6. Asset Sales

If the planning to sell the asset, input the expected sale date and sale amount. An asset sale will be reflected in the financial statements on this date.

Debt Financing for Assets

Each asset is required to have a purchase structure of either Debt or Equity. Debt financing supports asset purchases through loans or credit, linked to the asset category and reflected in financial statements.

1. Go to Investments Section

To begin adding Debt for a specific asset, navigate to the Investment > Assets > Debt Financing section.

2. Amount

Financing can be specified as:

Percentage: Input the portion of the asset funded by debt, expressed as a percentage. For example, if you are refurbishing a building, and expect 40% of it to be funded by Debt, input 40%. This will be applied to both capital expenditure and the initial purchase.
Fixed: Input the dollar amount of the asset funded by debt. For instance, if you are buying a $1,000,000 building, and are funding it with $500,000 debt, input $500,000.

3. Term

Indicate the duration of the debt agreement, which could range from a few months to several years, tailored to your business needs. If you have an 84-month loan, input “84” in the input field, and “month” in the drop down.

4. Repayment Type

Input whether your loan is interest only, or principal and interest;

Interest Only: Select this option if payments cover only interest, not reducing the principal. The balance of the loan will be paid in a bullet at the end of the loan.
Interest and Principal: Selecting this option if payments gradually reduce the debt alongside interest charges. At the end of your loan period, the balance will be reduced to zero.

5. Interest

Specify the interest rate and its frequency (e.g., monthly, annually) relevant to your loan agreement. For example, if you loan has a 5% per annum interest rate type “5” in the input field and select “year” from the dropdown.

Equity Financing for Assets

Each asset is required to have a purchase structure of either Debt or Equity. Equity financing supports asset purchases through cashflow or new equity raisings, which are linked to the asset category and reflected in financial statements.

1. Go to Investments Section

To begin adding Equity for a specific asset, navigate to the Investment > Assets > Equity Financing section.

Percentage: Input the portion of the asset funded by equity, expressed as a percentage. For example, if you are refurbishing a building, and expect 20% of it to be funded by equity as required by your bank input 20%. This will be applied to both capital expenditure and the initial purchase.
Fixed: Input the dollar amount of the asset funded by debt. For instance, if you are buying a $1,000,000 building, and are funding it with $200,000 equity, input $200,000.

Debt Financing

This guide outlines the steps for adding both existing and new debt financing to your financial model within Model Reef.

Debt

Follow the steps below to add a new debt to your financial model.

1. Go to Financing Section

To begin adding Debt Financing to your model, navigate to the Financing section and select Debt.

2. Add a New Category or Sub-category

Categories and sub-categories allow you to group the revenues of your division.

Category: categories are the highest-level category. If you are creating model for a car dealership, your Category might be “Bank Loan” or “Credit Card”. Categories are only names and must have at least one sub-category
Sub-category: sub-categories contain your forecasts for debt and will be automatically calculated based on your inputs.

3. Opening Balance

Existing Loans: Enter the current balance of any existing loans. Example: If your business has a $50,000 loan from Wells Fargo, input this amount as the opening balance.
New Loans: Specify the amount for any new loans you plan to secure. Example: If you intend to draw a new loan of $500,000 into your Wells Fargo loan on June 30, 2024, enter this information accordingly.

4. Term

Indicate the duration of the debt agreement, which could range from a few months to several years, tailored to your business needs. If you have a 15-year loan, input “15” in the input field, and “year” in the drop down.

5. Repayment Type

Input whether your debt is interest only, or principal and interest;

Interest Only: Select this option if repayments cover only interest, not reducing the principal. The balance of the loan will be paid in a single payment at the end of the loan.
Interest and Principal: Selecting this option if repayments gradually reduce the debt alongside interest charges. At the end of your loan period, the balance will be reduced to zero.

