In the face of uncertainty, businesses today need to be more proactive instead of reactive. Now more than ever, making the right business decisions can make all the difference between survival and getting left behind.
Financial modeling helps businesses understand real-world financial situations through a mathematical model or an abstract representation of how their financial assets, projects, or investments are performing.
A financial model can help CFOs and analysts anticipate how a company’s stock performance might be affected by future events or executive decisions so they can better prepare for the future. Financial models are useful in business valuation and in helping companies understand how they compare to peers in the industry. They are also a helpful tool in budgeting and strategic planning to test various scenarios, calculating costs, and proper resource allocation.
At the core of successful financial modeling is data integrity. You need accurate and reliable data to create realistic projections, which is why having an advance financial modeling software like Performance Canvas is a must if you are aiming for forecasts that are aligned with reality. CFOs and financial analysts can use financial modeling to track their company’s financial performance and anticipate whether or not it will be impacted by current and future events.
Other than projecting the financial performance of a company or organization, financial modeling can also be used for other reasons such as project financial analysis, investment research, historical analysis, or to raise capital or funding.
To ensure you have financial modeling down to pat with the right cloud FP& A software, here are a few best practices that you’ll need to keep in mind.
Simplicity and Transparency is Key
Where financial modeling goes, it’s essential to be as simple and transparent as possible. Your model needs to be intuitive and easy to use. Great financial models are not always the most complex. In fact, you can tell the quality of an excellent financial model from the use of short and elegant formulas.
Ease of use is what most people look for in financial modeling tools and other budgeting software, so you’ll always have to keep this in mind.
Keep Formats Clear and Consistent
And because financial modeling software should be easy to use, keeping formatting clear and consistent in all your calculations makes it more comfortable for users. Use color coding sparely to promote a better focus on the data at hand and to avoid people from assuming they’re seeing more errors. Use consistent formatting on all models and encourage everyone in your team to do the same. And above all, make use of one unique formula per row across all your data.
Use Error Checks Consistently
Models are prone to errors, which is why it’s essential to review them, so they don’t affect the output. Faulty assumptions lead to incorrect outputs, no matter how well-structured your model is. Errors in calculations and structures will also lead to inaccuracies in your conclusions.
Using Performance Canvas allows you to make multiple forecast comparisons, so you get better accuracy, ensuring every data is visible and traceable.
Automate Consolidation
You’ll need a financial modeling tool like Performance Canvas financials that allows you to automate consolidation, so you get real-time forecasts on a summary and detailed level.
Ensure Data is Centralized
Excel is an excellent tool for plotting essential data for your financial model. However, it can be limited to CFOs and financial analysts who need a more holistic view of their financial data. With Performance Canvas Financials, you can get better centralization of your data in a single database without having to worry about having to work with data across multiple spreadsheets.
Financial Modeling Using Performance Canvas Financials
Financial modeling helps companies build a predictive model from a company’s financial forecast, promoting better business decisions that are so crucial in today’s disruptive times.
There are a lot of financial modeling tools available in the market today. Still, if you’re focused on better accuracy and precision, Performance Canvas Financials offers modeling, forecasting, and re-forecasting so you can rest easy with tailored predictions that reflect the actual reality of your business’s performance.
