Wouldn’t doing business be so much easier if CEOs could see into the future? Unfortunately the closest a business owner or leader will ever come to having a crystal ball is establishing a strong, fact-based financial model. Not only do these models provide CEO’s with the best possible view into their financial future, they are also imperative when attempting to secure additional capital. No banker, loan officer or investor will sit down and have a meaningful discussion with a business owner who doesn’t have a financial plan.
A financial model is a set of assumptions about future business conditions that drive projections of a company’s revenue, earnings, cash flows and balance sheet accounts. In practice, we use financial model in a spreadsheet form (usually in Microsoft’s Excel software) to forecast a company’s future financial performance.