How to Make Financial Models That Matter

In order to keep up with the fast-paced global economy that is at this time immensely influenced by our innovative technology, business owners should be fast but accurate when it comes to strategic planning. One of the ways to do this is via financial modeling.

Financial models, basically, are pragmatic for forecasting a company’s financials and making better financial decisions. By means of financial modeling, you can calculate for new projects, budgets, compare your business to other businesses in the same industry, and prepare for future circumstances based on existing numeric data.

What are the different financial models?

There are several financial models for several purposes. But what are the most necessary practices to make your model matter?

Keep it truthful.

Your data needs to be realistic, and make sure to only make good and plausible assumptions with the aim that your financial model will actually serve its purpose.

Simplify it.

An easy-to-understand model is best. Complex information should be simplified and make sure that your formulas are as simple as possible. This is so it’s easy to follow, to prevent confusion, and to maximize its purpose.

Make it consistent.

The layout should be consistent and there should be proper formatting. How you present your numbers, formulas, columns, names, and such should be the same all throughout so your model has harmony and smooth flow of information.

Follow good design and aesthetics.

The model design should be accessible and simple to follow. Details should be expandable and you should be able to easily move around it.

Create an effective presentation.

Your model should be effectively presented. Make sure that it’s capturing the picture of a specific question or a problem that you’re trying to solve and make sure that you are communicating the data clearly.