How to Build Your Practice as an Independent Financial Modeler?

The work profile of a financial modeler involves constructing financial representation of some or all aspects of a company or any particular security. In-depth calculations are done to develop the financial model and deliver recommendations.

In this article, we will discuss the possibilities of building your own practice as an independent financial modeler.

Who Are YOU?

YOU are someone who is educated and experienced in finance research field to consider becoming an independent financial modeler. You are working in a similar profile and wish to become independent and start your own financial modeling services firm. You are skilled enough to accept the responsibilities of an independent setup.

1x1.trans How to Build Your Practice as an Independent Financial Modeler?

This article isn’t about teaching you to become a financial modeler. Although, if you wish to, check out our best performing resources.

Setup as Independent Financial Modeler

You aim is to:

  • build consistent client base
  • generate revenue

…and the cycle continues.

Let’s see how you can build your practice as an independent financial modeler.

1) Setup a System

Going independent implies a lot of incoming managerial tasks for which the onus lies on you because unless you have a team, you have to perform every single task.

Therefore, the first step is to setup a system. The system is the infrastructure on which the business will be built. You don’t need a physical setup; you can run the business from your home office.

Tools like a professional email account, a project management software, financial modeling software, online social accounts for business and others contribute towards developing this system.

2) Start a Website

A major part of system setup is to develop a professional website for potential clients to find more about your services. You can hire an experienced website developer for the same.

The website will function as an online ‘service store’ where potential clients will arrive through various online/offline marketing strategies. Using an interactive contact form, sharing contact number, Skype id and social media links will help to solidify your professional capabilities.

Personalize the website to build brand authority.

3) Competitive Pricing

You will have a lot of competitors who like you are offering independent financial modeling services. Keep this in mind and decide on competitive pricing for your services.

To know about the current market trends, visit some local financial modeling firms and enquire about their charges. This step will help to define online and offline modeling service prices.

Of course, competitive pricing doesn’t mean lowering service quality standards. You have to maintain excellent service quality and beat competitors.

4) Build Resources and Data

A valid database will take you a long way and act as a resource for you. What will this database contain? Before you formally begin as an independent financial modeler, spend some weeks to search companies, businesses and financial firms who can be contacted in future to offer modeling services.

Small companies often hire independent modeler for various financial analyses and firms also look for modeling service providers to fulfill urgent requirements. These become good chances to build a long-term clientele list.

You can use Google Maps to find this data. Take a look into local business directories. Browse recruitment networks like Career Builder and Monster to find financial modeling recruiters. Most of them mention website URL. Visit it and note down contact details.

These activities, over days and weeks, will create solid database to fall back upon.

5) Contact past Employers and Ex-Colleagues

Another important step is to contact past employers and ex-colleagues. Networking with them has two advantages. First, they know you personally and second, they are aware of your capabilities. Both of these will enough to solicit good and trustworthy recommendations of businesses where you can pitch your financial modeling services.

Networking to develop crucial contacts is essential to setup practice as an independent financial modeler. The networking needs to be broader than other financial modeling experts holding on to a job because you need a steady stream of clients and obviously, real active networking is going to ensure permanent client flow.

It is necessary to grasp industry happenings and connect with people associated with the various drivers influencing happenings within the industry, such as people in marketing, finance, sales and accounts to feel business pulse.

1x1.trans How to Build Your Practice as an Independent Financial Modeler?

6) Do Local Marketing

The data created in step 4 should have a good list of local businesses and firms. To begin with, focus your energies on local marketing.

Local marketing means:

  • Joining local business communities (if any)
  • Visiting local businesses and networking
  • Visit local events and conferences (good way to expand network)
  • Get your website listed on Google My Business.

At any point, your business card should be with you and give it to every prospect you are networking with.

7) Do Online Branding

It’s not enough to have a website. You have to promote it. The promotional agenda will be to get targeted people recognize it as reliable source to get financial modeling done. The promotion should target financial firms, boutiques, businesses and corporate houses.

Facebook marketing and Google AdWords are recommended paid marketing options. You can join forums like Wall Street Forum, American Express Forum and Financial modeling forum on LinkedIn for brand promotion. Moreover, the forums are good places for professional networking.

If you have spare budget, you can hire an agency to do online promotion as well.

8) Do Cold Calls / Send Cold Emails

Sometimes cold calling and cold emailing, though they sound trite, yields good results. It’s reaching out to people you don’t know. It’s more formal than networking because there you can at least hold a conversation but here, you are directly sending or verbally communicating a business proposal.

Apply these methods to contact local or global client prospects if any other method doesn’t seem viable enough.

9) Prepare a Demo or Case Study

No matter how much of a smooth talker you are, it won’t establish credibility. Credibility and authority establishes when you are able to prove your skills.

Before you venture out to seek clients, make sure to prepare a demo or a case study where you show how a financial model was developed from scratch, what were the priorities and what recommendations were given based on the analysis; if it were a real case study, mention how the client applied your recommendations and the benefits received.

A strong verifiable case study or demo will seal the deal promptly than any other method.

