One of the more daunting tasks of finance is building a model from scratch. With many first-year analysts taught with building up something like a discounted cash flow (DCF) model to project future revenue and earnings for a company, a big problem is actually firing up Excel and building the thing. There are many assumptions put into the model, and those assumptions are functionally the most important part of the model itself; they will change, be tweaked, and, in some cases, completely overhauled as senior bankers mull over the model and demand changes. For this reason, your model must be modular, easy to understand, and effortlessly reconfigured without creating undue errors.
Perhaps even more importantly, it must be intuitive, look simple, and be easy to understand for the senior bankers and managers whom you’re giving it to.
And this is where things get hard. You probably know how to do formulas and create scripts in Excel (and if you don’t, you need to learn ASAP), but how do you know how to make the resulting product easy to understand and configure without errors being introduced?
This is where a popular cheat sheet comes in: templates.
In your first year on the job, pretty much no matter where you work, your employer will introduce you to a library of internal templates and protocols for creating new spreadsheets. Before working on any project, familiarizing yourself with these intimately should be your top priority. Then, in the future, when you’re asked to make a model you know which standard operating procedure to follow, and you can use those templates to save yourself a lot of time and stress.
Before you’re on the job, however, you’ll need to learn how to use templates. This is an art in and of itself. In many ways, starting a spreadsheet from scratch and inserting your own formulas is easier than getting a spreadsheet from someone else and understanding how their formulas work. The more you practice at this with templates, the better you will be at the task.
Many companies offer paid templates and paid courses that teach you Excel through templates, but other places such as the Corporate Finance Institute offer some models (although one must be warned those are a teaser for a paid product). Better yet, Excel offers some very basic (and not high finance) templates that you can use to help practice how to manipulate templates, after which you can take advantage of the free templates offered by a variety of websites (just google “financial modeling excel templates”) to further practice manipulating other people’s models.
One can easily learn how to use Excel templates–and, by extension, Excel itself–by working with other people’s spreadsheets. Doing this will also teach you what are the best practices in creating your own model that is more easily understood by outsiders.
Financial modeling is, like a lot of repetitive technical tasks, best learned by mimicry rather than reinventing the wheel. While you might feel like it’s “cheating” to learn off someone else’s work, this is how it’s normally done, and it’s totally fine! As long as you don’t use someone else’s work without attribution, studying the spreadsheets of others to see how to make your own (or how to adapt a template to your own) is absolutely the best way to prepare yourself for a career of financial modeling.