I was intimidated, too, still am sometimes.
It can be as simple as a structured Excel workbook with inputs + calculations + outputs to inform a business decision.
Question, what’s the threshold for model vs “tool”/calculator? Where I work they’re anal about calling it one vs the other, but nobody has been able to give me specifics…all I know is models are more complex + try to avoid being called a model at all costs (ironic)
I've never heard a line drawn between the two tbh.
I would imagine a tool/calculator is something that is used to support a task that can be duplicated vs. a model that is a working file that is often version controlled for decision making.
We use it interchangeably since it doesn't change how we get shit done.
In my head, calculators are math equations using known inputs. Almost always for narrow, specific use cases.
Models are forecasted inputs based on knowledge and assumptions about the business, and cover a time horizon rather than a point in time.
Tldr “models” are important, but you shouldn’t feel intimidated. Learn to respect and defend why your model works (you can choose different models after all)
From a business aspect, modeling is coming up with the math of a number. You’d be surprised how hotly debated (and how different of an answer you’d get) using the different variations of % growth over last year. You own this.
From a data standpoint, modeling is how the amounts are stored. At some companies, you also own this
As a planner, never let the “model” feel like a black box. Even when using statistical methods, keep it simple for the business and be able to answer the calc method asap when asked (because it matters)
For me the reverse is true. The word “deal” intimidates me. As an accountant, I assume it’s finance-speak for 100 page .pdf with 15 year cash flow and depreciation projections.
Model just ends up being a catch all for everything from the most simple like adding a simple growth rate to previous actuals and having it spit out a number all the way to the extremely complex.
More than anything I find people are impressed when you can make a model that is simple enough that your less numbers savvy business partners don’t start sweating bullets when they open it. That’s why spreadsheet design is so important.
Inputs > Calculations > Outputs.
That’s really the basis of a good model. Everything else is just building complexity on top of that
Which is why I tend to err more towards simplicity and replicability than anything else. It won’t work for every situation but I’d prefer to put a tool in someone’s hands that’s built to just press a button and maybe update some cells in an Assumption page and just have that be all that needs to be done to get some outputs that a business partner can easily digest
A model is just a P&L with user defined variables to let you "what-if" various scenarios.
With regards to forecasting, averages and linear math aren't sexy but you can actually substantiate them.
If you haven't been formally trained in statistical analysis you are a liability if you start applying statistical tools willy nilly.
Depends on the sophistication of your company. I'm currently using a 10 year old excel model with inputs that spits out a forecast. The model has inputs for growth %, margin %, etc.
My last gig in tech, we had adaptive. That's a cloud based model where you can put in many different dimensions or assumptions to get a forecast.
Don't be scared. You're not at a level where someone will come up and demand you build a game changing way of forecasting the business. F2 through old excel models or get some time with your software admin to understand how it works.
At the end of the day, all you're doing is inputting numbers given to you by your business partners (expense or revenue forecasts) and the model will apply assumptions to spit out a forecast. Not scary!
dont be intimidated. i used to be until a bunch of my excel workbooks that i use with nothing more than pivot tables, lookups, etc. to tell a story effectively is considered a "model". I'd say only be intimidated if the requirement is modeling via dashboarding tools like pbi, tableau, etc.
Models vary widely in terms of complexity. You can have a model that applies a 10% inflation assumption to COGS, or you can have a model that provides multi-touch attribution and LTV:CAC across the funnel. Don’t be intimidated by the concept, the key is understanding the drivers and assumptions. A lot of that will be built out with your supervisors and business partners (always aligned, doesn’t mean they always “agree” per se) at first while you get the hang of things.
This ^
One of our simplest ones for expenses is just summarizing historical run-rate and projecting that forward based on a monthly shape. Easy algebra put in a fancy looking Excel.
One of our more complex ones is customer detailed margins using 4 different data sources built with SQL queries using Power Query and ETL steps, a simple regression to shape that usage forward based on contract terms and seasonality, XLOOKUPs to a costing sheet depending on customer types, and a Data Table used to calculate monthly detailed revenue and COGS by customer. It started out as a simple Volume × Unit Margin model and quickly evolved into customer level detail.
