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How to design your Financial model Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ----- How to design your Financial model Preparing the right schema for your financial models is the foundation to a model that gives you the information you need, when you need it. I’ve seen 100s of Financial Model’s in my career… and while they all can differ from one another, this structure can be applied to ANY business model. The mainly come down between Source Tabs, Inputs Tabs, and Output tabs ➡️ SOURCE TABS Your model often times will start with an export / connection to your a number of source data such as: → your existing P&L and Balance Sheet → your headcount details → your customer details These source tabs should be designed in a way where you don’t need to edit their format, making it easy to refresh / resync ➡️ INPUT TABS Once you have your source data, it’s now time to design your inputs. It’s common to consolidate as much as possible with your inputs into just one tab. This makes it easy for your readers to understand all the assumptions that go into your model, allowing for a centralized location where everything can be tweaked. Sometimes though, you may have too much information to fit on one tab. That’s where your other input tabs come into play, which will then all push to your centralized drivers tab ➡️ OUTPUT TABS Now that you have your source tabs… and you’ve tweaked your assumptions on your input tabs… it’s time to present your findings. The most important findings will be the output for your 3 financial statements It’s also common to divide up your output tabs between DETAILED outputs (IE, your full P&L, Balance Sheet and Cash Flows)… and SUMMARIZED outputs → Summary Tables These tables help you summarize your detailed outputs, such as a summary P&L, summary Balance Sheet, or summary Cash Flows I like to start here and analyze big movements from one period to the next before drilling into the details → Dashboards & Reporting Now comes my favorite part of a model… Your Dashboards & Reporting. This is where you woo your audience with beautiful visuals that summarize the key information 🤩 For more information on how to prepare these dashboards, check out my course on CFO Dashboards & Reporting === It’s common to also include a table of contents with your models so that the readers can understand how everything is laid out, and where the edits can be made. Remember…your models are not just for yourself - they will almost always be reviewed and tweaked by outside parties. The more coherent & clear the structure of your model is, the easier it is for you to manage and nail your projections. ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

Process for building a financial model from scratch Here's a general walkthrough of the process for building a financial model: 1. Define the Purpose and Scope: • Clearly understand the purpose of the financial model. Is it for budgeting, forecasting, valuation, or another specific analysis? • Define the scope of the model, including the key variables and time horizon. 2. Gather Data: • Collect historical financial data relevant to the analysis. This may include income statements, balance sheets, and cash flow statements. • Gather any non-financial data or assumptions that may impact the model (market trends, industry benchmarks). 3. Plan the Structure: • Determine the structure of your model, including the layout of the worksheets and the organization of key financial statements. • Plan for inputs, calculations, and outputs. 4. Set Up Worksheets: • Create separate worksheets for income statements, balance sheets, and cash flow statements. • Establish additional sheets for supporting schedules, assumptions, and scenario analysis. 5. Input Historical Data: • Enter historical financial data into the model. This provides a baseline for analysis and forecasting. 6. Develop Assumptions: • Clearly define and input assumptions that will drive the projections. These may include revenue growth rates, expense ratios, capital expenditures. 7. Build Formulas: • Use Excel functions and formulas to link cells and calculate projections. 8. Create Financial Statements: • Build projected income statements, balance sheets, and cash flow statements based on the calculated assumptions. 9. Perform Sensitivity Analysis: • Test the sensitivity of the model to changes in key assumptions. Identify how variations in inputs impact the outputs. 10. Validate Results: • Cross-check the model's results against historical data, industry benchmarks, or other reliable sources to ensure accuracy. 11. Document Assumptions and Methodology: • Clearly document all assumptions made in the model, as well as the methodology used for calculations. • Make the model user-friendly by providing instructions and explanations where necessary. 12. Incorporate Scenario Analysis: • Include scenarios such as best-case, worst-case, and base-case to assess the model's performance under different conditions. 13. Test and Debug: • Test the model with different scenarios and data inputs to identify and correct errors. • Address any circular references or formula errors that may arise during testing. 14. Present Results: • Develop visualizations, charts, and graphs to present the results of the financial model. • Prepare a summary of key findings and insights. 15. Document Limitations: • Clearly communicate the limitations of the model, including areas of uncertainty and potential risks. 16. Iterate and Update: • Financial models are dynamic. Regularly update the model with actual data and iterate on the assumptions based on real-world feedback and results