6. Interest

Specify the interest rate and its frequency (e.g., monthly, annually) relevant to your loan agreement. For example, if you loan has a 6% per annum interest rate type “6” in the input field and select “year” from the dropdown.

Use Cases

Existing Loans: Reflects the impact of ongoing debt obligations on your business’s financial health.
New Loans: Demonstrates the future financial implications of planned borrowings, including interest payments and principal repayment. For instance, if you plan to borrow $1m for business acquisitions at a future date.

Equity Financing

This guide provides instructions for recording equity injections into your financial model within Model Reef. Equity injections are crucial for reflecting shareholder contributions and other equity financing activities in your business model.

Equity

Follow the steps below to add Equity Financing to your model;

1. Go to Financing Section

To begin adding Equity Financing to your model, navigate to the Financing section and select Equity.

2. Add a New Category or Sub-category

Categories and sub-categories allow you to group the Equity of your division.

Category: categories are the highest-level category. If you are creating model for a car dealership, your Category might be “New Shares Issued”. Categories are only names and must have at least one sub-category
Sub-category: sub-categories contain your forecasts for equity and will be automatically calculated based on your inputs.

3. Dates

Specify when the equity injection will occur. For example, if an equity injection is scheduled at the start of your model, select the corresponding start date. Alternatively, you can choose any date that aligns with future equity contributions over the lifespan of your model.

4.Amount

Fixed Equity Amount: Enter the total amount of equity being injected. For example, if you are planning to complete a $200,000 capital raising from shareholders, enter $200,000 directly.
Price Per Share: If you are planning to complete a capital raising that varies with shares on issue, you can select price per share. If you are completing a capital raising by issuing 10,000 new shares at a price of $2, you can input this directly.

Use Cases

Capital Raising: If you are looking to complete a capital raising and want to see the impact of the new equity on your financial statements, you can add it here and view the impacts in the Reports section.

Valuation

This guide explains how to use and input into the valuation section to produce valuations in your Model Reef financial model.

Valuation

The following steps outline how to define valuation inputs in Model Reef.

1. Go to Valuation Section

To begin adding valuation inputs to your Model Reef model, navigate to the Valuation section. Note: Only the Level 0 user can edit Valuation inputs.

2. Equity Purchase

Specify the acquisition date and the purchase price for the business. This will be used as the equity purchase price in the calculation of NPV. For example, if you are acquiring a car dealership on January 31, 2024, for $5,000, input these details to calculate equity IRR and free Cashflow IRR.

If you are valuing a publicly listed company, you can input the Market Capitalisation as the purchase price. You should specify the total amount of equity purchased to be 100%.

3. Discount Rates

In this section, input the discount rates that are used to discount free cashflows to equity and the firm.

Free Cashflow to Equity: this is the after-tax amount that you want to earn each year on your investment as an equity holder. If you want to earn 15% per year, input “15” in the input field.
Free Cashflow to Firm: this is the after-tax amount that you want to earn each year on your investment to be shared between both debt and equity holders. This is referred to as the Weighted Average Cost of Capital (WACC). If you want to earn 10% per year, input “10” in the input field.

4. Terminal Value

Gordon Growth Model: This will automatically add a Gordon Growth Model terminal value to your model. You can specify the terminal growth rate and terminal discount rate.
Multiple Valuation: Specify a multiple (e.g., EBITDA, net income, or revenue multiple) to calculate terminal value, applying it to the relevant financial metric. The multiple will automatically be applied to the prior 12-months cashflow.
Net Tangible Assets (NTA): Choose this for a valuation based on the tangible assets of the business. This will automatically retrieve the NTA balance from balance sheet at the end of the model and include it in cashflows.
No Terminal Value: Select this option if you do not wish to include a terminal value in your valuation.

