What to remember
- Operating drivers before financial statements
- Connected P&L, working capital and cash
- An explicit financing timetable
- Sensitivity tests for critical assumptions
Build the model from its drivers
Start with the units explaining the activity: customers, volumes, prices, conversion rates, capacity, headcount or sites. Financial aggregates should derive from these drivers whenever the connection is material.
- Commercial assumptions
- Variable and fixed costs
- Recruitment plan
- Investment and depreciation
- Customer and supplier payment terms
Connect profit, working capital and cash
A profitable activity can run out of cash when collections are late, inventory increases or investments precede revenue. The model should reconcile profit with cash movements.
Check sign conventions, units and periodicity. An undocumented move from monthly to annual figures can hide cash pressure.
| View | Question | Output |
|---|---|---|
| Activity | Which drivers produce revenue? | Volumes, price, mix |
| P&L | Does the model create durable margin? | Profit and profitability |
| Working capital | When are flows collected or paid? | Receivables, inventory, payables |
| Cash | When does cash become constrained? | Position and low point |
| Financing | How much, when and for what use? | Need and milestones |
Build the scenarios
The central scenario should reflect the plan actually managed. Add a credible downside scenario and an acceleration scenario. Vary the assumptions that move the cash low point or financing need most.
- Commercial delay
- Lower margin
- Faster or slower recruitment
- Worse payment terms
- Earlier investment
The role of Pilot
Pilot projects a three-to-five-year financial trajectory: activity, P&L, working capital, cash, financing, balance sheets and indicators. It helps keep assumptions coherent and compare their consequences over time.
Accounting validation, assumption quality and professional advice complement the model when the decision creates a material commitment for the business.
Frequently asked questions
Should the model be monthly or annual?
Monthly frequency is often needed for cash during the first years. The longer-term horizon can be aggregated when management needs allow it.
How many financial scenarios are useful?
A central case, a credible downside case and an acceleration case usually provide sufficient coverage, completed by targeted sensitivities.
Which assumption matters most?
It depends on the model. The right test identifies which variables move cash, margin or financing needs most.