Building a financial model is one of the most important task when creating a business plan for your business, investment venture, projects, etc. This is why financial modeling became a highly sought-after skill which is highly valued in Finance and related sectors. Though financial modeling is not as simple as it sounds, you can think of it as a combination of different subjects such as accounting, finance, and business metrics to create a framework of a company in Excel, forecasted into the future.
Usually, a financial model is used for making business decisions at a company, making investments in private or public company, pricing securities, corporate transactions such as mergers, acquisitions, divestiture or capital raise, fundraising, creating a budget plan, valuation, and many more use cases.
Creating a financial model can be really complex as every business is unique and requires specific set of assumptions and calculations, which can be categorized in different industries. Usually using Excel is the best customizable tool due to being flexible and manageable.
There are many steps for building a financial model, such as:
• Historical data – at least 3 years of the business’s previous financial information
• Ratios and Metrics – consists of margins, growth rates, asset turnover, inventory changes, etc.
• Assumptions – making assumptions about the future ratios and metrics
• Forecast – Forecasting the 3 statements (Income statement, Balance Sheet, & Cash Flow)
• Valuation – Using a valuation method to see the value of the business
Following the steps and creating a financial model yourself looks easy enough for those with the Accounting knowledge but actually, financial modeling is more than that. You will still need to have the appropriate know-how of financial modeling for different use cases as well as industries to be able to complete a working financial model specific to the business case.
Of course, hiring a professional will do if you don’t have the time to build a financial model but nowadays, it is more convenient to download financial projections template that is easy to edit coupled with instructions and charts, removing the hassle of the complicated calculations and analyzation.
Downloading a financial projections template doesn’t just help you save time from creating a model from scratch, but it will also not require you to have extensive knowledge and skills to complete a financial model for your plan. If you need a financial projections template, you can download some ready-made templates here: Financial Models or you can also visit eFinancialModels, a platform that offers a wide variety of industry-specific financial model templates in Excel and Google Sheets made by experienced financial modeling experts.