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The importance of good financial modelling habits
There’s usually an 80:20 rule operating in financial modelling, where focusing on 20% of the possible content gets you 80% of the way to a sound result. In your financial modelling, you should be:
- careful to isolate your assumptions clearly by separating them out, collecting them up in one area in your model and shading them with their own fill colour
- obsessive about asking whether there’s a shorter, neater and better way, instead of stepping back proudly from that multiple embedded “IF”
- conscious of logic flow in your model – left to right, top to bottom, like a book
- rigorous in linking up your financial statements together properly, with a check on the Balance Sheet and no cheating.
Beyond that, much of good financial modelling comes down to following best practice ideas consistently and with a dose of common sense. In other words:
Do |
Don’t |
Keep it simple |
Give too much detail or none at all |
Make a plan right from the start |
Neglect to get your model reviewed by someone else as you go |
Use colour and formats cleverly and sparingly |
Hard-wire assumptions into formulas |
Use short formulas that can be filled from left to right |
Change formulas to be different to their neighbours |
Be aware of logic flow, like a book |
Let your model become circular |
Be conscious of model size and calculation load |
Use macros or VBA code to do things that Excel could do |
Create a summary dashboard for the most important results |
Add ten more graphs to your model for the sake of it |
For a bit of bedtime reading around good financial modelling practices, the Institute of Chartered Accountants in England and Wales (ICAEW) has published a great guide that you could start with.
To talk more about your financial modelling challenges, contact Rob Bayliss.

Financial modelling and valuations
Understanding your businesses value through financial modelling and valuation is key to unlocking your growth potential.