The benefits of financial modelling
It is easy for businesses to drift from one month to another, with no clear focus on a strategy to drive growth.
With the right tools in place, a business can go from drifting to a business that is growing with a clearly articulated strategy.
A good financial strategy will:
Reflect the visions of the management team
Allow the business to set monthly target key performance indicators
Allow management to understand the financial investment required. Such investment can include:
- Capital expenditure
- Investment in headcount
- Investment in infrastructure
- Investment in working capital
However, without robust management accounts in order to be able to track actual performance against your plan, in real time, you may struggle to deliver your growth strategy. Understanding variances and acting accordingly is fundamental.
All businesses need the ability to adapt to changes in the landscape in which they operate.
Financial models also become important when:
- Selling a business – investors like to understand the strategy but also like to understand its ability to forecast or budget effectively
- Raising finance – it is fundamental to make sure that a business can afford any debt taken on and that it has sufficient headroom with the covenants that a lender may set
In our opinion, a financial model should include:
- an integrated profit and loss account, balance sheet and cash flow on a monthly basis
- clear assumptions that are supported by historical performance/supportable assumptions
- key performance indicators
- working capital clearly shown
- the ability to sensitise the key assumptions
We have a wealth of knowledge and experience in financial modelling, to find out more contact our modelling team or you can read our case study.
Find out more about our financial modelling services here
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