Chapter 2: Steps for Building a Financial Model

The process of building a financial model can be broken down into several distinct stages. Most of these stages can run concurrently with others, while some can't start until others are concluded. This chapter introduces you to the steps required for building a model, with explanatory notes on the nature of each of the steps.

Any project you wish to undertake should begin with gaining an accurate understanding of what the project is all about. If you start off in the wrong direction, one of three things will happen:

• Partway through the project, you'll realize that this is not what the client wants, and you'll then have to start all over again.
• You'll end up convincing the client to accept a project that was never intended.
• You'll persist with the wrong project, and it'll end up being rejected.

So much depends on this stage that it typically takes up about 75% of your total modeling...