Use Cases

Valuation inputs have a wide variety of applications. They will allow you to calculate valuation scenarios quickly and easily. Some examples include;

Modelling a stock: if you are looking to value a stock you are considering purchasing, you can create a business plan for your stock, and input your target returns. Model Reef will then automatically calculate the valuation implied by your analysis and imply a “fair price”
Acquisition: you might be looking to acquire a business and wondering how much you can pay to achieve a 15% return. Model Reef will apply science to this using a valuation framework.
Valuing your business: if you are looking to undertake a capital raising, you can be confident in the valuation you ascribe to your business based on robust financial mathematics. This will add a framework into conversation with potential investors.

Summary and Valuation Outputs

This guide describes the basic features of the Summary report, being charts and valuation outputs, and how to interpret them.

Charts

Model Reef generates a default dashboard populated with a range of charts categorized into four primary areas. These charts are based on common industry practices.

Profitability: This segment transforms the Profit & Loss (P&L) data from your financial model into visual charts, enabling quick assessment of revenue, gross profit, EBITDA, net profit and other relevant metrics and margins. These charts facilitate an easy understanding of where the business stands in terms of profitability, highlighting trends, potential issues, and areas of concern.
Cashflow: The Cashflow charts provide a visual breakdown of cash movements within the business across operating, investing, and financing activities. Key insights include total Cashflows, free Cashflow to equity, and free Cashflow to the firm, illustrating the actual cash generated for debt and equity servicing. The expression cash is king is often used, and the Cashflow statement is key to knowing where your business really earns and spends.
Investment Returns: Charts in this category display the evolution of net present value (NPV) and investment rates of return over time, aiding in the assessment of project viability. They show the buildup of returns, including money multiples, to gauge payback periods and risk, especially for projects with significant initial outlays followed by later gains.
Balance Sheet Metrics: These charts focus on liquidity and debt servicing capabilities through visuals like net debt and common lending ratios. These charts help identify potential financial stress points and can be a conversational point within your business for pin-pointing strategies that help you to maintain solvency, cash and meet external commitments, like debt repayments.

Valuation Outputs

The following Valuation outputs are displayed on the Summary report;

Present value FCFF / FCFE: this shows the present value of the cashflows from your business plan, discounted back at the discount rate that you have input in your Valuation section.
Acquisition Debt: shows the total debt in your business at the start of your model.
Equity Purchase Price: this is the equity purchase price you input in the Valuation section.
Net Present Value: calculated as FCFF / FCFE less Acquisition Debt and Equity Purchase Price. This shows the value by which the Present Value of Cashflows exceeds the purchase prices of debt and equity.
Project IRR: shows the Internal Rate of Return (IRR) for the project at the implied price. This can be thought of as the expected return for your project.
Target WACC: this is the target hurdle rate input in the Valuation section
Clears Hurdle: shows by how much the IRR for the model exceeds the Hurdle Rate
Payback period: shows the total time in years for the project to payback itself. If the payback period is 2-years, this means that after 2-years, the project has fully paid back its cost.
Money Multiple: Shows the total value money multiple at the end of the model. If the money multiple is 5x, this means at the end of your model, you have received 5x the initial cost in cash returns.

Toggle Switches: Debt + Equity and Equity Only

Toggles can be used to move between Firm (Debt + Equity) or Equity views;

Debt + Equity: shows performance to both debt and equity holders. Used to assess the performance of a project before the impacts of capital structure
Equity Only: shows the performance only to equity stakeholders. Used to assess the performance of a project including the benefits of capital structure (ie. leverage)

Profit and Loss

This is a general guide to interpreting the Profit and Loss (P&L) report in Model Reef.

Report Structure

The P&L report adheres to a simplified version of the International Financial Reporting Standards (IFRS) and United States General Accepted Accounting Principles (US GAAP), ensuring a recognisable approach that is commonly used across global businesses. It breaks categories such as revenue, cost of goods sold (COGS), operating expenses (OpEx), depreciation, interest, and taxes into its component parts, so you can easily see what is driving your business performance.

Traceability

Click the plus sign next to a category to expand it and view the underlying assumptions and business drivers. For example, if you want to see how revenue is generated across multiple divisions, expand the categories, and view the more detailed calculations.

