What is financial modelling and why do I need it?

Man at a desktop screen with spreadsheets and a financial model
Share This Post

If you have big dreams for your business or simply want to understand it better, financial modelling may be the answer.

A good financial model can give you an accurate snapshot into your company’s future as well as help you identify challenges – but what exactly is it, and why do you need it?

What is financial modelling?

Financial modelling, also known as forecasting, allows you to anticipate your business’s fiscal future. This forward-thinking tool uses a range of methods to estimate what will happen to your company over a particular period.

Comprehensive financial models may include the following:

  • profit and loss forecasts to estimate how much money you‘ll make within a particular time-frame.
  • cashflow forecasts to predict how cash will flow in and out of your business within a given period.
  • balance sheet projections to anticipate the assets, liabilities and equity you will have at a certain point in time.
  • key performance indicators (KPIs) to track your business performance.

In order to create a financial model, you’ll need to use accurate and up-to-date financial data. That means looking at your accounts from the previous period and seeing how they will translate into the next.

Who needs financial modelling?

Startup entrepreneurs need a solid business plan to get a good head start, and financial modelling plays an important role in that. While a new company may not be able to base forecasts on its past accounts, it can still produce figures based on market data and industry trends.

Meanwhile, established companies looking to expand their horizons may benefit from the foresight a financial forecast brings. A snapshot of the year ahead will make it easier to draw up achievable strategies and targets.

It’s not just businesses with grand ambitions that can benefit from financial modelling. Looking ahead at a particular period can help companies of all shapes and sizes to take control of their finances, mitigate risk and secure the funding they need to realise their goals.

Reasons why you need financial modelling

To make better decisions

Without a good understanding of your company’s financial health, it can be difficult to plan ahead properly. A financial model can enable you to make better business decisions based on facts and figures.

Deeper insight into your finances will make budgeting easier, and will enable you to keep a closer eye on cashflow throughout the year.

If you’re looking to acquire or merge with another company, financial modelling can also help you determine whether that business is financially viable.

To secure funding

Financial modelling forms an essential part of any business plan. If you want to secure the right funding, you’ll need to have your strategy backed up by the numbers.

Prospective investors and lenders want to know they’ll see a good return on their investment, so it’s important to be as detailed as possible in your plan. Producing thorough forecasts will demonstrate that you know what you’re talking about, reassuring them that their money is in capable hands.

To see the bigger picture

Never underestimate the value of looking at your past accounts. Paying attention to your company’s performance in previous years will help you see the bigger picture, while setting goals and tracking KPIs will help you feel more in control of your financial future.

Producing in-depth financial reports can flag up areas for improvement in your business, as well as help you perform contingency planning if you fall on hard times. In some cases, it may open the door to new opportunities you were previously unaware of.

Financial modelling can be as simple or in-depth as you need it to be – but you can rely on us to go beyond the basics.

Our integrated financial modelling service is designed to give you the confidence you take your business to the next level. We offer bespoke analysis of your financial data as well, helping you to understand your company’s past, present and future to the fullest extent.

Click here for more finance and accounts outsourcing resources. Talk to us about our business valuation service or go to the valuations page. For more tools and guidance for your business click on our resources menu. Get in touch for accounting support info@teamsas.co.uk.

Disclaimer: This resource is provided as a reference guide only and we recommend seeking professional accounting advice before making decisions. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.

More To Explore

How can we help?

drop us a line and keep in touch


Book An Appointment


Choose a date
Choose an available day and select your one hour slot


Your Info
Please provide your contact details and some information on your company and requirements


We will be in touch within one working day to confirm your requested appointment or arrange another if the relevant person is unavailable