See below for our 8 top picks of smart financial modelling guidelines to live by
1- Ownership & Protection
In order to minimise risk and error it’s important that only one analyst builds and owns the model. Make sure that all old model versions are saved in a separate folder, these act as a back-up. If you password protect your cells containing formulas this will help to minimise end-user errors.
In the set-up of your workbooks make sure that you avoid having multiple workbooks where possible. All references to external links should be clearly identified and imported to an “input sheet”. Once this is complete reference as required.
Setting up your work books correctly is important in order to provide more transparency.
One of the best ways to structure your financial modelling workbooks is to set up your menu, inputs, calculations and outputs &reports in that order. In your menu make sure there are hyperlinks to all relevant sheets. For your inputs make sure that you clearly identify your cells for data entry. Your calculations are the engine room of the model and should be protected. Finally set up your outputs and reports.
When setting up your inputs it’s important to make sure that they are separated from your calculations. This way users know exactly where they need to enter data. It also reduces the likelihood of a user inadvertently tampering with calculations. When inputting data it’s also important to make sure that you only input the data once and then always refer back to this cell. Therefore, future changes to this input only have to be updated once and this in turn avoids potential inconsistencies.
When formatting your work books make sure that you are consistent in your formatting. This makes it easier for co-workers to get a handle on a new model if they are familiar with the formatting.
Consistent color coding and formatting of inputs is also a must.
When it comes to calculations there are a number of things to keep in mind. Have a look at our list below:
- Simple is best - Always opt for formulas over VBA where possible - Aim to have one consistent formula on each row or column - Keep column and row headings consistent - Test your calculations as you build, add error checks - Limit the use of modelling tools such as spinners as they introduce an extra layer of complexity
For your outputs, we recommend one summary sheet displaying all key results and metrics. You can always add additional reports, charts and dashboards to suit business needs.
Models should be logical and self-explanatory but may require supporting documentation. Make use of comments and add user guidelines where necessary for more complex calculations.
Take a look at out Specialist Microsoft Excel Financial Modelling course to learn more skills.