Periodicity or Financial Year

Toggle Between Periods: Use to switch between different periodicities—monthly, annually, or by fiscal year—based on the model structure selected.
Financial Year View: When toggled to the fiscal year, the report adjusts to show data for the 12 months ending on the designated financial year end date.

Common Size P&L

Percentage of Revenue: toggle this on to present each item of the P&L as a percentage of total revenue.

Balance Sheet

This is a general guide to interpreting the Balance Sheet report in Model Reef.

Report Structure

The balance sheet is displayed in a usual form that are a simplified version of International Financial Reporting Standards and United States Generally Accepted Accounting Principles. The balance sheet displays assets, liabilities and equity and shows the total for each category as well as net equity position. Assets in the balance sheet will always equal liabilities plus equity.

Traceability

Click the plus sign next to a category to expand it and view the underlying assumptions and business drivers. For example, if you want to see the assets you have across multiple divisions, expand the categories, and view the more detailed calculations.

Periodicity or Financial Year

Toggle Between Periods: Use to switch between different periodicities—monthly, annually, or by fiscal year—based on the model structure selected. This will display the balance at each date (eg. daily or weekly balance sheets).
Financial Year View: When toggled to the fiscal year, the report adjusts to show data as at financial year end date.

Common Size Balance Sheet

Percentage of Total Assets: Activating the common size balance sheet view converts all figures to a percentage of total assets. This perspective standardizes the balance sheet, making it easier to analyze and compare financial positions over time or against other companies.

Cashflow Statement

This is a general guide to interpreting the Cashflow Statement report in Model Reef

Report Structure

The Cashflow Statement is separated into three component parts, representing the core functions of a business;

1. Operating Cashflow: shows cash generated from the company’s core business operations. It is a key indicator of how well the business is generating cash from its primary activities.

2 . Investing Cashflow: shows cash used for purchasing new assets or proceeds from the sale of existing assets. This section provides insights into the company’s investment in growth and asset management.

3. Financing Cashflow: shows cash movements related to debt repayment, issuance of new debt, equity financing, and dividend payments. This segment reflects the company’s financing strategy and external funding activities.

Traceability

Click the plus sign next to a category to expand it and view the underlying assumptions and business drivers. For example, if you want to see how revenue is generated across multiple divisions, expand the categories, and view the more detailed calculations.

Periodicity or Financial Year

Toggle Between Periods: Use to switch between different periodicities—monthly, annually, or by fiscal year—based on the model structure selected.
Financial Year View: When toggled to the fiscal year, the report adjusts to show data for the 12 months ending on the designated financial year end date.

Common Size Cashflow Statement

Percentage-Based Analysis: Activating the common size view converts Cashflow figures to percentages of total Cashflow.

Cash Waterfall

This is a general guide to interpreting the Cash Waterfall report in Model Reef.

Significance in Investment Analysis

Investor Perspective: The Cash Waterfall is crucial for investors and fund managers as it shows the exact allocation of cash from business operations to the final distribution among debt and equity holders. It highlights the prioritization of cash distribution, including debt servicing, dividend payments, and reinvestment or reserve allocations.
Industry Prevalence: While not commonly discussed in academic textbooks, the Cash Waterfall is ubiquitous in the investment industry. Its detailed approach to Cashflow analysis makes it indispensable for assessing investment opportunities and understanding the potential returns to stakeholders.

Traceability

Click the plus sign next to a category to expand it and view the underlying assumptions and business drivers. For example, if you want to see the assets you have across multiple divisions, expand the categories, and view the more detailed calculations.

Periodicity or Financial Year

Toggle Between Periods: Use to switch between different periodicities—monthly, annually, or by fiscal year—based on the model structure selected.
Financial Year View: When toggled to the fiscal year, the report adjusts to show data for the 12 months ending on the designated financial year end date.