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Getting Started with Financial Modeling for Clients

Mike Triantos
Posted by Mike Triantos on Jan 31, 2024 10:26:53 AM

When it comes to successfully guiding clients and helping grow their businesses, the best financial and accounting advisors know how critical financial models can be.  

Not only do financial models benefit your clients and their decision-making, but when you leverage them correctly, you become the financial hero.  

Read on as we explore how you can get started with financial modeling for your clients. 

The Importance of Financial Modeling 

Every day, businesses are forced to make critical decisions that can significantly impact the future of the business. However, without the help of financial modeling, they’re operating off semi-educated guesses.  

Financial modeling takes the guesswork out of the mix and replaces it with more telling information to better guide the organization. 

When you provide financial models, it means you’re providing more evidence and support for your recommendations when working with clients. 

Meeting Client Needs Through Financial Modeling 

Models are only as valuable as what they measure, which can vary widely. Savvy advisors who use financial modeling must know their clients': 

  • Goals 
  • Challenges 
  • Opportunities 
  • Industry dynamics 

All of this plays a critical role in developing the most robust and targeted financial models that provide the most accurate and relevant conclusions.

Selecting the Right Financial Modeling Tools 

Another critical factor in building useful models and helping clients with them is using the right tools. Don't skimp and try to use spreadsheets or other low-tech solutions. Invest in specialized modeling software designed just for this purpose.  

These come with pre-built templates and help ensure both consistency and efficiency in model-making. The costs are typically modest compared to the benefits this modeling software provides. 

Building Financial Models 

Here's where the rubber truly meets the road for financial modeling: building the models themselves! It's a straightforward, step-by-step process that can apply to almost any business or industry. 

1. Data Collection

First, you'll need to pull together the relevant information about the client's business. They may be surprised at the incredibly useful data that's already being collected by normal business processes. This can include everything from obvious factors like revenue, number of clients, order size, and the flow of inventory to other more specific items related to their particular company or the goals they've set.  

It can be helpful to centralize all of this information in one place, such as accounting or financial software designed specifically for this purpose. This data is invaluable in revealing opportunities and potential shortcomings as well as telling the story of their business. 

2. Assumptions and Variables

Every model relies on assumptions and variables that do their best to anticipate future business conditions and other factors. Once again, these can span a wide range, including things related to a specific business, like the prices of goods or labor, to economy-wide or market-wide issues like interest rates and overall economic conditions.  

It's crucial to identify the most critical variables and ensure that any assumptions built into the model are justified and reasonable. 

3. Financial Statements

Integrate the essential financial information about the client's business into the model. This should include data from income statements like: 

  • Revenue 
  • Expenses 
  • Margins 
  • Net profit or loss 

The best models also use information from cash flow statements, such as the: 

  • Exact nature of cash flow 
  • Where it's heading 
  • Timing 

Don't forget the organization's balance sheet, which provides critical model data on: 

  • Assets 
  • Liabilities 
  • Owners'/shareholders' equity

4. Scenario Analysis

Each model shouldn't provide just a single output or projection. Instead, it should utilize the principles of scenario analysis to provide a more comprehensive picture of a client's potential financial outcomes.  

These could include negative scenarios like a recession or loss of business, positive ones like a big new contract or productivity gains, or a variety of other neutral or case-specific situations. 

Communicating Financial Modeling Results 

It's not enough to just do the modeling. The best financial and accounting advisors are also skilled communicators who can convey their findings clearly to clients. This involves translating sometimes complex topics and conclusions into plain language, focusing on the real impacts on a client's business.  

It's equally important that you also communicate the limits of modeling and the assumptions behind it. Understanding that your model isn't magic and how unexpected conditions or events can cause a divergence from the predicted results is crucial to developing a trusting, long-term relationship with clients.  

In general, your goal should always be to have your client leave with more answers than questions and a clear idea about what your financial models suggest about the path forward for their business. 

Successful Financial Modeling is an Ongoing Process 

Financial modeling isn't one-and-done. Over time, the best advisors will reassess the model determinations and variables and tweak them to improve the model further.  

Throughout the process, actively reach out to clients for feedback to find out what they liked and didn't like, as well as what they found most helpful. Be proactive in improving your models. After all, your hard work will be reflected in your client's success! 


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Topics: Financial Advisory


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