Avoid These Common Financial Modeling Mistakes

Building a financial model can be a complex task, especially when you’ve already spent a lot of time setting up formulas, and conditions, and now your model keeps throwing errors that you can’t figure out. A good financial analyst will follow certain discipline while building a financial model and will avoid any typical mistakes that one is prone to make. Below is a list of a few common mistakes that you must keep in mind while building your model in Excel.

Hardcoding Assumptions

Where ever possible avoid hardcoding numbers. When you need to make an assumption about a number, create an input cell in a separate area and refer to that cell in your model or formula.

Sum Formulas

You need to be careful while using sum formulas in excel. For example, if you have subtotals, and totals, ensure that correct cells have been selected while calculating sums. No entry should be included twice, especially the cells containing subtotals.

Arithmetic Errors

Scan for formula errors. For example, check if the formula in parenthesis is the way it should be. Verify for one or two data sets, before you actively use it in your model. (1-X)/0.9 is not the same as 1-(X/0.9).

Large Formulas

If you have a large formula, you are likely to make more mistakes. Simplify the number of steps of large formula into smaller, doable steps that you can check and pinpoint errors far more quickly.

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