Posted by Dmytro Dodenko
In modern business, the era of “napkin planning” is gone for good. When an entrepreneur or top executive says, “I have a plan,” but doesn’t show the calculations behind that statement, I always clarify: “Is this a plan or just a list of your wishes?”
Without a financial model, any business plan is merely a set of hopes unsupported by reality. Why so categorical? Let’s break it down.
More Than Just Tables
I am often asked: “Why spend so much time building complex financial models? Isn’t it easier to just set sales targets?”
For me, a financial model is not just an array of numbers in Excel or beautiful dashboards in Power BI. It is, first and foremost, a tool for rethinking the business. It is a “digital twin” of your company that allows you to see how the smallest changes in one process affect the final financial result.
A model is a way of thinking. It forces you to ask the right questions and seek honest answers.
The “Aha-Moments”: Finding the Non-Obvious
The most interesting part begins when we interconnect different factors in the model that, at first glance, exist separately.
Imagine a situation: intuition suggests that to increase profits, you need to sell more. You build a model, input the data, and suddenly see that a simple increase in sales with the current cost structure will only reduce your margin due to logistics costs. Instead, changing payment terms for suppliers would have a much greater effect on cash flow.
It is for the sake of such “Aha-moments”—moments of insight and non-obvious conclusions—that these structures are worth building. A model allows you to find an unexpectedly effective solution where no one was looking.
Map vs. Compass
Planning without a model is like a journey without a map. You might have a compass showing the direction (e.g., “we want $1M in profit”), but you don’t have a route.
When you only have a goal, every pothole on the road becomes a surprise. When you have a model, you see not only the destination but also the path. You understand:
- How much “fuel” (working capital) will be needed at each stage?
- Where does a cash gap await?
- What resources need to be secured in advance?
A well-built financial model accounts for all major factors. You change a key parameter—and instantly see how the entire landscape of your journey shifts.
Adaptability as a Competitive Advantage
We live in turbulent times. Today, the winner is not the one who knows the most, but the one who adapts the fastest.
I get real pleasure from using a model for decision-making—fast, flexible, and grounded decisions. Instead of reading tea leaves during a crisis, you open the model and answer the question “What if…?”:
- What if the dollar rises by 10%?
- What if sales drop by 20%?
- What if we change our pricing?
You can play out future scenarios in minutes without risking real money.
Conclusion
A financial model transforms intuitive management into systemic management. It gives you confidence that your plan is an achievable reality, not just an ambitious dream.
Ask yourself honestly: when was the last time you made a strategic decision based on a calculated model rather than just intuition? If it’s been a while, perhaps it’s time to change that.
Ready to move from theory to practice?
Recognizing the model’s value is step one. Step two is building a model that investors and banks actually trust. For a deep dive into the technical side, architecture, and FAST standards, read my detailed guide: Financial Modeling: From Chaos to Clarity.
