The creation of a best practice financial model can be both time-consuming and immensely challenging. Although it is important to create a credible forecast or plan, the financial modeler must ensure the financial model is correct and not out of balance. There are some basic things to always consider when composing a financial model for a client or internal purposes.

There is a lot discussed about the importance of best practice financial modelling. However financial professionals need to be aware of what constitutes the opposite; a worst practice financial model and how it can be transformed into one that is deemed best practice.

Arguably the biggest driver of business cost, it is the type of risk caused by human error in financial spreadsheets. There are many ways financial modellers can undermine the accuracy and credibility of a financial model.

There is a myriad of tangible and intangible features, which make up a best practice financial model. Whilst the tangible elements are self-evident, such as the workbook structure, cosmetic presentation and model infrastructure flexibility. The key intangible aspects are less evident.

The annual strategic planning “season” in a company ushers in an extensive focus on crafting and crystal balling a company’s future financial direction. However the Plan’s intrinsic value and application for a company can be destroyed if the underlying assumptions are totally incorrect.

It is clear the abundant functionality of a spreadsheet delivers immense flexibility to a financial professional in many pursuits; strategic planning, investor pitchbook presentations, project or investment finance and financial reporting. These various disciplines of financial modelling can leverage the following techniques, which can greatly improve the corporate governance credentials of a best practice financial model.