Seventeen years ago, while working in an asset management company, I came across a financial model for the very first time. That moment was a turning point in my career: I was immediately fascinated by the ability of a model to capture, structure, and explain the financial reality of a business. Since then, I have remained one of its strongest advocates — and, of course, a dedicated admirer of Excel.
A financial model is far more than just a spreadsheet. It is the tool that allows Finance professionals and modern FP&A teams to build a comprehensive view of a company’s financials and flows: how the business generates revenue, creates value, incurs costs, and produces cash flows. A well-designed model doesn’t just summarize numbers — it answers questions, often the most complex ones, quickly and reliably.
In essence, a financial model is a living map of the business. When built and managed properly, it becomes a decision-making compass: helping leaders understand scenarios, assess risks, and make informed choices with clarity and confidence.
Why Each Finance Leader or CFO Should Have a Financial Model
Whenever I join an organization or receive a new assignment — whether it is a post-M&A integration project to align local accounting and finance processes with the Group, an FP&A mandate to drive efficiency and ensure all functions are aligned with company objectives, or an Interim Finance Leadership role aimed at making finance transparent, insightful, reliable, and performance-driven — I always begin with building a financial model.
I am a self-learner and, above all, a practitioner. This means I don’t strictly follow conventional structures or methodologies, even if they are endorsed by world-renowned institutions. While I might not match the speed of professional modelers who have spent years crafting models for PE or M&A deals, I go deeper — tailoring the model to the specific needs and realities of the business.
There is no universal standard. A well-designed, generic model can work for some straightforward companies, but I firmly believe that every business is unique, and therefore every model must also be unique. Even if you purchase or adopt a pre-built model, chances are high that you will need to customize or modify it. The good news is that there are best practices and common approaches that help make any model more structured, robust, and user-friendly.
The reason I always start with a financial model is not just about forecasting. In fact, many times it isn’t even requested — for example, when I am working on accounting-focused assignments. But building a model gives me something much more valuable: a deep understanding of the business and its flows, both operational and informational.
A financial model helps connect the dots, put the puzzle together, and build confidence in the reports and data. It transforms raw numbers into meaningful insights, allowing Finance to see not only what is happening but also why. For me, it is the bridge between financial control and strategic decision-making.
That is why I believe every company — and especially every Finance leader, CFO, or FP&A professional — should have their own financial model. It is not a luxury or a nice-to-have tool. It is the foundation for cash flow management, forecasting, and financial planning & analysis, and the best way to ensure Finance drives performance rather than simply reporting it.
Types of Financial Models
Financial models can take many different forms depending on the purpose, scope, and level of detail required. They are not always built to represent the entire company — often a model is created for a specific project, business unit, or even a single task. Some of the most common types include:
- Three-Statement Model – Links the income statement, balance sheet, and cash flow statement into one integrated view.
- DCF (Discounted Cash Flow) Model – Used for company valuation, based on projecting free cash flows and discounting them back to present value.
- M&A Model – Assesses the financial impact of an acquisition or merger, including synergies, goodwill, and deal structure.
- LBO (Leveraged Buyout) Model – Evaluates a highly leveraged acquisition and the ability of the target company to repay debt.
- Budgeting & Forecasting Model – Supports short- and medium-term planning, often integrated into FP&A processes.
- Project Finance Model – Built for large infrastructure or capital-intensive projects, focused on funding, debt service, and returns.
- Operational Financial Model – Provides a detailed, dynamic view of the company’s operations, revenues, costs, and cash flows, helping Finance professionals and leaders manage performance and align operations with strategy.
In this article, we will focus on the Operational Financial Model — a powerful tool that bridges finance and business operations, and a foundation for modern FP&A, financial control, and strategic decision-making.
The Core Structure of an Operational Financial Model
A robust Operational Financial Model is much more than a set of linked spreadsheets. It is a structured system that transforms raw financial and operational data into clear insights for decision-making. While each company is unique and no single template fits all, most effective models share a common structure built around four key components:
Assumptions
This section defines the key drivers and scenarios for budgeting and forecasting. It may include growth rates, pricing assumptions, cost drivers, FX rates, or any variable that influences the model’s outputs.
Inputs
The model collects all relevant financial and operational data, depending on the required level of detail. Typical inputs can include:
- Historical P&L or Cash Flow data
- Fixed assets register
- Headcount list with related costs
- Currency data
- Budgets and forecast updates
These inputs act as the foundation for reliable calculations and scenario building.
Engine (Calculations)
This is the working core of the model — the calculation sheets where logic, formulas, and structures are engineered. It connects assumptions with inputs and produces consistent outputs. In more complex models, the engine often includes:
- Mapping sheets between ledger categories and financial model categories for P&L, CF, and BS (especially when the model is not directly integrated into the ERP).
- Bridges between detailed and summary reports, ensuring that granular P&L lines can roll up seamlessly into executive summaries.
- Intermediate sheets for reconciliations and transformations.
Outputs
These are the user-facing forms: dashboards, reports, or summaries that present the results of the calculations in a clear, decision-ready format. Depending on the audience, outputs can include:
- Executive summary reports
- Detailed financial statements
- Scenario or sensitivity analysis views
- Cash flow management dashboards
In reality, a robust financial model is rarely just three or four sheets. A practical, professional-grade model is a working instrument: complex in its backbone but simple and intuitive in its presentation. For it to be effective, it must be well-designed, clearly structured, and easy to navigate — so that Finance professionals, CFOs, and business leaders can use it with confidence and reliability.
