Since financial modeling can be tricky business, templates can often save the day by providing a starting point. When used correctly, financial modeling templates can help you whip up a financial model easily.

However, a template is not always the solution. While it might help guide you in the right direction, it’s not a substitute for a professional financial modeler. Moreover, relying on a template isn’t always the best idea if your project is complex and requires extensive analysis.

Below, we discuss circumstances in which using a financial modeling template can be beneficial and when it’s not the right solution.

What Is a Financial Modeling Template?

A financial modeling template is a predefined set of Excel spreadsheets that you can download and populate with your data. The template typically includes an income statement, balance sheet, cash flow statement, and other financial ratios.

It is designed to simplify the financial modeling process by offering a starting point. For instance, a template might include pre-formatted tables and graphs along with formulas that automatically calculate certain financial ratios.

Using a template can save time and help create a professional-looking model. It can also help you avoid errors that often occur when manually entering data into spreadsheets and making financial calculations.

When to Use a Financial Modeling Template?

Financial modeling templates can be the answer to your woes in many situations. Here are some of them.

You Need to Put Together a Financial Model Quickly

If you’re trying to create a financial model in a short amount of time, using a template can help you save considerable effort. A top-notch financial modeling template will include all the features of a professional-looking financial model.

Let’s say you have to create a budgeting model for your company. You may opt for a template that includes budgeting-specific features like income and expenses, financial measurements, cost forecasting, and other relevant data.

You Don’t Have the Resources to Hire a Professional

Hiring a professional to create a financial model can be cost-prohibitive. The process of finding the right person, negotiating a price, and waiting for deliverables can also be time-consuming.

Instead, you can opt for a financial modeling template. However, do note that this comes with its own set of drawbacks.

For one, this only works well for established businesses that need all the features of a pre-built template. Startups will find most templates to be overwhelming and unnecessarily complex.

You’re Not Experienced in Financial Modeling

If you lack the proficiency to create a financial model from scratch, a financial modeling template can prove to be helpful. Most of the templates available online follow standard conventions and feature best practices that you may not know.

You Don’t Have the Time to Create a Model from Scratch

Financial modeling is a lengthy and involved process. If you can’t afford the time to create a model from scratch, you may find it beneficial to use a financial model template.

Suppose you’re looking to generate projections for a five-year period. You can look for a template that will allow you to customize the figures and generate results.

It’s important to note that even if you’re using a template, it is still imperative to understand the basics of financial modeling. Without the proper know-how, you’ll be unable to identify and fix any issues that may arise during your modeling process.

When Not to Use a Financial Modeling Template? 

While financial modeling templates can be quite useful, there are certain scenarios where it’s best to avoid them. Here are some of them.

You’re Working With Unique or Unfamiliar Data

Financial modeling templates are meant to be generic. So, they work best when you’re dealing with data that is familiar and standard.

If your data is unique or unfamiliar, a template may not be the best option. In such scenarios, it’s best to build your own model from scratch or modify a template to fit your needs.

You Don’t Understand the Assumptions

Financial modeling templates are based on certain assumptions. While they may be valid in general, they could become irrelevant in specific cases.

For example, a template might assume that certain expenses will increase at a certain rate over time. However, if your business is expected to grow at a different rate, the assumptions may be invalid. It’s best to avoid using a template if you don’t understand the assumptions behind it.

You Need Very Specific Outputs 

Some financial modeling templates are very generic and don’t provide detailed outputs. They might only cover the most basic calculations and provide very limited outputs.

But you might need more detailed outputs to make an informed decision. For example, when building a forecasting model, you might need to calculate detailed forecasts for each line item. In such cases, it’s best to build a customized model instead of relying on a template.

You Need To Make Complex Calculations 

Financial modeling templates usually don’t include complex calculations, such as those related to derivatives or options. They are meant for basic financial modeling and won’t cover such complex topics. Likewise, they may not involve scenario analysis and sensitivity tests.

You’re a Startup

Besides being generic, pre-built templates are also filled with features that may not apply to startups. For example, a template may include financial statements for five years when you only need one year for your investor pitch.

Therefore, a customized financial model built by a professional may be a better option for startups. It will provide you with the features and outputs that you need while taking into account your unique situation.

Numberly to the Rescue

So, what do you do when you cannot use financial modeling templates? Many startups do not have access to expertise, personnel, or resources to build or modify a financial model from scratch.

Numberly helps you by building customized financial models that you can use for fundraising, budgeting, forecasting, and more. Based on dynamic assumptions, our financial models have summary dashboards to let investors see your potential at a glance.

Schedule a call with us today, and let us help you bring your business to life.