A well-developed financial model is key to running unlimited and successful scenarios across different business units and departments. Additionally, it allows you to test your hypotheses before doing budgeting and planning. However, it is not easy to generate flexible models unless you know their properties. It is time to unveil the secrets behind a robust financial model.
A robust and effective financial model should allow you to build everything across any department or function. For example, it lets you model revenues, projects, grants, capital, and much more financial variables.
Moreover, a good financial model teaches you and all the stakeholders on how to do business. That includes industry competition or factors that affect your company performance.
Find one reliable source
It is good to do research and analyze different data sets. However, when you find many sources and they all offer slightly different numbers, you should re-think. Try to find a non-biased and objective source that you will rely on in the long-term. It will help to focus on your work. Besides, it is always good to collaborate with the team to find an accurate, valid, and accessible set of information.
Automate your model
Some companies still rely on manual use of tools to generate insights. When building a financial model the analysts should start automating their calculations to save time. It will allow the team to concentrate more on running what-if scenarios. For example, you can automate forecasting tasks, budgeting, and planning.
Be confident in the numbers
The worst can happen when you cannot agree on certain numbers instead of concentrating on creating a strategy. Therefore, your financial models should reflect several budget versions, detailed cost allocations, and diverse organizational structures.
Cooperate with the team
It is always about the team’s contribution to the project. Every member, without even knowing that, is modeling and helps to build that financial model that the company relies on. Either product releases or headcount assumptions, as a financial analyst you expect a true collaboration.
These secrets behind a robust financial model are also the four main properties that ensure an efficient modeling process. If you accomplish them right, you will help your business stand out in the competition and make strategic decisions.