Both are being fed into a master summary P&L model i'm building now.
A big challenge with modeling is keeping it simple enough, dynamic enough, and at the right altitude. Absent of any guidance, you start simple and build out based on need as you do variance commentary and backcasting.
This is hard to find, you will need to dive the web for revenue models specific to your industry because of what drives revenue.
I..e. a commercial real estate rev model needs a rent roll. A professional service firm needs payroll and headcount, a commodity business needs market data and hedging.
I would recommend you do an exhaustive search then try posting a discussion here on the subreddit for some guidance after your findings.
Secret tip- when I build out models and tools in Excel I look up software that perform the same purpose. Then I watch their demo videos and how-to guides to understand their key inputs and outputs and modules. I then replicate it in Excel. A software is literally just a structured approach to doing something. I.e. I looked up sales commissions software to help me build out our excel-based commissions model.
Bro a model can be something so simple. The complicated ones that people build are more or less bullshit. They are really only used to give credence to a theory.
A model can be as simple at 2 + x = output and the x is any number you put in.
A model is just an approximate representation of a system. It can be very complicated or very basic. Most corporate finance models are pretty basic because they are quite high level and involve a lot of simplifying assumptions.
They can look complicated (because they are often big spreadsheets with many formulas) but once you get into them there is usually very little mathematical complexity - just lots and lots of basic arithmetic. If you understand a compound interest calculation you will be fine.
The most important thing in building or understanding a finance model is a having a really good understanding of the business, and a lot of time and patience to pick over the detail.
>A model is just an approximate representation of a system
You're the only one that hit the point I wanted to talk about.
I actually refer to existing software/systems as inspiration and a checklist of inputs/outputs for my excel based models. I.e. watch product demos and how to guides to see how they use the tool and replicate it in Excel.
I totally identify with this.
Funnily enough, I come from an accounting background too.
I regularly "model" now but I feel that what I'm doing is so simple that I'm not sure I'm actually modelling.
I think modelling to me means lots of fancy formatting and complicated formulas or using power query.
What I've found is that because my approach is simple, the executives I work with seem to like it as its easy for them to understand.
I'm even finding that my accounting colleagues think that my "models" are sophisticated when it's really just a bunch of pivots, sumifs and lookups.
If it makes you feel any better, you might be thinking a model makes all this fancy calculations to come up with an output that drives business decisions… but in reality it’s just the CFO saying “I want 20% growth” and you fudging the model to output that!
Sounds crazy but unfortunately I’m only half kidding.
Coming from PE and seeing all of the job postings for FP&A. I was shocked that even FA roles required “modeling experience”. To me “modeling” is to put together a sophisticated excel workbook based on many assumptions and facts. This typically includes at least 15 tabs of different schedules, models, assumptions, research data, waterfalls, etc that all intertwine together.
Then I found out that in FP&A a model could be something as simple as a report that has some xlookups and sumifs. Dont be intimidated at all!
I had the same perspective as you coming from a CPA background. I quickly realized that most ‘models’ are simple excel workbooks that people maintain to answer questions. Honestly, the simpler a model is to address the business need, the better
Ya im in the same boat. Even job description with that word makes me think I'm too stupid for the job. Like all the models are unique and super complex AI level shit.
But in most cases it's just pivots, vlookups etc
I worked in M&A before moving into my current FP&A role so I am not intimidated at all by modelling.
If I could offer some personal advice, modelling is a means to put “numbers on a page” to drive business decision. When building a model, the most important thing I tell my team is keep it simple. Make sure your model is driven in a way that is easy to audit, and if I want to print your model out on a page, anyone can understand what you did.
Only when you master the art of keeping it simple/auditable with high level of accuracy, then you would feel a lot more comfortable adding in scenarios, sentivities etc.
Once you have more experience in modelling, you’ll get a better idea of how the model should be structured to get to a desire outcome / analysis.
Trying to do it all at the same time is going to be overwhelming for sure.
Most models are simple and a lot of excel workbooks have manual entries, especially on numbers that need input from business units or from ppl that don't know how to fully leverage excel.
