One of the most efficient ways to build a financial model is by first looking at a suitable example model template (mostly in Excel) as obviously, one can save significant time by using an already defined model structure without having to reinvent the wheel from scratch.
Purpose of a Financial model
Lets shortly review the purpose of preparing financial models for businesses. Normally the reasons to build a financial model are among the following:
- Financial planning
- Preparing a 5 year business plan
- Supporting a bank loan application
- Raising financing (equity, debt, mezzanine, etc.)
- Company valuation used for M&A transaction, stock option plans,
- Consolidation – to simulate how the addition of different businesses look like
- Scenario and sensitivity analysis
- Breakeven analysis
Financial models thus try to answer important financial questions for businesses and investors about the expected financial performance of a business. Thus it’s very likely that most companies will have to prepare a variety of financial models at some point in time in order to answer different financial questions. Financial modeling can be quite time-consuming. Thus rather than having to start from scratch, using a suitable example template may offer a better alternative to building a financial model.
Selection of Example Models
There are a variety of example models available, however the key is to choose which one is easy to use and minimizes the time required to adjust it. So when choosing the right example model it pays off to consider the following:
- File format (Excel is the standard here)
- Objective of the model
- All formulas need to be disclosed (no black boxes)
- Clear model structure and logic
- Clear separation of input and output
- Proper layout and formatting
The prediction capability of a financial model increases, the more industry expertise, is built in it. Each industry has its own value drivers, e.g. for Software as a Service (SaaS) businesses monthly subscribers, churn rate, new additions, subscription rates, etc., which should be built into the model’s assumption in order to make the model more powerful. Thus using example models which already contain the industry logic and focus on key assumptions of relevance to revenues and costs within that industry should be considered first.
How to use Example Model Templates
There are basically two ways to use example model templates
- Adjust the model
- Rebuild the model
Option 1 will mostly be used if you need a quick solution and your business case can be easily implemented in the model without having to change the structure too much. This is the quickest way to build a financial model. However, in case the model is very complex, it can be very hard to understand. Thus the easier way might actually be to rebuild it (Option 2) and use the example model template just as a roadmap to follow.
Option 2 takes a bit longer to implement as basically, you will still have to build your own financial model from scratch. However it can be very time-consuming to draw the model structure so by following the proposed structure in the financial model template and look up certain formulas, one can save significant time and effort and accelerate the learning process.
Example Financial Model Templates
eFinancialmodels.com offers industry specific example financial models. Find below a selection of example financial model templates in MS Excel which can serve as a starting point for financial modeling purposes. Components of the different models could also be combined in case the focus needs to change (e.g. from valuation to leveraged buyout analysis, or from NPV to IRR analysis).
- SaaS Financial Valuation Model Template
- eCommerce Financial Valuation Model Template
- SEO Online Marketing Campaign Model Template
- Paid Online Advertising Model Template
- DCF Valuation Model Template
- IRR Project Finance Model Template
- Dairy Farm Financial Model Template
- Wind Energy Financial Model Template
- Solar Energy Financial Model Template
- Biogas Financial Model Template
- Real Estate – Gated Community Developer Financial Model Template
- Real Estate – Property Flipping Financial Model Template
- Rental Property Financial Model Template
- Discount Rate Estimation (WACC) Model
- Debt Amortization Table
- Private Equity Leveraged Buyout Model Template