How – and Why - to Include Financial Modeling in Your Bank Business Plan

Financial modeling will play a larger role in the Bank Business Plan than you may realize. Although it is one step removed, it still forms the basis of the one of the most important aspects of the plan, the financial projections.

Financial Modeling Defined

In order to understand why financial modeling in a bank business plan matters so much, you have to know what it is. Financial models are interactive documents created in spreadsheets or special Financial Modeling software. They are created to allow for various inputs to be tested out to view and evaluate the outputs.

They are used in several business scenarios. This includes bank business plans and everyday business decision making. They can help with every aspect of the business from inventory planning to deciding which vendor to use for a specific supply, from understanding the value of the business to projecting the ROI for a potential investor.

Financial Models vs. Financial Projections

People often confuse financial projections and financial modeling. While financial models are dynamic, interactive tools, financial projections are static numbers that do not change. Financial models are meant to change, that is their purpose. to input different potential scenarios, plug in appropriate assumptions, and see the outcomes. Projections, on the other hand, are meant to be a prediction of the future. In the case of a bank business plan, this tends to be a 3- to 5-year outlook of the expected outcomes at a set point in time.

Financial Modeling as it Relates to the Bank Business Plan

1. Financial Projections – The most obvious relationship to the bank Business Plan is seen in the financial projections. You cannot arrive at your final financial projections without the use of financial modeling. Financial projections are almost never decided in one pass. They require looking at your number in various scenarios before landing on what is most reasonable and feasible.

2. Determining You Need a Loan – The only way you can know for sure if you need a bank loan in the first place is to explore financial modeling. Through the use of financial modeling, you can look at your future business plans and future cash flow. This allows you to determine if a loan is needed in the first place and, if so, when the cash infusion will be necessary.

3. Planning for Growth – Often, the need for a bank business plan isn’t out of financial survival but, rather to facilitate potential growth. It is only through financial modeling that you can view the potential future of your business’s overall trajectory. This includes viewing how you can grow if you can secure additional funding at a particular time.

Financial Modeling Facilitates the Bank Business Plan

Financial modeling allows you to see the potential future of your business. In the process of creating the financial projections for you bank business plan you are effectively set goal posts for your business. It is also highly revealing of the potential outcomes of future decisions on your business. This is all vital information that loan officers will want to consider when deciding whether to loan you and your business money. Solid financial modeling leads to solid Financial Projections which turns into positive bank loan application results.