Financial modeling in general consists of continuously plugging in different numbers and scenarios into formulas, usually in an Excel spreadsheet, to see what kind of impact they have on your business. This can be a very useful tool for predicting the future, in terms of financing that you will need and decisions you should make.

Here’s how it can help your accounting team be more aware of future cash considerations.

Understanding profits and costs

Good financial modeling will help a company owner understand more fully the impact of management decisions on costs and profits. For instance, you’ll be able to see what it costs to hire a new employee or to open up a new location, and how that impacts your bottom line. Financial modeling can also be used to determine whether you should buy a new piece of equipment, or whether you should focus on paying down your existing debts.

Establishing extreme outcomes

Modeling is very adaptable and is capable of depicting results from extreme outcomes, wherein the best and worst cases would be modeled, with everything else falling somewhere in between. By manipulating factors such as market size, estimated profit, and price per unit, you can obtain a number of different scenarios which take in the highest and lowest possible outcomes.

Use real-world starting points

Although you can just plug in random numbers in your financial modeling and achieve some worthwhile results, it’s always better to use real-world starting points in your modeling efforts, so that results are more realistic. When you use numbers from your financial statements and from research you’ve conducted into the market, you will get more accurate results in your modeling.

Your accounting team will be able to work with your modeling outcomes better if they’re based on such real-world numbers. For this reason, it might be to your advantage to hire a professional consultant, so that the most realistic numbers can be used in your financial modeling scenarios.

Does your accounting department think you need more cash? 

If your accounting department is advising you that the business needs greater cash reserves, we may be able to provide some assistance. Contact us at Proactive Funding Solutions so we can consider some options available to you for securing the necessary capital.