financial-modeling

# Financial modeling A model is an argument about how the business works, expressed in arithmetic. Its value is the argument, not the output precision. ## Structure Three separated layers, always: 1. **Inputs** — every assumption, in one place, each with a source and a date. An assumption buried inside a formula is invisible and therefore never challenged. 2. **Calculations** — no hard-coded numbers. Ever. A constant inside a formula is an untraceable assumption. 3. **Outputs** — the statements and the summary a decision-maker actually reads. One row, one calculation, carried consistently across periods. Models become unauditable through inconsistent rows more than through complexity. ## Build revenue from drivers Never grow a top-line by a percentage. Build it: volume × price, or accounts × retention × expansion. Driver-based models can be argued with, and being argued with is the point — a growth rate cannot be wrong, only optimistic. Cost structure separated into fixed, variable, and step-fixed. The step-fixed items are where plans break, because they move in jumps nobody modeled. ## Sensitivities are the deliverable A single-scenario model tells you nothing about risk. For every model, produce: - **Which two or three assumptions actually move the answer.** Usually far fewer than expected. - **Breakeven on each** — how wrong can this be before the decision reverses? - **Downside case** — not a haircut on the base case, but a coherent story where things go ...