Financial Modelling Best Practices: What Banks Actually Expect
7 min read
Why Structure Matters
In banking, your model will be reviewed by associates, VPs, and MDs who did not build it. If they cannot follow your logic in 30 seconds, it does not matter how technically correct it is. Structure, formatting, and conventions are not optional — they are how you demonstrate professionalism.
Colour Coding
Every bank follows the same convention:
- Blue font: Hardcoded inputs and assumptions (cells you type into)
- Black font: Formulas and calculations (cells that reference other cells)
- Green font: Links to other sheets within the model
- Red font: Links to external files (rarely used)
This convention exists so that anyone reviewing your model can instantly see which cells are assumptions (and therefore debatable) versus calculations (and therefore mechanical).
Layout Principles
Time flows left to right: Historical years on the left, forecast years on the right. Never reverse this.
One row per line item: Never combine two concepts in one row. Revenue and revenue growth should be separate rows.
Assumptions on a separate sheet: Keep all inputs in one place. Every formula in the model should trace back to an assumption that can be changed.
Consistent formatting: All currency values in the same format (#,##0.0). All percentages in the same format (0.0%). All multiples as (0.0x).
Error-Checking
Balance sheet check: Total Assets must equal Total Liabilities + Equity. Add a check row that shows the difference — it should always be zero.
Cash flow reconciliation: Ending cash on the CFS must equal cash on the balance sheet.
Circular reference management: If your model has a circular reference (interest → debt → cash → interest), use an iterative calculation or a manual toggle to break the loop.
The Test: Could Someone Else Use This?
The ultimate test of a good model: could someone who did not build it open it, understand the structure, change an assumption, and get a correct output — without asking you a single question? If yes, it is a professional model. If no, it needs more work.
Take Your Preparation Further
For a fully structured model that follows all bank conventions, download the 3-Statement Financial Model. For the complete set of models (DCF, LBO, merger, 3-statement), get the Complete Modelling Toolkit.
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