Six common mistakes people often make when performing financial modelling:
- Wrong business model: Some business models prepared by external advisors are clearly a lift from a previous piece of work. Using a professional advisor means you can expect a higher standard of care and diligence applied to your business and your circumstances.
- Overly Complex Models: Creating models that are too complicated can lead to errors and make it difficult for others to understand and use the model. Simplicity and clarity are key to effective financial modelling.
- Incorrect Assumptions: Using unrealistic or incorrect assumptions can significantly skew the results. It’s essential to base assumptions on reliable data and to conduct sensitivity analysis to see how changes in assumptions impact the model.
- Inconsistent Formatting: Lack of consistency in formatting can lead to confusion and errors. Standardising cell formats, colour coding, and keeping a uniform structure helps ensure that the model is easy to follow and reduces the likelihood of mistakes.
- Linking Errors: Broken or incorrect links between worksheets or external files can lead to inaccurate results. Double-checking all references and ensuring that links are correctly established and maintained is crucial.
- Ignoring Error Checks and Validation: Failing to incorporate error checks and validate the model can result in undetected mistakes. By building in checks, the risk of errors creeping into the model is reduced.
We support clients build financial models for a range of business requirements, from simple forecasts to developed models to support decision-making like investment appraisal, funding needs, working capital management. If you want to know more, contact richard.spilsbury@linkstoneadvisory.com.
