Financial modelling
Financial modelling is the representation of a company's economic development in a calculation model. An integrated model links the profit and loss account, balance sheet and cash flow so that assumptions can be changed and all three statements stay consistent.
What makes a model integrated
The linkage is what matters: a change in the revenue assumption flows automatically into receivables, working capital, liquidity and the balance sheet. Models in which the three statements sit side by side look like financial planning but fail to answer the most important question – when the cash runs out.
What companies use models for
Funding rounds and bank discussions, internal budgeting, scenarios ahead of major decisions such as hiring or market entry, and ongoing liquidity management. In the early stage the model is also the instrument founders use to test their own business model.
Build principles
Assumptions belong in one place and are never hidden inside formulas. Drivers are modelled where they arise – revenue from volume and price, personnel cost from a headcount plan with start dates. The model should calculate monthly, at least 18 to 24 months forward, and hold historical actuals in the same structure.
Common mistakes
Revenue growth as a percentage with no driver behind it, no link to the balance sheet, personnel cost as a single line, no scenario beside the base case, and a level of detail nobody can maintain. A model that stops being updated after three months has missed its purpose.
Scenarios rather than point forecasts
A single number for the future is always wrong. Three cases are useful: a base case, a cautious case with slower growth and higher cost, and an upside. For steering, the cautious case usually matters most, because it answers how long the cash lasts.