All Companies Benefit From Externally-Built Financial Models
Many companies believe that having a CFO, or a robust financial department, means that they shouldn’t look into an externally built financial model. After all, their team could build it in-house and save some money, right?
Even though the above statement is sometimes correct, unless your company has a dedicated team of financial modelling experts (which some larger organizations do), you might want to reconsider. We have outlined below some of the reasons why many of our mid-market clients (with CFOs and analysts) have decided to choose externally built financial models.
Tighter quality control:
Even if your team has the capabilities, knowledge and time to build a financial model, it is always important to ensure that everything is working seamlessly. This is especially true for companies that are using the data to make big operational decisions or that are going to use the model on an ongoing basis. In these situations, the oversight provided by an external team adds one more important layer of quality control.
Analyze, don’t build:
Building a correct financial model can take a lot of time and effort. On many occasions, the internal staff attempting to build the model also have a lot of other responsibilities that they must focus on. Companies often work with external partners to help them build the model to allow their team to focus on these issues and keep the regular operations of the business moving. Allowing the internal team to analyze and make decisions on the results, without investing all their time to build it. In fact, many of our clients say “I want our analyst to be consumers of data, not creators of data.”
Benefits of specialization:
Just like any field, Finance has a lot of specializations. Financial modelling and data analysis are specialized fields that not all finance professionals’ master. This is why many organizations decide to build a financial model with consulting firms that strictly focus on this specialization. After all, they have been doing this for many years, with many similar clients, while providing excellent results!
Unbiased third-party opinion:
A key factor that many CEOs, leadership teams and boards of directors consider when evaluating numbers, is that the data presented to them is correct, reliable, and unbiased. Even though the internal finance team wouldn’t intentionally use biased numbers, on many occasions the data and the assumptions could be on the optimistic side. Furthermore, it’s easy to get lulled to sleep by the data when you see the same thing constantly. This is why an external and unbiased financial model is widely used to make corporate decisions. Not only will the data and assumptions be impartial, but they also count on experience from other companies (in similar situations) as well as benefiting from a fresh set of eyes.
These are some of the many reasons why you shouldn’t completely overlook externally built financial models, even if you have a financial team and/or a CFO. We have seen that companies make better data-driven decisions when specialized third-party experts work together with internal teams. In our experience, this is when both parties play to their strengths for the better of the company!
Stay tuned for a follow-up blog, where we will discuss:
Modelling best practices transfer
- Error checks
- Fill right
- Quality control process
Industry best practices transfer
- Don’t miss any category of costs.
- Don’t leave money on the table.