While preparing a financial model, it is imperative to follow certain practices as they ensure that our model is error-free, consistent, and has a clean look. At the same time, one should avoid certain things which can make the model slow and complex to understand. Let’s have a look at the Do’s and Don’ts
Financial modelling best practices – Do’s
- Making use of keyboard shortcuts as they save our time while building as well as checking the model
- Always build a template first and then reuse it whenever adding a new sheet or new calculation in the model. It helps in maintaining consistency in the model.
- Have a consistent time ruler – quarterly or annual – throughout the model.
- There should be a consistency in the data alignment for the numbers and the text
- Follow a consistent sign convention throughout the model
Financial modelling best practices – Don’ts
- Never ever have hardcoded number inside a formula or within a formula as it is cause of a potential error.
- Use data grouping instead of hiding rows and columns
- you should not use constant assumptions repetitively
- We should not duplicate calculations on different sheets. This again could be a reason for potential errors
- Don’t use a lot of circularity and macros in the model
Following these practices will help you create a simple, efficient and clean model.
CAclubindia
