Financial modeling is a three phase process; it has a beginning, middle and an end. The beginning is that moment in time when you finally agree that now is the time to get it done. The end is when a loud voice tells you it is due, where is it? So what exactly is “it”? The “it” at the beginning refers to a process of transforming hopes ideas and dreams into a structured series of numbers that represent financial performance over time. The “it” at the end refers to a set of Financial Statements, Plans, Budgets or Pro Formas that describe the financial performance of your entity. These are the outcomes of the planning process. Between these two “its” is the middle. It is the middle where all the hard work takes place. The middle is where you go through the iterative process of constructing an initial plan, evaluating initial performance, improving it by changing drivers, adjusting timing issues, exploring the many WIF (What-If) options that are available. It is in the middle where you start to develop insight for the sensitivity and financial performance of your business and this is where a good financial model can help you obtain that insight. A good financial model is therefore about process. WynPlan simply facilitates this process by providing a pre-defined structure (Excel 2007 spreadsheet) that allows for the conversion of assumptions (Drivers) into (1) financial statements (up to five years) and (2) supporting financial information. Throughout the planning/modeling process, the frequent asking of “how”, “why”, “what”, “who”, “when” and “where” questions is highly encouraged. Use the planning process as a means of gaining insight into how your company is expected to perform. Use the flexibility of spreadsheets to perform WIF options and develop a feel for the more sensitive Drivers. Model various alternative strategies as a means of further understanding your options. When your model is “finished”, use it for its intended purpose; if you developed your model to raise capital, then raise capital by using your model as the vehicle for telling your “story”. If you developed your model as a means of fostering internal control, use it as such and keep your model current. Always keep looking forward. |
Wynism Number 8: Wynism Number 9 Wynism Number 24 |