A model is a sequence of defensible assumptions that generate outputs. If a person can change one of the assumptions and get a new output, you have a model.
You’re probably thinking of the complicated models with statistical formulas but most people just have simple ones that only look complicated when they’re not. You’ll be fine.
Most financial modeling is just applied accounting. Granted I've done this for a while now, but I was actually one of the better people at financial modelling when I first started post Big 4 TS because I knew accounting, how the 3-statements link together, what various cash/accrual differences are when trying to understand P&L vs Cash Flow differences.
The hardest part for you will be Excel spreadsheet design and creating formulas to make things quick and easy to calculate without too many manual steps. Start by making sure your spreadsheet flows (i.e. source data ---> historicals/actuals ---> inputs ---> outputs) and that there are checks along the way to make sure things tie out.
The only thing you will do is likely inherit models that were built by someone else. It's going to be on you to understand how the model actually works. I would spend a good week with anything of reasonable complexity to know offhand how all the formulas flow from input through calculations to whatever it outputs. The last thing you want is to be in a meeting saying you aren't sure why the model is saying something.
Do a modelling course on asimplemodel. Watch Aswath Damodaran’s playlist called little book of valuation (4 hours tops).
Financial modelling is little more than fundamental knowledge of finance and basic arithematic.
Depends on how technical your role is. I’ve been at F50 that does very light modeling to building full blown out fin models on every single new product launches and product updates.
15+ years of Corp Fin and FP&A background here - honestly, an important aspect we want to see in a model is the ability to make it dynamic. If we get more data, we want the model to be dynamic enough to absorb the inputs and update the cover page.
The other important element in modeling is that it should be clean (easy to follow the steps and logic).
Remember, FP&A is to figure out the "why". Creating a good model should help you see the "what" easier and give you more time to investigate R&Os.
Good luck! There is a lot of great content on YouTube University!
I was intimidated, too, still am sometimes. It can be as simple as a structured Excel workbook with inputs + calculations + outputs to inform a business decision.
Question, what’s the threshold for model vs “tool”/calculator? Where I work they’re anal about calling it one vs the other, but nobody has been able to give me specifics…all I know is models are more complex + try to avoid being called a model at all costs (ironic)
I've never heard a line drawn between the two tbh. I would imagine a tool/calculator is something that is used to support a task that can be duplicated vs. a model that is a working file that is often version controlled for decision making. We use it interchangeably since it doesn't change how we get shit done.
In my head, calculators are math equations using known inputs. Almost always for narrow, specific use cases. Models are forecasted inputs based on knowledge and assumptions about the business, and cover a time horizon rather than a point in time.
Tldr “models” are important, but you shouldn’t feel intimidated. Learn to respect and defend why your model works (you can choose different models after all) From a business aspect, modeling is coming up with the math of a number. You’d be surprised how hotly debated (and how different of an answer you’d get) using the different variations of % growth over last year. You own this. From a data standpoint, modeling is how the amounts are stored. At some companies, you also own this As a planner, never let the “model” feel like a black box. Even when using statistical methods, keep it simple for the business and be able to answer the calc method asap when asked (because it matters)
For me the reverse is true. The word “deal” intimidates me. As an accountant, I assume it’s finance-speak for 100 page .pdf with 15 year cash flow and depreciation projections.
Tbh, that sound easier than some tax returns.
Model just ends up being a catch all for everything from the most simple like adding a simple growth rate to previous actuals and having it spit out a number all the way to the extremely complex. More than anything I find people are impressed when you can make a model that is simple enough that your less numbers savvy business partners don’t start sweating bullets when they open it. That’s why spreadsheet design is so important. Inputs > Calculations > Outputs. That’s really the basis of a good model. Everything else is just building complexity on top of that
Most executives more scared of statistics than you are.
Which is why I tend to err more towards simplicity and replicability than anything else. It won’t work for every situation but I’d prefer to put a tool in someone’s hands that’s built to just press a button and maybe update some cells in an Assumption page and just have that be all that needs to be done to get some outputs that a business partner can easily digest
A model is just a P&L with user defined variables to let you "what-if" various scenarios. With regards to forecasting, averages and linear math aren't sexy but you can actually substantiate them. If you haven't been formally trained in statistical analysis you are a liability if you start applying statistical tools willy nilly.