10) Finding Work Online

Apart from online forums and networking, you can make use of freelance marketplaces to get financial modeling jobs. Check out these sites – oDesk.com, Elance.com and SimplyHired.com – they directly link to the respective jobs page.

These freelance opportunities are most one-timers but it gives experience and something to add to your portfolio; so if you get something good from these sites, take it up!

Endnote

As you enter the trade, you will learn the ropes of working as an independent financial modeler. You will automatically become attuned to deal negotiations, client acquisitions, client handling, time management and project workflow.

All the best in becoming a successful financial modeler! We hope this guide helped you.

The Beginner’s Guide: Financial Modeling Using Excel and VBA

 

1x1.trans The Beginners Guide: Financial Modeling Using Excel and VBA

Financial Modeling Using Excel and VBA

 

Automation is the buzz word in today’s corporate world.

Whether it is manufacturing industry or the service industry, all businesses are aiming to reduce the human element for critical processes and tasks to improve efficiency and output.

As a finance aspirant, you will see this trend in finance companies as well.

Calculators are replaced by laptops, ledgers are replaced by spreadsheets and hard bound documented financial models are replaced by dashboards.

If you want to pursue a career in finance, it is of utmost important for you to know the latest trends in your domain, and more importantly how to use automation in your day to day activities as a finance professional.

In this article, I will tell you about financial modeling using advanced functions like VBA (Visual Basic Application) in excel.

Introduction to Financial Modeling

Financial modeling in very simple terms is…

“systematic creation of a logical structure, to process and analyze a data set, so as to arrive at conclusive financial decisions.”

It can be done on the back of an envelope or using state of the art applications.

The end objective is always to derive logical conclusions.

In the current age of information and technology, financial modeling has become exhaustive and speedy at the same time.

With usage of technology and automation, long complex calculations can be done within seconds just by click of a button on your computer screen.

But to be able to build one such model, it takes a lot of time and efforts. You need to be thorough with the basic concepts of finance as well as be well-versed with the usage of functions and algorithms in excel.

Where Is Financial Modeling Used?

Financial modeling is used in every sphere of the financial world.

In fact it is one of the most important aspects of any corporate set up.

Following is the list of entities that use financial modeling, either for themselves or their clients:

1. Investment banks

There are many branches within investment banking where financial modeling is used.

In case of mergers and acquisitions, investment bankers use financial models to understand and comprehend the viability of any deal.

In corporate finance it is used to identify the financial health of a company in the long run.

In project finance it is used to estimate and forecast the capital outflow and so on.

I personally believe that financial modeling is the life line of any investment bank. So if you are aspiring to be an investment banker, you better get a grip on financial modeling.

2. Private equity/Venture capital (PE/VC) firms

Since these firms deal in large amounts of money for any project, it becomes imperative for them to use financial modeling.

It is typically used to determine the return on investment for a certain amount, and for a certain period of time.

There are various functions in excel that help these firms identify the return in various scenarios.

(Scenario analysis is one of the most popular functions used in financial modeling)

3. Equity research firms

It doesn’t matter if you are on the buy side or the sell side of the horizon, financial modeling is present on both the sides with equal importance.

Equity research firms use multiple financial models to predict and anticipate stock movements and financial performance of a company.

Equity research analysts have to be conversant with financial modeling and should also be comfortable with using advanced excel functions.

4. Corporates

All companies, either big or small, have their finance departments.

Financial modeling using excel and VBAs are typically used in large corporations where they have a separate finance department and financial analysts.

Companies usually use financial modeling for their internal growth projections and forecasts.

It is also an important tool used for making long term financial decisions like determining the capital structure, cost of capital, raising funds and issuance of shares and debentures.

Advantages of Financial Modeling using VBA

1. Excellent output with minimum input

You must have used Excel at some point in your student life.

But how much do you actually know about the power of Excel?

Excel comes with the most astonishing tools when it comes to financial modeling.

Explore the options in order to fully utilize the potential offering in excel.

There are so many commands and functions which, not many people know, but are embedded in Excel and can yield excellent results if utilized properly.

2. Speedy operations

One of the biggest advantages of using excel and VBA in financial modeling is the speed at which your data set is processed.

Once the logic is defined and variables are set, all you have to do is feed in the required data in the variables’ cells and with the click of a button you can arrive at data points which otherwise are very time consuming to arrive at.

3. Accuracy

If you input the correct data, and maintain a sound logic in designing your algorithms, there is no way on earth you can get wrong analysis output.

Humans are bound to make mistakes, but Excel doesn’t have that flaw.

And accuracy is of utmost importance while analyzing large sets of data, especially when the numbers (input or output) represent a huge sum of money.

4. Ease of comprehension

Excel enables you to represent your data in a visually appealing as well as easy to understand way.

There are many chart options that help you in representing analysis in a very simplified manner.

Features like trend lines, bubble charts, pie-in-pie charts and 3D charts are very useful and save a lot of comprehension time on the part of stakeholders and decision makers.

How to Create a Financial Model Using Excel and VBA

According to me, the key to creating a good financial model is having a systematic approach.

