5 Ways to Improve Financial Modelling in Excel

Effective and accurate financial models help to drive efficient business decisions and lead to business growth. However, their effectiveness is not only dependent on how well the model has been created or the accuracy of the results but also on the ease of interpretation by managers who did not create the model. Financial modelling is currently a sought-after a skill that almost all finance executives need to possess. The ability to predict the future to lead investment decisions is naturally an intelligence asset for any company. To stand out with your financial models, you need to make them unique. And you can achieve that level of greatness by following these 5 simple ways of improvement while crafting in Excel.

1. Focus on the core need of the model

Surely, you are building the financial model to address a specific pain point of the company. Keep that need in mind throughout as it is easy to lose your way while building complex models. What are you looking to report/forecast using the current model? What output parameters are you expecting to compare and receive results? Write these down first, probably at the top of the Excel sheet.

2. Designate codes to frequently-used parameters

This is often suggested in startup financial modelling and forms the basis of any accounting system. Codes and symbols help to maintain uniformity. You can also designate colors to your input and output numbers. Right after jotting down your aim of the financial model, book a space to display your abbreviations of the frequently-used parameters. It will help to keep things simple.

3. Use short formulas

Complicated and long formulas may automate a lot of tasks and simplify the building process presently, but you will struggle when the time comes to find errors and debug the whole system. The top advanced Excel training courses focus on using short alternatives to long formulas like replacing conditional functions with Boolean so that every cell contains no more than a few words or digits.

4. Create a clean layout

Cramping the sheet sends aversive signals to the minds of the next readers. A lot of numbers closely spaced to one another can easily become overwhelming. Leave out adequate space between two adjacent sections. Use bold fonts and bright highlights to separate two areas. Also, consider having your inputs, outputs, and calculations in different positions so that everyone other than you can precisely understand as to what is going on where.

5. Test and retest your model

All corporate and startup financial modelling processes are declared success stories only if the results work out. Not that they have to exactly match the reality but it is expected to be error-free. Complete your work by testing and retesting your model with demo values and be absolutely sure that there are no flaws in your calculations and formulas. Your reputation as a financial analyst will gain ground only if your models are flawless from all angles.

Anyone planning to make a career in finance, investment banking or a startup founder needs to know financial modelling. The best way to learn or update your skills is with an online course.