Financial Models Cheat Sheet

Financial modeling cheat codes I wish I knew when I started out:

1. Start with the basics, not the complex stuff → Less is more.→ Focus on the most important metrics, like revenue and expenses.

2. Use a time period that fits your stage → 3 years is optimal for most early-stage companies.→ Don’t go over 5 years unless you’re dealing with M&A or enterprise-level planning.

3. Driver-based models are your best friend → Predicting revenue?→ Use a driver-based model linked to your marketing, sales, and customer data.→ Don’t rely on growth-based assumptions.

4. Keep your assumptions realistic → The quality of your financial model is directly tied to the quality of your assumptions.→ Be honest with yourself and your investors.

5. Make your model playable and update it often → A financial model isn’t a “set it and forget it” tool.→ Test your assumptions, update the data regularly, and keep it flexible.

6. Don’t download complex templates you don’t understand → Templates can be helpful, but only if you know how to use them.→ Start with a simple cash flow model if you’re new to financial modeling.

7. Use the right visual aids → Bar charts and graphs are great for spotting trends and errors.→ Don’t ignore your historical data—use it to inform your future projections.

8. Tie your model to real business drivers → Connect expenses with revenue growth.→ Ensure that your model reflects the realities of your business operations.

9. Don’t overcomplicate things → More variables don’t necessarily mean a better model.→ Focus on what’s truly important for your business’s financial health.

10. Consistency in updates is key → Keep your model current by regularly adding new data.→ The more accurate your model, the better decisions you can make.

Those are my “cheat codes” for mastering financial models, but what would you add?

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