How Financial Modeling should be applied to Your Bank Business Plan

 

The practice and exercise of Financial Modeling will play a large role in any business plan, especially a bank business plan.  Every business plan should be written with the audience in mind.  When it comes to the bank business plan, the audience will be more critical of your financial modeling techniques and ensuring that your numbers are reasonable than in other types of business plans.  Due to this high scrutiny, there are a few things to keep in mind about how your financial modeling will tie into the final bank business plan.

Have Financial Modeling Output Linked to Final Financial Projections

First and foremost, your financial modeling should be linked via the spreadsheet or other software program features to your financial projections that will be put into the Bank Business Plan.  Your financial modeling may get expansive and relatively complicated as your bank business plan evolves and you begin to plug in all the information you will need.  It is important to keep track of where all the numbers are flowing from so you can fully understand and double check your numbers.

Providing the Backup for Your Financial Projections

Proper linking is important for providing back up.  If your bank business plan is done well, it should raise questions.  A great deal of those questions tends to be around finances.  When creating the financial modeling for your bank Business Plan, it is going to be based on a lot of assumptions, especially if the business is brand new.  When you properly label and link your inputs, including making notes as to the assumptions, this will provide further detail that you will be able to quickly reference to answer any questions.

Include Key Financial Modeling Elements in the Appendices

Because so many of the assumptions behind your Financial Modeling will – or at least should - be written in your financial projections, the details behind it will be in the financial models themselves.  Some financial models are difficult to capture due to their size and expansiveness.  However, those that can be paired down, shown in a summary version, of where the entire financial model fits, should be considered for the appendices.  In the end, you likely won’t include everything but, there are certain pieces of information you will decide to include.

Financial Modeling Exercises Help Demonstrate Your Numbers are Reasonable

In a bank business plan, more than other types of business plans, they don’t want to know the best possible outcome, they want to know the reasonable, most probable, and conservative outcome.  They will also be more interested in the care with which you have approached your cash flow plan.  You will need to balance reinvesting in the business so it can grow, while also making sure you have enough available cash to cover your loan payment.

Regardless what type of business plan you are creating, financial modeling will play a huge part.  However, there is heightened scrutiny around your financials in a Bank Business Plan in many ways.  When numbers are uncertain and based off of assumptions, you need to put a loan officer’s mind at ease.  This all begins with effective financial modeling.