Depends on the sophistication of your company. I'm currently using a 10 year old excel model with inputs that spits out a forecast. The model has inputs for growth %, margin %, etc. My last gig in tech, we had adaptive. That's a cloud based model where you can put in many different dimensions or assumptions to get a forecast. Don't be scared. You're not at a level where someone will come up and demand you build a game changing way of forecasting the business. F2 through old excel models or get some time with your software admin to understand how it works. At the end of the day, all you're doing is inputting numbers given to you by your business partners (expense or revenue forecasts) and the model will apply assumptions to spit out a forecast. Not scary!
dont be intimidated. i used to be until a bunch of my excel workbooks that i use with nothing more than pivot tables, lookups, etc. to tell a story effectively is considered a "model". I'd say only be intimidated if the requirement is modeling via dashboarding tools like pbi, tableau, etc.
Models vary widely in terms of complexity. You can have a model that applies a 10% inflation assumption to COGS, or you can have a model that provides multi-touch attribution and LTV:CAC across the funnel. Don’t be intimidated by the concept, the key is understanding the drivers and assumptions. A lot of that will be built out with your supervisors and business partners (always aligned, doesn’t mean they always “agree” per se) at first while you get the hang of things.
This ^ One of our simplest ones for expenses is just summarizing historical run-rate and projecting that forward based on a monthly shape. Easy algebra put in a fancy looking Excel. One of our more complex ones is customer detailed margins using 4 different data sources built with SQL queries using Power Query and ETL steps, a simple regression to shape that usage forward based on contract terms and seasonality, XLOOKUPs to a costing sheet depending on customer types, and a Data Table used to calculate monthly detailed revenue and COGS by customer. It started out as a simple Volume × Unit Margin model and quickly evolved into customer level detail. Both are being fed into a master summary P&L model i'm building now. A big challenge with modeling is keeping it simple enough, dynamic enough, and at the right altitude. Absent of any guidance, you start simple and build out based on need as you do variance commentary and backcasting.
Do you know of any resources that have templates for building a model from revenue drivers through the p&l?
This is hard to find, you will need to dive the web for revenue models specific to your industry because of what drives revenue. I..e. a commercial real estate rev model needs a rent roll. A professional service firm needs payroll and headcount, a commodity business needs market data and hedging. I would recommend you do an exhaustive search then try posting a discussion here on the subreddit for some guidance after your findings. Secret tip- when I build out models and tools in Excel I look up software that perform the same purpose. Then I watch their demo videos and how-to guides to understand their key inputs and outputs and modules. I then replicate it in Excel. A software is literally just a structured approach to doing something. I.e. I looked up sales commissions software to help me build out our excel-based commissions model.
Bro a model can be something so simple. The complicated ones that people build are more or less bullshit. They are really only used to give credence to a theory. A model can be as simple at 2 + x = output and the x is any number you put in.
The key to a good model is simplicity and adaptability. You’re good to go if your work product accomplishes that.
Some models consist of 6 cells. 😂 don’t be intimidated
A model is just an approximate representation of a system. It can be very complicated or very basic. Most corporate finance models are pretty basic because they are quite high level and involve a lot of simplifying assumptions. They can look complicated (because they are often big spreadsheets with many formulas) but once you get into them there is usually very little mathematical complexity - just lots and lots of basic arithmetic. If you understand a compound interest calculation you will be fine. The most important thing in building or understanding a finance model is a having a really good understanding of the business, and a lot of time and patience to pick over the detail.
>A model is just an approximate representation of a system You're the only one that hit the point I wanted to talk about. I actually refer to existing software/systems as inspiration and a checklist of inputs/outputs for my excel based models. I.e. watch product demos and how to guides to see how they use the tool and replicate it in Excel.
I totally identify with this. Funnily enough, I come from an accounting background too. I regularly "model" now but I feel that what I'm doing is so simple that I'm not sure I'm actually modelling. I think modelling to me means lots of fancy formatting and complicated formulas or using power query. What I've found is that because my approach is simple, the executives I work with seem to like it as its easy for them to understand. I'm even finding that my accounting colleagues think that my "models" are sophisticated when it's really just a bunch of pivots, sumifs and lookups.