Process for building a financial model from scratch Here's a general walkthrough of the process for building a financial model: 1. Define the Purpose and Scope: • Clearly understand the purpose of the financial model. Is it for budgeting, forecasting, valuation, or another specific analysis? • Define the scope of the model, including the key variables and time horizon. 2. Gather Data: • Collect historical financial data relevant to the analysis. This may include income statements, balance sheets, and cash flow statements. • Gather any non-financial data or assumptions that may impact the model (market trends, industry benchmarks). 3. Plan the Structure: • Determine the structure of your model, including the layout of the worksheets and the organization of key financial statements. • Plan for inputs, calculations, and outputs. 4. Set Up Worksheets: • Create separate worksheets for income statements, balance sheets, and cash flow statements. • Establish additional sheets for supporting schedules, assumptions, and scenario analysis. 5. Input Historical Data: • Enter historical financial data into the model. This provides a baseline for analysis and forecasting. 6. Develop Assumptions: • Clearly define and input assumptions that will drive the projections. These may include revenue growth rates, expense ratios, capital expenditures. 7. Build Formulas: • Use Excel functions and formulas to link cells and calculate projections. 8. Create Financial Statements: • Build projected income statements, balance sheets, and cash flow statements based on the calculated assumptions. 9. Perform Sensitivity Analysis: • Test the sensitivity of the model to changes in key assumptions. Identify how variations in inputs impact the outputs. 10. Validate Results: • Cross-check the model's results against historical data, industry benchmarks, or other reliable sources to ensure accuracy. 11. Document Assumptions and Methodology: • Clearly document all assumptions made in the model, as well as the methodology used for calculations. • Make the model user-friendly by providing instructions and explanations where necessary. 12. Incorporate Scenario Analysis: • Include scenarios such as best-case, worst-case, and base-case to assess the model's performance under different conditions. 13. Test and Debug: • Test the model with different scenarios and data inputs to identify and correct errors. • Address any circular references or formula errors that may arise during testing. 14. Present Results: • Develop visualizations, charts, and graphs to present the results of the financial model. • Prepare a summary of key findings and insights. 15. Document Limitations: • Clearly communicate the limitations of the model, including areas of uncertainty and potential risks. 16. Iterate and Update: • Financial models are dynamic. Regularly update the model with actual data and iterate on the assumptions based on real-world feedback and results

