Please download the free simple financial model example Excel spreadsheet Basic Model General Store.
A general store is a familiar example to many. Following through a few simple transactions spread over multiple time periods will help to explain how to build a model and how a model may differ from bookkeeping and accounting in its function. This section of the tutorial follows the philosophy that it is easier and faster to follow through what has been done rather than build it from scratch. Some of you may find it confusing at first, depending on your experience level, but this technique also reduces the number of steps and amount of work to learn how to create a simple financial model.
Our store contains only sacks of grain and sells to farmers on trade credit terms. Our store is a country store and only undertakes one transaction per day. First we will walk through opening the store and some income activities to gain familiarity with the model format.
Note that this model breaks with good formatting techniques for simplicity. This model also adds features and functions as we step through the process. A real model would, of course, be consistent across time periods, and would be assembled all at once, not built up over several columns. The first several steps in creating this model will feel a lot more like accounting than modeling, but they are useful for illustrating the structure & function of the model and helping you know how to reflect a financial situation inside the spreadsheet. If you are immediately lost with the layout of the example, please look at Accounting Overview section [2a] of this site and the quick discussion on GAAP and three statement accounting to get started.
Please download the example to explore while reading the following narrative. The numbers below correspond to the labels in the column headers in the model. The bones or architecture of a financial model are very similar each time, no matter what is driving the inputs and outputs. Please select on the side menu column descriptions in order. First is an opening transaction along with a narrative from the top of the sheet to the bottom of the sheet with how’s and why’s of creating the basic model structure.