We’ve seen hundreds of spreadsheets, and, frankly, some are just painful to look at.
In our experience, an excellent financial model is both “correct” and “user-friendly,” and typically exhibits the following characteristics:
- Generates useful insights that the intended audience(s) can quickly grasp
- Engenders confidence that the model is working as intended
- Easily understood and manipulated by its intended audience(s) without requiring extensive modeling experience (e.g., all assumptions/inputs are segregated and identified, rather than buried within formulas)
- Easily modified and maintained by its owner as the underlying conditions change
- Focuses on the big picture and gives priority to the most material aspects of the business by employing appropriate simplifying assumptions and by relegating details to separate but related sub-models
- Based on reasonable and justifiable assumptions
- Based on logically correct economic and financial principles
- Avoids errors in implementation, such as incorrect or overly complex formulas
Quite often, it is difficult for the author of a spreadsheet to look at their own work objectively and decide whether or not it meets these criteria. When in doubt, have a colleague perform a thorough audit of your work before showing it to your intended audience.
Related Services: Financial Forecasting.