4 Stages of Forecasting Credits to Josh Aharonoff, CPA, follow him for more impactful content. ------ Here's the original post: The 4 Stages of Forecasting from BEGINNER to ADVANCED Which stage is your business at🪜? Every month, I meet with founders who are looking for help around their financial model. I rarely see a company working with a level 4 forecast… and oftentimes, founders don’t realize how much more value can be unlocked with just a few tweaks. Let’s go over each stage, and what to think about as your company scales 🪜 LEVEL 1 - CREATE A REVENUE BUILD (Beginner) This is where most founders start with a forecast. This will oftentimes suffice for an early-stage company, as the focus here is simply on the business model and the details behind the blueprint for how the company plans to scale The key here is to think about these 2 things: 1️⃣ How will INPUTS result in OUTPUTS (eg: an investment in sales reps results in more sales) 2️⃣ What are the SOURCES of your revenue (eg: existing customers vs customers in your pipeline vs new customers) 🪜 LEVEL 2 - ATTACH A PROFIT & LOSS (Beginner / Intermediate) Your revenue build is important, but it's not the only area of your business you need to think about. At this stage, you start to introduce other costs. It's here where you'll also want to attach a dynamic headcount build, showcasing the details behind who is on your team, and who you will hire in the near future. 🪜 LEVEL 3 - INCLUDE A BALANCE SHEET & CASH FLOWS (Intermediate / Advanced) Most companies report on the accrual basis, especially as they scale. Under the accrual basis, the amounts reported on your profit & loss won't equate with your cash flows. It's here where you'll want to implement a 3 statement model showcasing the movements in your Balance Sheet, allowing you to dynamically showcase cash. 🪜 LEVEL 4 - INCLUDE HISTORICAL DATA AND DASHBOARDS (advanced) This stage involves you importing your existing data around your financial statements, allowing you to understand where you have been, and where you are going, all in one view. With this data in place, you can refresh your forecast each month, allowing you to tap into limitless dashboards for any business case. -------------- 🛎️ Want to take your 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗿𝗲𝗽𝗼𝗿𝘁𝗶𝗻𝗴 & 𝗘𝘅𝗰𝗲𝗹 𝘀𝗸𝗶𝗹𝗹𝘀𝗲𝘁 𝘁𝗼 𝘁𝗵𝗲 𝗻𝗲𝘅𝘁 𝗹𝗲𝘃𝗲𝗹? Start with Josh’s CFO Dashboards Course: https://lnkd.in/gjKDG6PP 💠 Organizing Your Data 💠 Creating Summarized Financials Report 💠 Creating Dashboards 💠 Bonus Templates -------------- Follow Business Infographics to learn from the best visuals.

How to make Effective Forecasting ❓

7 ways to present financial data Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ---- 7 ways to present financial data Reconciling numbers is a big part of Finance & Accounting… so is forecasting But if you don’t have a way of PRESENTING your findings… your work can go unnoticed. Even the simplest data can add tremendous value when presented correctly… and there are only a few core concepts to understand in order to do so Let’s dive into each concept: 1️⃣ The Donut This is great for displaying a % of something - you may recognize the style from your your apple watch on the battery meter My favorite use for this chart is with a budget vs actuals (ex: 80% hit on revenue target) 2️⃣ The Pie Chart This is best for showcasing the split between different categories In this example, I chose to split opex by category 3️⃣ The Bar Chart Bar Charts help you showcase data across a timeline In this example, we are showcasing ending cash 4️⃣ The Line Chart Line charts are similar to bar charts in that they help you showcase information across a time period I am extra fan of line charts when you have multiple series, and you want to show them intersect In this example, we showcase the breakeven point, when profits intersect with costs 5️⃣ The Combo Chart This chart is a combination of charts 2 and 3, and is great to showcase 2 different series, ideally on a different axis (ex: Revenue on one axis, gross margin on another) 6️⃣ The KPI This one is entirely custom, and is one of my favorite ways of conveying financial data In this case, we’re showcasing our performance on various KPIs, compared to last year 7️⃣ The Table This may be the most common method of showcasing data - but it doesn’t have to be boring! Common uses are a summarized P&L, Balance Sheet, or Cash Flows === What are some other ways that you present financial data? Let us know by joining in on the conversation in the comments below 👇 PS: Looking to get a copy of this excel dashboard? Grab that right here: https://bit.ly/44Kr8YD ---- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

