Financial modelling best practices

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

1. Making use of keyboard shortcuts as they save our time while building as well as checking the model
2. 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.
3. Have a consistent time ruler – quarterly or annual – throughout the model.
4. There should be a consistency in the data alignment for the numbers and the text
5. Follow a consistent sign convention throughout the model

Financial modelling best practices – Don’ts

1. Never ever have hardcoded number inside a formula or within a formula as it is cause of a potential error.
2. Use data grouping instead of hiding rows and columns
3. you should not use constant assumptions repetitively
4. We should not duplicate calculations on different sheets. This again could be a reason for potential errors
5. 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.