Financial modeling Excel spreadsheets provide useful information to many businesses.

The types of financial modeling available range in complexity. Simple models might include an order and invoice automating system that tracks various key performance indicators. Much more complex models include a fully integrated, dynamic forecasting finance model. The complex models show profit & loss, cash flow, and balance sheet projections.

To many small business owners, these can be unfamiliar and somewhat confusing terms. Microsoft Excel consultants can help businesses develop their financial models. But you need to be clear about what financial models are and how they can help your company prosper and grow.

Commonly, businesses perform financial modeling in Excel.

Companies like https://www.cyberjaz.net/it-consulting/ can ensure all of your software is set-up so that this process is as seamless as possible. So, given all the jargon surrounding the subject, what actually is financial modeling?  Financial modeling is the process of predicting future financial numbers by building a financial representation of some, or all, aspects of the business. The model is based on the company’s past and current performance. Additionally, with the help of Excel consultants, it should be a model that best serves the business’s specific interests.

Financial modeling Excel spreadsheets will, therefore, be unique to each different company. This goes for even very similar companies within the same business sector. You create Excel financial modeling using your own records. Records such as sales volumes, sales growth, fixed costs like rent or salaries, variable costs including materials or transport and production costs. After entering these into the Excel workbooks storing the model, the links between them need to be programmed using Excel’s formula and other advanced functions such as macros.

This is one of the key areas where consultants knowledgeable and experienced in building Excel financing models have an important input.

After completing this, the model undergoes testing to make sure that the calculations give correct, sensible answers. Ways of displaying the most important information and key performance indicators (https://www.investopedia.com/terms/k/kpi.asp) are developed by collaboration between the business and the consultants. These graphical representations including graphs, charts, and headline numbers. These display together on one screen called an Excel dashboard. This can be “live,” meaning it updates automatically as new information is added.

With all these steps complete, you have now created an accurate financial model Excel workbook or spreadsheets showing the current financial state of your business.

This gives you a number of valuable insights into the profitability of different parts of your business. For example, in a hotel business, you could see how profitable the bar is. Or how much the restaurant is contributing to your bottom line. This information guides your working practices. It indicates where you might need to make changes to staffing, purchasing, or pricing strategy to improve your profits or productivity. In other words, the model provides financial information you can use to inform your business decision-making.

However, the real power of using financial modeling on Excel is in predicting and forecasting future financial scenarios.

You can change details within the financial model without any risk to your business. This allows you to see how this affects your future profitability. For example, what effect an interest rate rise or fall might have on your cash flow. Or what might happen if the costs of your raw materials rise. Even what the effect of increasing the minimum wage could be.

Knowing the likely outcomes of these and other events is a great thing. You can develop strategic planning to ensure your business continues to grow and prosper when the unexpected happens. Remember: “Forewarned is forearmed.”