"7 Easy Steps to Build a Financial Model introduced by Josh Aharonoff, CPA 1️⃣ Start with our existing data Start with importing your existing data, as it will set the foundation for many areas of your model Almost every model has a combination of projections & actuals… and many of your projections are DEPENDENT on your actuals. Here are some examples • P&L - forecasting opex based off of past performance • Balance Sheet - forecasting balances by starting with your ending balance as of your last month of actuals • Headcount - forecasting payroll expense by analyzing who is currently on your team • Sales - forecasting sales from existing customers. 2️⃣ Connect the financials to get a basic 3 statement model The foundation of any financial model is the output from the 3 financial statements. Once you have your financial statements imported from the prior step, it’s time to connect them… this way cash will be able to be forecasted dynamically with ease. 3️⃣ Projecting Revenue Now, focus on the most crucial aspect of your forecast – your revenue. Begin by examining the transactions from your current clients and those in your pipeline. Utilize the A∙R∙S∙R framework to guide your analysis: Acquiring customers, Retaining them, Selling to them, and Recording revenue along with related Profit & Loss/Balance Sheet items. 4️⃣ Headcount Now comes time to forecast your biggest opex account - your headcount. Be sure to set up your formulas to be as detailed as possible… forecasting for mid month hire / terminations, bonuses / commissions, and fully loaded costs. 5️⃣ Projecting Operating Expenses With your headcount projections set, it’s now time to forecast all the rest of our opex. Analyze each and every GL account, and set your driver. Some examples are: • 6 month average • fixed schedule • prior months amount and more 6️⃣ Estimating Balance Sheet OK, we’re almost there! This last step may be the most challenging…but is actually fairly simple. Start with your ending balances as of your last month of actuals… then forecast Additions, subtractions, and you’ll get your new balances, 7️⃣ Designing an Engaging Presentation Finally, my favorite part – presentation! This is where all your effort pays off. Whether you're presenting to the CEO… management team… investors, or the board… make your presentation captivating. Your model should be so pretty that people enjoy consuming it, regardless of the data 🤩 === I’ve built 100s of financial models from my career, and there are few things I enjoy geeking out more over 🤓 While this is my tried-and-true method for building a Financial Model - everyone has their own spin How do you build models? Let us know by joining the conversation in the comments below 👇"

Forecasting is the most difficult activity in the Planning process of the Organization, because it involves predicting the future, based on past and current data. The level of difficulty can be eased by following a rational and logical approach to Forecasting. #Forecasting

7 Easy Steps to Build a Financial Model introduced by Josh Aharonoff, CPA 1️⃣ Start with our existing data Start with importing your existing data, as it will set the foundation for many areas of your model Almost every model has a combination of projections & actuals… and many of your projections are DEPENDENT on your actuals. Here are some examples • P&L - forecasting opex based off of past performance • Balance Sheet - forecasting balances by starting with your ending balance as of your last month of actuals • Headcount - forecasting payroll expense by analyzing who is currently on your team • Sales - forecasting sales from existing customers. 2️⃣ Connect the financials to get a basic 3 statement model The foundation of any financial model is the output from the 3 financial statements. Once you have your financial statements imported from the prior step, it’s time to connect them… this way cash will be able to be forecasted dynamically with ease. 3️⃣ Projecting Revenue Now, focus on the most crucial aspect of your forecast – your revenue. Begin by examining the transactions from your current clients and those in your pipeline. Utilize the A∙R∙S∙R framework to guide your analysis: Acquiring customers, Retaining them, Selling to them, and Recording revenue along with related Profit & Loss/Balance Sheet items. 4️⃣ Headcount Now comes time to forecast your biggest opex account - your headcount. Be sure to set up your formulas to be as detailed as possible… forecasting for mid month hire / terminations, bonuses / commissions, and fully loaded costs. 5️⃣ Projecting Operating Expenses With your headcount projections set, it’s now time to forecast all the rest of our opex. Analyze each and every GL account, and set your driver. Some examples are: • 6 month average • fixed schedule • prior months amount and more 6️⃣ Estimating Balance Sheet OK, we’re almost there! This last step may be the most challenging…but is actually fairly simple. Start with your ending balances as of your last month of actuals… then forecast Additions, subtractions, and you’ll get your new balances, 7️⃣ Designing an Engaging Presentation Finally, my favorite part – presentation! This is where all your effort pays off. Whether you're presenting to the CEO… management team… investors, or the board… make your presentation captivating. Your model should be so pretty that people enjoy consuming it, regardless of the data 🤩 === I’ve built 100s of financial models from my career, and there are few things I enjoy geeking out more over 🤓 While this is my tried-and-true method for building a Financial Model - everyone has their own spin How do you build models? Let us know by joining the conversation in the comments below 👇

Building a financial model in 7 steps