Now in my 3rd. decade of corporate finance and related advisory work, I fully recognize there is nothing more proprietary to finance and accounting people than their financial models.  For this reason, I often avoid providing advice on specific models or the process used to develop them. Having said that, here is a thought for model builders, model keepers and senior management.  Whenever a model is designed from the bottom-up, with detailed links to the company’s accounting and reporting systems, as is often the case, it will fail. A financial model, whether a periodic business plan, rolling monthly budget, 13-week cash flow or some high-bred, is intended to be a tool to communicate financial information to senior management or outsiders.  The users are focused on management decisions and operating metrics (the model’s assumptions), quick and easy scenario and sensitivity analysis and cash management. To be useful therefore financial models must be simple, assumption driven, and dynamic. By contrast, historical reporting systems are detailed and static.  Historical reporting is bottom-up; it is the sum of all the journal entries and there are no assumptions. De-link the model from accounting and reporting.  Build your models top-down by starting, for example, with annual financial statement line items and basic key assumptions.  Make your models rolling so that each period, when you have actual information available, you manually compare the two and update the historical periods of the model to actual and revise forward assumptions as required. The manual variance comparison and subsequent updating of the projection is ultimately the exercise that makes a model work.  The process requires thought and analysis.  Every material variance tells you either:  i) your modeling assumption was wrong and it should be updated or more detailed to improve your future projections; or, ii) your business is not performing the way you think it should, Please check out our jackpot city. Posted by Scott Sinclair, Range Corporate Advisors