Before even starting on creating a model, take a minute out and systematically design a broad structure of your model on a piece of paper.

It will immensely help you in the actual creation of your model.

Following are the seven steps you should follow while creating a financial model using excel and VBA:

1. Define the problem

The first step here should be establishing the need behind creating a financial model.

Try to ask yourself this question – “what problem statement does this model aim to address?’’.

Depending on the answer, you will be able to determine what all insights you need from the model.

I sincerely suggest that please discuss this with as many stake holders of the model as possible.

It will give you clarity and the third person perspective.

2. Structure the logic

You should know that VBA is nothing but a programming language that enables logic and a defined outcome using a string of characters.

This is the most time consuming part of creating a financial model using VBA in excel.

Please be very careful while structuring the logic and syntax, as even a small error on your part can lead to huge discrepancies in the model.

You need not be an expert in VBA to do so, just stick to the basics and try to simplify the logic as much as possible.

3. Identify the input variables

This is one of the trickiest parts of financial modeling using Excel.

There are variables – independent and dependent.

Independent variables are usually the scattered numbers that you feed in without using any formulae.

Their value or function doesn’t change unless you manually change those numbers.

While on the other hand dependent variables will vary depending on the independent variables.

To give you a very simple example – if you want to calculate service tax of 10% that you pay in a restaurant, you will need a bill amount.

That bill amount becomes the independent variable, whereas the tax that you would end up paying becomes the dependent variable as it depends on the bill amount.

Make sure that the input variables are correctly entered into the spreadsheet and correct function is applied to arrive at the output.

4. Define the output

The output is the reason why you are making this model in the first place.

Make sure that it gets calculated in the right manner and format the output cells appropriately.

For example – if your output that you want is in percentage terms, and if the output cell is not formatted in the right manner, there is high probability that you might get misleading numbers.

Let’s say the output value is 10%, but if the cell is not formatted in percentage it might show the figure as 0.1.

5. Pilot run

After you have done the above mentioned things, try out the model with some dummy numbers.

I suggest, use simple and smaller numbers to do this.

Use multiples of hundreds or thousands for independent variables since it becomes easier for you to manually check the desired output.

Another thing that you should keep in mind here is that do not use large sets of data initially. Start by using small data sets, which makes identifying bugs and errors easier when compared to large sets of data.

If your model is very big, or in other words has a lot of formulae and algorithms, you can test run at every step and at regular intervals before running the pilot at the end of completion.

6. Record/document the model

Once you have done the pilot test of you model, the next step is to record all your logic, syntax, functions and formulae, preferably in a word document or notepad.

Even better if you spend a little more time and prepare a process document with screen shots.

It has two advantages – one – it would be easier for you or someone else to replicate a few common functions at a later stage for the same model or some other model that you might work on.

And two, if there are any changes that are to be made at a later stage; you would exactly know where to do the edits.

It would save a lot of time for you if you have it readily documented at some place rather than playing around with the model worksheet.

7. Monitor and update

Your work doesn’t end with the completion of the model…

You should ideally go back to the model every once in a while to look for bugs, redundancies and errors.

It is highly unlikely that you would be able to come up with an excellent model at the first go.

Keep on trying to simplify it and monitor the output at regular intervals.

Here are a few things that you should keep in mind while you are working on a model in Excel.

Apart from the functions and formulae that you will use, the following things will help you in smooth operations and ultimately a better and faster output:

1. Use of short cuts

Since we have established that speed carries a lot of importance, using keyboard short cuts will enable faster work and improved efficiency.

There are short cuts right from opening up tool bars to creating formulae to running an entire macro.

Please start using these short cuts at a very early stage, because with a little bit of practice you will know how much time and effort is saved by using those.

2. Using Excel Help

You cannot possibly know everything about Excel whatever your level of expertise is.

Please do not shy away from using the inbuilt Help option in your excel.

Everything you need to know about functions and formulae will be there.

If the language and explanation there isn’t enough for you, then you can always go online and look up for help.

The point is, please make sure that you use this option, it will save up a lot of your time.

3. Conditional formatting

Use of various colors, fonts, sizes and signs can give a whole new look and feel to the dashboard of your financial model.

It has been proved very helpful to the modelers around the globe to make their models user-friendly and efficient.

4. Nomenclature

Naming you columns and rows appropriately carries a lot of weight in financial modeling.

Avoid using ambiguous titles.

Be precise.

It would be helpful for other people who might use this model without your presence.

Now You Try It

I hope you can see the potential of financial modeling using Excel and VBA.

Yes, it takes hard work to create something great.

But with this guide you already know ahead of time that your hard work is going to pay off (unlike downloading a free template and then crunching the data).

I want you to start working on your financial model and let me know how it works for you.

If you have a question or thought, leave a comment below and I’ll get right to it.

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4 Ways to Learn Financial Modeling in Excel

Learn Financial Modeling

  After all these years in the finance domain, I have come across a very frequent question from finance aspirants: “How to do financial modeling?” Since an understanding of the financial model is one of the key tasks involved in any finance profile, every aspiring investment banker, financial analyst or any finance professional, should know […] Read more »