Why to Rely on Financial Modeling to Strengthen Your Bank Business Plan

When it comes to the Bank Business Plan, financial modeling is discussed far less than financial projections. While financial projections are key to a strong plan, financial modeling will strengthen it even further. Financial projections can’t – or at least shouldn’t – exist without financial modeling, so it makes sense that they are just as, if not more, important. Giving them the attention they deserve will improve your financial projections and your bank business plan overall.

Defining Financial Modeling & It’s Role in Financial Projections

The first step to appreciating how and why to rely on financial modeling in the bank business plan is to make sure you understand financial modeling. Financial modeling is often confused with financial projections but, the two are quite different.

Financial projections are static, set figures that do not change. Financial modeling is an interactive, dynamic process that will allow you to determine or set many numbers, including financial projections. It is also used to look at potential outcomes of anything that involves numbers and finances.

Financial modeling is a working spreadsheet – most commonly created in Excel - that allows you to put in various different inputs to see how it will impact outputs. When it comes to financial projections in your bank business plan, financial modeling is the process of putting in potential revenues and expected expenses as well as other variables to arrive at the eventual financial projections.

The Importance of Financial Modeling in the Bank Business Plan

Clarifying Assumptions – You will explain the assumptions that go into your Financial Projections throughout your bank business plan. You will even note some of the assumptions next to or as a footnote with the financial projections. Some lenders will want further clarification and that is most easily addressed by showing them the formulas used in your financial modeling.

Proving Reasonability – When you are working on financial modeling to determine the financial projections for your bank business plan, you will likely examine a wide range of your numbers. In most cases, you will go with a sensible number somewhere in the middle. If the lender or loan officer questions how you arrived at your number, you can show you picked a likely number in the middle of all reasonable expectations.

Demonstrating Thoroughness – Financial modeling does more than help you arrive at the final numbers in your bank business plan, they also ensure you think through all possibilities. It is that sort of thorough consideration that is likely to impress loan officers and make them feel more confident that you will be able to successfully run your business. It may not be the deciding factor but, it can help sway them one way or another.

Conclusion

While financial projections tend to get all the glory in the Bank Business Plan, they would not exist without financial modeling. The process of arriving at the final number is just as – if not more – important than the final numbers themselves. When a potential lender or loan officer want to dig deeper into your financials, having clear and well-considered financial modeling setup will make the process easy and help strengthen your overall application.