A Balanced view of Financial Modelling

It is usual for many small businesses to have forecasting tools, normally something along the lines of a monthly Profit & Loss (“P&L”) or Cash Flow over a 12 month period. The next step is to take a more strategic and balanced view, looking 3 or more years ahead.

As part of this I very much like to combine the P&L and Cash Flow with forecast Balance Sheets. Most are aware that cash flow is key to a business and that having a good P&L doesn’t necessarily translate into having a successful and liquid operation; however having a forecast Balance Sheet as well provides checks on the numbers to make sure everything reconciles and that the bigger picture makes sense.

Analysing forecast movements in share capital, debt and working capital helps bring the analysis of the whole business together and easier to interpret and understand. It is worth noting here that this assists in valuing a business – something owners are always keen to know!

Balance Sheets can be used to analyse key performance indicators such as current and liquidity ratios that impact the business. These help identify strengths and, conversely, help provide warning signs of risk. Some wariness is needed though as accounting policies can lead to assets being included at a number different to the market value. Hence, properly interpreting the Balance Sheet often requires a degree of financial expertise.

When it comes to bringing all this together, the FD4 team has a range of financial modelling skills that can be tapped into. “Ease of use” is crucial in our thinking when it comes to client needs.

In addition, for those who require a level of sophistication in their models that necessitates the involvement of a specialist modelling firm, we can help source what is needed using our financial knowledge and contacts. For example, where you are experiencing sizeable growth, need to closely monitor bank covenants, are embarking on capital expenditure projects or simply just have too many complex variables in the operations.

Every business needs some balanced modelling of their future

About the author

Brian Kilcullen


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Brian Kilcullen

Available for Part-Time FD Roles / Non Exec Director Roles

This was written by Brian Kilcullen, a Commercial FD with over 30 years’ experience in business.

Brian is a member of FD4, which is a network of experienced commercial Finance Directors that are passionate about adding value to Companies. They are engaged Part Time (on an hourly or daily basis) to do the work of a full time Finance Director, but at a fraction of the cost. They specialise in driving extra profit, controlling risk & cash, enabling growth and business planning - see more at www.fd4.co.uk