itsual Financial Modeling
Overview
A good financial model translates assumptions about the business into integrated projections. It should be easy to audit, hard to break, and useful for decisions — not a black box.
When to Use
- Annual operating plans and forecasts
- Business cases and investment proposals
- Fundraising and investor models
- Scenario and sensitivity analysis
Core Practices
- Separate inputs, calculations, and outputs
- Integrate P&L, balance sheet, and cash flow when material
- Use clear drivers (volume, price, conversion, headcount)
- Build scenarios and sensitivities explicitly
- Document key assumptions and sources
- Error-check with balances, signs, and reasonableness tests
Principles
- Models exist to improve decisions, not impress with complexity
- Transparency beats clever formulas
- Circular references and hidden hardcodes are liabilities
- Version and ownership must be clear
Verification
- Assumptions are isolated and labeled
- Statements tie out when integrated
- Sensitivities answer the real decision questions