We often hear from “I can’t build a financial forecast as I am not an accountant…”. Well, to build a financial model, the level of accounting and Excel knowledge you need depends on several factors, but for most business operators and founders, a basic working knowledge of accounting and Excel is enough to get started and build a pretty robust forecast. The importance lies in understanding the purpose of the model, its users, and having a clear grasp of the business’s drivers. Financial modelling is a skill that develops over time, and the technical requirements often become easier as you gain more experience.
Let’s start by understanding the role of accounting in financial modelling.
Accounting provides the framework for financial statements—the income statement, balance sheet, and cash flow statement. These are the core components of any financial model. If you can read and understand these documents, you already have the foundation to build a model. The goal is not to become an accountant, but to have enough knowledge to represent the financial health of the business accurately.
As a minimum, you need to know how to categorise transactions into revenues, expenses, assets, liabilities, and equity. This means understanding how income and expenses affect profit, and how balance sheet items like cash and inventory move in relation to each other. More advanced accounting concepts—like deferred revenue, depreciation, or tax provisions—are important but can be learned as you grow more comfortable with modelling.
That said, you don’t need to master accounting. A deep understanding of accounting standards or the minutiae of tax regulations isn’t necessary unless your model is intended for technical accounting purposes, such as preparing a tax return or auditing a business. For most financial models, your aim is to forecast future performance, track business metrics, or present a potential investment opportunity. In these cases, understanding the key drivers of revenue, expenses, and cash flow is more important than knowing the technicalities of accounting.
The real focus should be on understanding the purpose and audience of the model.
The needs of a startup founder preparing a pitch for investors are different from those of a CFO creating a detailed budget. If you’re building a financial model to show profitability and growth potential, you’ll need to focus on revenue drivers, cost structure, and key performance indicators (KPIs) like customer acquisition costs or margins. On the other hand, if your model is for internal management, you’ll need to go deeper into operational details, cash flow, and working capital. What matters most is tailoring the model to its use, not necessarily having a deep understanding of every accounting principle.
When it comes to Excel, most people assume you need advanced skills to create a financial model. That’s not entirely true. You need to know how to use Excel efficiently, but you don’t need to be an Excel expert to start building models. Basic Excel skills like formulas, formatting, and referencing cells are enough for the majority of the work. Financial models rely heavily on simple but accurate formulas, good organisation, and logical structure. Mastery of complex Excel functions, like array formulas or macros, can enhance a model but is not a prerequisite. You can build strong, reliable models with fundamental Excel functions like SUM, IF, and VLOOKUP which give you the flexibility and ability to scale a model up.
What’s we think i more important than Excel mastery is the layout and structure of your model.
A good model is easy to follow, has clear assumptions, and allows for quick updates. You need to focus on presenting your data clearly, ensuring consistency, and making the model flexible. Using simple features like conditional formatting or data validation can help ensure your inputs are error-free. The real challenge is attention to detail, not Excel complexity.
As you gain more experience with financial modelling, your Excel skills will naturally improve. Over time, you’ll discover shortcuts, functions, and techniques that make your modelling faster and more efficient. You might eventually start using pivot tables, index-match formulas, or even basic macros, but this will come with practice. Early on, there’s no need to overwhelm yourself by thinking you need to know every Excel trick to build a solid financial model.
The common misconception is that you need to be either an accounting expert or an Excel wizard to succeed in financial modeling. But in reality, the more important skills are understanding the financial drivers of your business and the context of your model. The best financial models are not necessarily the most complex, but the ones that clearly communicate key financial information to the intended audience.
You don’t need an accounting degree to build a model that forecasts revenue, estimates costs, and projects cash flow. You need a practical understanding of how a business generates income and what expenses it incurs. As for Excel, it’s not about being able to build sophisticated formulas. Instead, it’s about making sure your model is clear, flexible, and easy to update.
Of course, the deeper your accounting and Excel knowledge, the more advanced your models can become. But these skills grow over time with experience. A basic working knowledge of accounting and Excel is sufficient for most business operators. The key is to start building models and learn as you go. Every model you create will improve your skills, whether it’s in organizing the financial information, understanding the financial impact of certain business decisions, or becoming more efficient in Excel.
In short, don’t get bogged down by the need for technical expertise. Focus on the purpose of your model, understand your audience, and keep refining your skills. You don’t need to be a financial expert to create valuable, functional financial models. What’s more important is your ability to translate business operations into numbers that can be forecasted and analysed. The technical skills will follow naturally as you gain more hands-on experience.