Do you already have your financial model?

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What Is Financial Modeling?

Financial modeling is a tool for determining likely financial outcomes based on a company’s historical performance and assumptions about future revenue, expenses and other variables. Financial modeling relies on financial forecasts: It takes a forecast’s assumptions and plays them out using a company’s financial statements to show how those statements may look in the future. Because models are created from financial statements, they most often generate results for a month, quarter or year.

Most financial models are constructed in an Excel spreadsheet and require manual data entry. One of the simplest types, known as the three-statement model, only requires an income statement, balance sheet, cash flow statement and supporting schedules. However, the uses for models vary greatly, so some are much more complex. Businesses routinely customize models for their own purposes.

There is software that allows users to optimize forecasting estimates with a rigorous, pre-built statistical modeling engine. With a few clicks, predictive modeling will collect historical data, match it to industry standard statistical models and generate a dashboard, offering predictions for future financial results and enabling users to apply predicted values directly into their plan or forecast. This software can integrate with spreadsheet tools like Excel so you can slice and dice data yourself. It can also run your historical data through pre-built models on its own, to generate financial predictions without your input.

What Is a Financial Model Used for?

Financial models are useful for many applications. Businesses commonly use them for:

• Valuations and raising capital. If you’re aiming to go public, for example, bankers will run financial models to determine how much the company is worth. You might also need to provide models in order to get venture capital funding, loans or other types of financing.
• Budgeting and forecasting. Budget and forecasting models help finance understand the company’s performance based on input from its various components. As each program, department and business unit creates its own budget, they can then roll them up into a single overall financial model for the entire business to be used to allocate resources and predict financial results for the coming year.
• Measuring possible outcomes of management decisions. You might use a financial model to predict changes in revenue if you were to, say, raise the price of your top-selling product next year.
• Credit analysis. Investors will use financial models to determine the likelihood of your business repaying its debts, if they are to lend you funds.

Why Are Financial Models Important?

Financial models are the simplest way to compute performance and express projected outcomes for your company. Depending on the specific model, they can advise you regarding the grade of risk associated with implementing certain decisions. Financial models can also be used to devise an effective financial statement that reflects the finances and operations of company. This is important for pitching investors, securing loans or calculating insurance needs. The applications are virtually limitless, but the basic idea is that they help you understand where your company stands now, how it has performed historically and what to expect in the future.

Who Uses Financial Models?

Anyone with an interest in the financial performance and outlook of a company could use a financial model, and there are courses for developing the skill. However, professionals in business development, accounting, financial planning and analysis (FP&A), equity research, private equity and investment banking frequently develop models in the course of their usual duties. Each of these analysts use different types of models depending on the focus of their business.

Source: netsuite

Alfredo Gaxiola has worked on numerous IRS problem cases and has successfully settled with the IRS to release liens on houses, bank accounts and wages and, if needed, setting a payment installment plan that is not burdensome for the client. He has conducted appeals before the U.S. Tax Court and obtained favorable resolutions in reducing the tax debt of his clients. Mr. Gaxiola served as Treasurer of Camara de Empresarios Latinos, one of the largest and strongest Hispanic organizations in the city of Houston. He has conducted financial and accounting seminars for the Houston Small Business Development Corporation, as well.

Quarterly & Monthly Filings in Houston

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