Common Mistakes in Financial Modelling and How to Avoid Them
In Australia, many startups and small businesses utilise financial models to secure funding or accelerate growth. But people often make mistakes while building these models. These small errors can lead to big problems later. At JAKS, we collaborate with CA, CPA firms and advisory firms to deliver reliable outsourced accounting and financial modelling services, enabling us to provide clients with clear, accurate, and practical financial advice. Let’s look at the most common mistakes and how you can avoid them. 1. Not Showing Clear Assumptions Every financial model begins with a few assumptions or projections about the future. These are called assumptions. For example, how fast your business will grow, how many customers you’ll get, or how much you will charge for your product. Mistake: Many people forget to write down these assumptions. Solution: Create a separate section in your model where you list all assumptions. Keep it easy to read and simple to change. This is especially useful for startups in Australia that want to raise money or show their plan to others. 2. Typing Numbers Directly in Formulas Sometimes, people type fixed numbers inside formulas instead of using input cells. This is called hardcoding. Mistake: If you want to change the number later, you’ll need to search through the entire model. Solution: Put all important numbers in one place—like an “Inputs” or “Assumptions” sheet—and link your formulas to that. This makes it easier to update the model. Many businesses in Australia use this method to maintain the neatness and clarity of their models. 3. Making the Model Too Complicated Some people try to include too much detail in their models. They add every small number, which makes the model hard to use and understand. Mistake: A complex model takes more time and can confuse others. Solution: Keep it simple. Focus on the key components—such as sales, costs, and profit. You can always add more details later if needed. In Australia, many business owners prefer simple models that are easy to share and update. 4. Using Confusing Formats If the model uses different fonts, colours, or styles without a clear plan, it becomes hard to follow. Mistake: People won’t know which cells they can modify and which they should leave alone. Solution: Use colours wisely—like blue for inputs, black for formulas, and green for results. Maintain a consistent style throughout the file. This helps anyone using your model, including partners or investors in Australia, understand it faster. 5. No Error Checks Models sometimes have small mistakes that are easy to overlook, such as totals not adding up or cash going negative. Mistake: Without checks, these problems stay hidden. Solution: Add simple checks to your model. For example, ensure the balance sheet balances or highlight when the cash balance goes below zero. This keeps your model safe and reliable. 6. Fails to Test Different Situations Business does not always go as planned. Many people forget to test what happens if things go better or worse than expected. Mistake: Building the model for only one future case. Solution: Test 2 or 3 situations—like best case, worst case, and normal case. This is called scenario analysis. It helps you plan for changes and manage risks. Many companies in Australia use this method to prepare for ups and downs. 7. Fails to update the Model Some people build a model once and forget about it. However, as your business evolves, your model should evolve as well. Mistake: Using outdated data or plans that are no longer relevant. Solution: Update your model regularly, ideally once a month or quarterly. This helps you make better decisions with the latest numbers. In fast-changing markets like Australia, this habit is very helpful. A good financial model doesn’t have to be fancy. It should be clear, simple, and easy to use. Avoiding common mistakes—such as unclear assumptions, hardcoding, excessive detail, poor formatting, inadequate checks, insufficient scenarios, and failing to update—can make a significant difference. Whether you’re starting a small business or growing a company in Australia, building a strong and simple financial model will help you stay on track and reach your goals faster. At JAKS Australia, we help CA and CPA firms as well as business advisors by providing expert support with financial modelling and business valuations. Our goal is to make your work easier by giving you clear, accurate, and on-time financial models for mergers, acquisitions, or other business decisions. We understand Australian rules and market trends well, and we work as part of your team to help you give smart, reliable advice to your clients. JAKS helps to make complex financial modelling engagements simpler for your firm, so you can focus on delivering high-value advice to your clients. Get in touch with us at +61 402 554 052 or email [email protected] to find out how JAKS can support your team.
