The corkscrew model: A simple model with powerful benefits

When it comes to financial planning of your SaaS business, you need tools and methodologies that help your organization towards financial success. And that’s the reason why advanced methods like corkscrew financial modeling become popular. This method provides an easy way to understand and get visibility into the different aspects of your business.

Think of the corkscrew model as the main brick in building strong financial plans. It helps organizations with financial forecasting, budgeting, and performance evaluation. 

In this article, we’ll talk about how helpful corkscrew financial modeling is and how to use it well to make better choices in financial matters.

 What is the corkscrew model?

In financial planning, the corkscrew model (also known as roll-forward calculation, waterfall method, or corkscrew accounts) allows the consistent modeling of balances. 

Essentially, in a corkscrew calculation, the ending balance from the previous period is used as the beginning balance in the next/following period (in other words, the balance rolls forward like a corkscrew).

The corkscrew method stands out because it keeps a close watch on how the funds flow and looks at how different factors work together. This gives a full picture of the financial position of the business. In addition, it helps the stakeholders make smart choices based on how the revenue is affected. 

Let’s say you have an account of cash, an account of ARR, an account of debt, depreciation, and CapEx. The corkscrew calculation/model is a great tool for tracking those changes within a period. 

The basic corkscrew model can be used for any account or metric, such as forecasting ARR, tracking debt including debt pay-downs and accruals, tracking depreciation and capex, net operating losses when you're talking about taxes, any other tax pieces, balance sheet accounts.

For example, you can build a debt schedule corkscrew to track the debt of your business and make decisions related to finance, cash flow and evaluate refinancing options. With a corkscrew model, instead of just seeing the balance last month and this month, CFOs can see what moved within that account to show those new balances. 

How does the corkscrew model work?

Here’s an easy breakdown of how the corkscrew model works:

• Initial Balance: You kick off with the opening amount in the account you're watching. You can understand more about the monetary changes that happened between the starting and ending numbers for the period.
• Additions: Write down anything that increases the account balance.
• Withdrawals: Keep track of anything that decreases the account balance during the time.
• Ending Balance: To figure out where you stand at the end, add any increases to the starting balance then take away the withdrawals.

Here's a generic illustration of what that looks like in a table:

The math behind the model is pretty simple:  

• The first row shows the beginning balance each period, starting with Period 1. 
• The second row shows the additions for that period, which would come from all new sources of income, revenue, etc. based on the metric or account your modeling.
• The third row shows the subtractions from the beginning balance for the period, which would come from any losses incurred. As with additions, what these losses might be would depend on what you're modeling.
• Summing the values in the last row gives you the ending balance, which rolls forward to become the beginning balance for the next period. 

This process is repeated for each period, which is what gives the corkscrew model its name. If you look at the blue lines in the table, you see that as you work your way down the column for each period and then roll the ending balance up to the top of the column for the next period, it creates a corkscrew effect as you move through each successive period. 

The model is simple but only as good as the data up put into it

The Corkscrew model is straightforward but you require good data quality to implement it well and drive results. The hard part is not the model itself but making sure the numbers that go into it are correct.

We can apply the GIGO, or "garbage in, garbage out" principle to any financial model, including the Corkscrew. It means you get bad results with bad data. 

You can leverage financial reporting software to help ensure that the data going into your model is reliable. As with any model, it's critical to make sure the data you're using is accurate. Otherwise, any decisions you make based on the results will be flawed. So, it's always best to have a system to collect and validate your data. 

A versatile model for many uses

The corkscrew model provides a thorough and important financial model for businesses that seek financial clarity and strategic decision-making for your business. This method integrates historical data, current operations, and future projections to give a full picture of the financial situation of your SaaS business. 

When used with accurate data, you can depend on the corkscrew method for financial forecasting, budgeting, performance evaluation and much more. 

Ready to make your financial modeling better with financial planning software?  Drivetrain provides a full range of modeling capabilities, including corkscrew modeling for any number of accounts or metrics, to help you gain a deeper understanding of your business performance. 

‍Explore Drivetrain and to learn how to get the most out of your financial data.