Best Practices for Building Robust Financial Models
While each company and situation is unique, there are best practices and common approaches that make a financial model more structured, reliable, and user-friendly. These practices transform the model from a technical spreadsheet into a strategic FP&A tool that supports Finance professionals, CFOs, and business leaders.
- Clarity and Transparency – A financial model should be easy to follow, even for someone who didn’t build it. Use consistent formatting, clear labeling, and intuitive structures. Avoid hiding calculations in hard-to-find places — transparency builds trust in the model.
- Structured Design – Separate assumptions, inputs, calculations, and outputs into clearly defined areas or sheets. This makes the model easier to navigate and reduces the risk of errors. For complex models, a logical flow with mapping and intermediate sheets ensures control and reliability.
- Flexibility and Scalability – Business needs evolve. A good model should allow for easy updates, new assumptions, and scenario analysis without requiring a complete rebuild. This is where advanced Excel skills and the right use of functions, references, and dynamic ranges make a difference.
- Robust Error-Checking – The more advanced the model, the greater the risk of errors. Incorporate cross-checks, reconciliations, and balance controls (e.g., assets = liabilities + equity) to ensure accuracy and integrity of outputs.
- User-Friendly Outputs – Ultimately, a financial model is a tool for decision-making. Dashboards, summary reports, and charts should be designed with the end-user in mind — whether that’s the CFO, the FP&A team, or business leaders looking for quick insights into performance and cash flow management.
- Documentation and Version Control – Even the most elegant model loses value if no one understands how it works. Document key assumptions, methodologies, and version history to make the model sustainable and transferable across Finance teams.
By following these practices, Finance professionals can create operational financial models that are not only technically sound but also strategic assets for financial planning & analysis, forecasting, and performance management. This is where advanced modelling techniques elevate quality and control.
Practical Advice: Where to Start When Building an Operational Financial Model
If you are building an operational financial model, the best place to start is with the end in mind. Ask yourself: What should the final output look like for the stakeholders? Is it an Executive Summary, a 3-year P&L forecast, a Project Finance schedule, a Real Estate portfolio financial report — or perhaps all of these combined?
The output format should always be aligned with what stakeholders already use and understand. Most companies have established reporting packs, budget forms, or visualizations — these should form the foundation of your outputs.
From there, a few practical rules will ensure your model is robust, flexible, and sustainable:
- Design Around Consistency – Use a consistent sheet layout. Periods (months, quarters, years) should always appear in the same row and start in the same column across all sheets. For example, if January of the current year is in column H in one sheet, it should be in column H in every sheet.
- Granularity First, Aggregation Later – For detailed or intermediate sheets, always use the most granular level of data available — even if stakeholders don’t request it. This ensures flexibility: if a new report is requested later, you can simply create a mapping (many-to-one) instead of redesigning the entire model.
- No Hard-Coding – Avoid embedding numbers directly in formulas (“hard coding”). Inputs, assumptions, and mappings should be the only areas you update. Calculation, intermediary, and output sheets should remain untouched once designed. Outputs should also be protected to avoid accidental edits.
- Consistency in Formulas – Every row in a calculation sheet should use the same formula structure, applied consistently across the sheet. Yes, this may mean complex 4–5 level formulas — but they will be robust, scalable, and maintainable.
- Leverage AI Tools – Tools like ChatGPT or Copilot can help you design, debug, and explain complex formulas, making them more transparent and readable.
- Invest in the Design Phase – Don’t oversimplify at the start — shortcuts often lead to complications later. A well-structured model requires more effort upfront, but it saves countless hours of rework, reduces the risk of losing control, and ensures Finance professionals can rely on it for accurate, consistent insights.
In short: build for flexibility, design for transparency, and think long-term. A model is not just a one-off exercise — it’s a living instrument of financial control and strategic FP&A.
Conclusion
A financial model is much more than a spreadsheet. It is the backbone of modern FP&A, a tool that helps Finance professionals, CFOs, and business leaders gain transparency, control, and insight into how the business truly works. From forecasting to cash flow management, from performance tracking to strategic planning, the operational financial model is the bridge between numbers and decisions.
Of course, what we have covered here is only part of the story. There are many other aspects of financial modelling — advanced modelling techniques, integrations with ERP and BI systems, automation, scenario planning, and sensitivity analysis — that cannot be fully described in a single article. Each of these topics deserves its own space and depth of discussion.
At FinDep Consult, we combine hands-on experience with advanced modelling techniques, financial control, and strategic FP&A expertise to design models that are not only technically robust but also tailored to the unique needs of each company. Whether you are going through post-M&A integration, building an FP&A function, or seeking an interim finance leader, we believe the right financial model is the foundation for success.
👉 If you want to explore how a financial model can help your company gain clarity, efficiency, and confidence in decision-making, let’s talk.
👤 About the Author
Anastasia Aleksenko, FCCA, Managing Partner at FinDep Consult. ACCA Fellow and CPA (Italy) with 25+ years in finance leadership, specializing in financial modelling, FP&A transformation, and operational financial control.
Through FinDep Consult, she helps companies design robust operational financial models that drive forecasting, cash flow management, and strategic FP&A.