How important is financial modeling for your business?

April 10, 2020

Financial modeling is as important as the decisions supported by it.

Let me explain it with some examples:

  1. if you create a beautiful financial model with all kinds of variables that forecast exactly what could happen in different scenarios with your company but you don’t do anything with it, it’s worth $0.
  2. if you create a financial model and make a few mistakes either in formulas, manual inputs, or by intellectual dishonesty, and end up making wrong decisions because of it, it’s worth negative (you’d be better without it).
  3. if you create a financial model that works, even if it’s not perfect, and is enough for you to make decisions with a better degree of certainty than before, than it can be worth a lot.

So, financial model can be very important, but it can also be harmful depending how you use it, or even a 0 if you don’t use it for anything. I’ve seen all 3 cases in real world.

My suggestion, start with a simple one. In this post, I teach how to create a financial model in 20 minutes, give it a try.

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