Practical use cases of financial modelling 

Let’s be clear:  financial modelling isn’t just about crunching numbers for the fun of it. In business, these Excel models are essential, whether you’re managing cash flow for daily operations or mapping out a major investment that could change the company’s direction. Companies depend on these tools to make smarter choices and reduce risks, plain and simple. So, whether it’s budgeting for the next quarter or preparing for a big strategic leap, Excel-based financial models are right there in the thick of things, guiding decisions and keeping the business on track.
 

  1. Startups: planning and raising funds

Here’s the deal: when you’re building a business, financial models aren’t just nice to have; they’re absolutely essential. Investors and lenders aren’t  just throwing money at ideas; they want to see numbers that make sense. Now, startups don’t have a track record yet, so you’ve got to think commercially, look at top-down inputs and make smart predictions about things like market size, pricing, customer acquisition costs, and what it’ll actually take to keep the lights on.

Think of your financial model as your business’s crystal ball. It shows where the money’s going, how much you’ll need, and when your company might finally start making a profit or generating revenue. Those projections? Investors scrutinise every line. Startup modelling is highly subjective, volatile and contingent on several assumptions, so you’ll need solid income statements, clear cash flow forecasts, and metrics like burn rate and break-even point to prove you know what you’re doing. If your model holds up, you’re far more likely to get the funding you need to move forward.
 

  1. Budgeting and forecasting for growing businesses

Once a company is up and operating, financial models basically become its GPS. When doing a company’s financial planning, the finance team digs into last year’s figures, mixes in the current objectives, and maps out where revenues, expenses, and cash flow might land in the coming year, or sometimes even further out, if they’re feeling bold.

These models aren’t just about staring at spreadsheets, either. They let leadership evaluate performance or run through “what if” scenarios. For example, what if sales only increase by 5% instead of the 10% everyone hoped for? Or what if raw material costs spike by 15% unexpectedly? What’s the backup plan? Running these simulations helps executives get a grip on potential risks and spot opportunities, so they’re not caught flat-footed.

As actual results come in, you line them up against the model’s projections to see if you’re hitting targets or veering off course. If things aren’t tracking,  you pivot. Quickly. Bottom line: these models keep leadership proactive, not scrambling.
 

  1. Raising capital: debt or equity

When a company wants to raise capital, whether through a bank loan, issuing bonds, or attracting equity investors, a good financial model isn’t just nice to have; it’s non-negotiable. This isn’t just a pile of numbers; it’s a blueprint. It spells out exactly how that new capital’s going to be put to work: expanding operations, upgrading equipment, or whatever the strategy demands. More importantly, it shows how those moves are going to generate enough cash to pay back lenders or deliver attractive returns to investors.

Let’s be real: lenders and investors aren’t writing cheques on instinct or gut feeling. They’re combing through those projections, trying to figure out if your business is a smart bet and what kind of terms they should offer. Take a fast-growing startup, for example: they’ll use the model to lay out scenarios, showing how an injection of capital can turbocharge growth and push the business into profit, which is music to a venture capitalist’s ears. On the debt side, a well-built model can prove you’re good for the repayments, which helps when negotiating lower interest rates or more flexible repayment terms.

Bottom line: a strong financial model isn’t just a formality. It’s your ticket to better deals and investor confidence.
 

  1. Mergers, acquisitions, and valuation

When it comes to mergers, acquisitions, or major investments, financial models are absolutely essential. Analysts build out these in-depth spreadsheets - DCF, LBO, you name it, to figure out what a target company is actually worth, estimate synergies and gauge what kind of effect an acquisition might have on the buyer’s bottom line.

These models aren’t just about slapping a price tag on a company. They dig into projected cost savings, the inevitable integration challenges, and how different financing options, debt, equity, or a blend, will play out in real numbers. This helps leadership not only pin down a reasonable offer but also map out the smartest way to pay for the deal.

If you’re a founder gearing up to sell, a solid financial model can back up your asking price with real data on future profitability. On the flip side, investors use similar models to set their own limits on what they’re willing to pay for a stake. Either way, these models give everyone a clear, structured way to compare their options, whether that means acquiring Company B or investing that capital somewhere else entirely.
 

  1. Evaluating projects and allocating capital

Let’s be honest: businesses constantly wrestle with where to funnel their limited resources. Do they roll out a new product line, invest in a fresh location, upgrade equipment, or break into an untapped market? Every decision is a gamble when budgets are tight. That’s when financial modelling steps up, using tools like NPV, IRR, and payback period to crunch the numbers and cut through the guesswork.

Take a retail chain, for example, weighing the pros and cons of launching a string of small stores versus a couple of larger ones. Instead of flipping a coin, they turn to modelling to project which move is likely to boost profits and cash flow over time. These models let businesses stack options side by side, see the potential upside (or downside), perform their cost-benefit assessment and make choices that actually line up with strategic goals. They’re also handy for playing with timing. Want to see how pushing a project forward or holding off might impact returns? The model’s got your back.
 

  1. Managing risk and preparing for uncertainty

Financial modelling isn’t just about crunching numbers; it’s a core tool for spotting risks before they become real problems. By mapping out a range of scenarios - best case, middle of the road, and absolute worst - companies get a clear sense of how things like market shifts, customer habits, or supply chain hiccups could hit their bottom line.

Early warning signs? That’s the payoff. Say your worst-case numbers show a looming cash shortage. Instead of panicking, management can take action ahead of time, maybe by expanding their credit lines or tightening spending. That’s far more effective than scrambling when things go south.

Finance executives, especially CFOs, rely on this kind of scenario planning to steer big-picture decisions. How much cash should you have on hand? Is it time to branch out and diversify revenue? In a world where volatility is the new normal, proactive modelling gives leadership the confidence to make smart, timely moves, instead of playing catch-up when surprises hit. 
 

Article written by Finance & Deals Team at RSM Malta