Financial (business) modelling is a key tool for exploring options in the running of a business and assessing the probable impact of management decisions before time, money and effort is expended on them.
A model, properly constructed, provides management with an analysis of how the business might react to different economic situations or events.
Construction of the model will involve a detailed assessment of the key elements of the business:
- Inputs to the business process: design, R&D, materials, manufacturing, labour
- Facilities and resources (both operational and financial)
- Image, marketing and distribution
- Customer base, pricing strategy and payment terms
It should also give third parties (such as banks) confidence in the predicted outcomes, and (equally important) management’s understanding of the business and its markets.
The modelling process can help evaluate:
- Whether goods and services are being delivered as efficiently as possible
- Which processes in the business are adding value and which are not
- The sensitivity of the business to management decisions and external events
- The volatility of profitability in response to business performance and the financial climate (operational and financial gearing)
- Which parts of the business need to be re-engineered to perform better
Meridian can help the modelling process by:
- Ensuring the model is robust, reliable, flexible and secure
- Ensuring models are accurate, with clear and understandable reports
- Reviewing and testing any models developed in-house
- Refining or restructuring any pre-existing models
- Formulating an independent and objective opinion about the business
- Helping to decide the nature and complexity of the model