Financial modelling a predictive tool for business change
Goalfix CEO Colin Human says financial modelling changed his life. Now he's spreading the word.
“In the late 70s, I was the group MD of an aluminium business. We were growing the business rapidly, and as a result always ran out of cash. Clearly, something needed to change. This is when I discovered long-term financial planning and it changed the course of my life,” says Goalfix CEO Colin Human.
“In 1978, I built my first ever financial model with Dave Theron, who was Group CFO at the time, and have been a dedicated believer in financial models ever since.”
In the ensuing four decades, Colin continued to build and use financial models across a variety of business environments. For him, financial models are an essential ingredient to assist management to make informed decisions.
“Finance Indaba Africa provided Goalfix, as a sponsor, with the perfect platform to talk to people about financial modelling and the benefits it unlocks for business executives. I believe that effective, flexible financial models provide management with the only practical predictive tool to manage the rate of change confronting businesses in current times,” says Colin.
“Appropriate models quantify strategy and provide the ability to do what-if analysis and evaluate alternative scenarios. They allow management to combine a scientific approach with practical interventions. However, it is critical that models are based on a comprehensive understanding of all key elements of the business case.”
Spreadsheets provide a wonderful platform to develop financial models, but one should not confuse excellence with spreadsheets with the capability to build effective financial models incorporating international best-practice methodology.
“Effective financial modelling is based on four pillars of knowledge, namely: using specialised tools like Excel, a knowledge of accounting and financial statements, understanding corporate finance and corporate financial metrics and best practice modelling methodology. There are various ways to examine how good your model is, what you need to do to improve it, and to ensure model integrity.
Colin says that it is only really since the early 2000s that modelling has started building momentum in South Africa.
“Today, it has become a must-have skill for finance professionals. Businesses want to know more about it and understand the benefits that models can deliver. Of course, the models of today are significantly more sophisticated than those we developed when we first started. And the best thing is that the application of these models covers organisations irrespective of size or industry.”
With companies needing to factor financial modelling into their organisational strategies, Colin concludes that this practical tool can deliver significant competitive advantages in a highly competitive and volatile business environment.