Overview of economic and financial analysis services
Daedalus Advisory Services is exceptionally skilled at creating economic plans for cities and large area developments, as well as building cash flow models in excel for new ventures (at the corporate level and for real estate developers).
Our economic analysis services focus on creating or enhancing a city’s competitiveness through policies that promote competitive advantage using an area’s existing assets.
Our excel models are custom built to determine project cash flows and returns to equity, as well as GAAP-based three statement models to estimate how changes in operations will impact a business’s accounting results.
Key questions for economic and financial analysis
What are the estimated cash flows that result from this venture?
Project sponsors often have ideas in their head about the potential profitability of new ventures or changes to business operations. In most cases, these ideas come from rough numbers that they have estimated themselves, but that has not been rigorously tested.
When working with new ventures in real estate development or corporate development initiatives, sponsors should be working iteratively to understand not just how much potential profit any new venture may generate, but also, under which conditions.
Isn’t the model finished once it’s built?
As most project plans change measurably between when they were written and when they are to be executed, the underlying excel-based financial models should be regularly reviewed and updated to ensure that it reflects the company’s current go-to-market plans.
For corporate development initiatives, this advice tends to focus on making sure that the revenue model is accurately modeled (and based on real demand) and that the supporting labor and corporate resource allocation is proper for the venture.
Mature real estate development cashflow models tend to vary more around their financing structure and proposed equity waterfall details than use details.
What are the wider economic impacts of the project?
Our government clients often ask us to measure the economic impacts of a proposed investment, typically the number of jobs that it will create and the wider impact of the spending. These economic impact studies can often lead to additional efforts to generate new employment opportunities or to estimate if the opportunity costs of the public funds used are too great for the proposed investment plan.
Typical economic and financial analysis engagements
Custom investment or real estate cash flow models in excel
Daedalus builds cashflow models that are specific to a client’s proposed project. We start from scratch every single time – and that’s for the client’s benefit. Although some consultants say that they are saving the client development costs by recycling old models, the reality is that they are fitting a client’s problem into a pre-existing template and telling them that the model is “good enough.” This approach is flawed.
If you are planning on investing potentially millions of dollars in a new venture, then you need the security of knowing that the underlying financial model is built for the purpose, reflecting the inputs and scenarios that are specific to that project. Done properly, your financial model will help to refine your project’s strategy, go-to-market details, timing and financial underwriting for debt and equity.
New venture planning models in excel
Nowhere is the need for iterative excel-based financial models so acute as when working on new ventures. The more conceptual the business, the more the financial model becomes part of the planning toolkit (though certainly not the only, or even most important, one). An iteratively executed financial model allows project sponsors to understand better which markets to target, how changes in pricing affect operational profit and whether demand penetration is realistic.
Economic impact or wider area quantitative analysis
Economic impact studies tend to be requested as the capstone to a proposed development. It’s not an absolute necessity for the EIAs to be completed after a project’s other analyses are completed (though it is more logical this way). In particular cases, government agencies may have high-level estimates of their proposed plans that they would prefer to evaluate for economic impacts before deep-diving the details of the specific approach with the presumed highest economic impact.
Economic and financial analysis lessons learned
Models are representations of reality
A model is a simplification of reality that attempts to get to truth using the limits inputs that are built into it. This rather simple observation is frequently misunderstood, however, often because consultants have over-sold what a model is and what its use is to the overall strategy process.
In many cases, modeling projections do not match actuals for reasons that are outside of what has been built into the model (such as changes in the macro-environment or details that have been summarized in the model).
NO MODEL WILL EVER FULLY CAPTURE REALITY
Don’t marry any set of figures
Perhaps the most common misunderstanding of using financial modeling results is that people tend to get attached to a particular set of figures are the “right” ones, versus being the results for a given set of inputs. As inputs change, so will results. As long as the model’s wiring is correct, you should not be trying to force particular results. Instead, you should look at how the input management should be part of the wider project strategy.
FOCUS ON INPUTS AND UNDERLYING LOGIC WHEN RESULTS ARE UNEXPECTED.