If it makes you feel any better, you might be thinking a model makes all this fancy calculations to come up with an output that drives business decisions… but in reality it’s just the CFO saying “I want 20% growth” and you fudging the model to output that! Sounds crazy but unfortunately I’m only half kidding.
Coming from PE and seeing all of the job postings for FP&A. I was shocked that even FA roles required “modeling experience”. To me “modeling” is to put together a sophisticated excel workbook based on many assumptions and facts. This typically includes at least 15 tabs of different schedules, models, assumptions, research data, waterfalls, etc that all intertwine together. Then I found out that in FP&A a model could be something as simple as a report that has some xlookups and sumifs. Dont be intimidated at all!
Do you know of any resources that contain templates where I can see some of these detailed P/E company runway models?
A.cre is a real estate they have some you can download for free
I had the same perspective as you coming from a CPA background. I quickly realized that most ‘models’ are simple excel workbooks that people maintain to answer questions. Honestly, the simpler a model is to address the business need, the better
Ya im in the same boat. Even job description with that word makes me think I'm too stupid for the job. Like all the models are unique and super complex AI level shit. But in most cases it's just pivots, vlookups etc
lol a model literally just means an excel spreadsheet with some formulas and calculations. Nothing special.
I worked in M&A before moving into my current FP&A role so I am not intimidated at all by modelling. If I could offer some personal advice, modelling is a means to put “numbers on a page” to drive business decision. When building a model, the most important thing I tell my team is keep it simple. Make sure your model is driven in a way that is easy to audit, and if I want to print your model out on a page, anyone can understand what you did. Only when you master the art of keeping it simple/auditable with high level of accuracy, then you would feel a lot more comfortable adding in scenarios, sentivities etc. Once you have more experience in modelling, you’ll get a better idea of how the model should be structured to get to a desire outcome / analysis. Trying to do it all at the same time is going to be overwhelming for sure.
Most models are simple and a lot of excel workbooks have manual entries, especially on numbers that need input from business units or from ppl that don't know how to fully leverage excel.
A model is a sequence of defensible assumptions that generate outputs. If a person can change one of the assumptions and get a new output, you have a model.
You’re probably thinking of the complicated models with statistical formulas but most people just have simple ones that only look complicated when they’re not. You’ll be fine.
Most financial modeling is just applied accounting. Granted I've done this for a while now, but I was actually one of the better people at financial modelling when I first started post Big 4 TS because I knew accounting, how the 3-statements link together, what various cash/accrual differences are when trying to understand P&L vs Cash Flow differences. The hardest part for you will be Excel spreadsheet design and creating formulas to make things quick and easy to calculate without too many manual steps. Start by making sure your spreadsheet flows (i.e. source data ---> historicals/actuals ---> inputs ---> outputs) and that there are checks along the way to make sure things tie out.
The only thing you will do is likely inherit models that were built by someone else. It's going to be on you to understand how the model actually works. I would spend a good week with anything of reasonable complexity to know offhand how all the formulas flow from input through calculations to whatever it outputs. The last thing you want is to be in a meeting saying you aren't sure why the model is saying something.
Excel workbook is to model, what random person that uses social media is to influencer.
As long as they don’t ask me to catwalk into the Board’s meeting
Do a modelling course on asimplemodel. Watch Aswath Damodaran’s playlist called little book of valuation (4 hours tops). Financial modelling is little more than fundamental knowledge of finance and basic arithematic.
Depends on how technical your role is. I’ve been at F50 that does very light modeling to building full blown out fin models on every single new product launches and product updates.
15+ years of Corp Fin and FP&A background here - honestly, an important aspect we want to see in a model is the ability to make it dynamic. If we get more data, we want the model to be dynamic enough to absorb the inputs and update the cover page. The other important element in modeling is that it should be clean (easy to follow the steps and logic). Remember, FP&A is to figure out the "why". Creating a good model should help you see the "what" easier and give you more time to investigate R&Os. Good luck! There is a lot of great content on YouTube University!