An approach sometimes often taken in financial models is to work piece by piece with a lot of detail in each particular area and then try to fit the pieces together.

There are a couple issues with that. One is that sometimes the pieces don’t fit together very well. You end up having to make some changes to have to make it work. Secondly, it can be more time consuming to put the pieces together. It can be much harder work. And third, it’s longer before you get a glimpse of the big picture. You’re not sure how things are turning out. You don’t have the reality check of seeing how it all comes together and what overall numbers are resulting.

What often happens with this approach is to scramble at the end to put things together. There isn’t enough time left to review what’s done. What’s done is more subject to having some errors because there hasn’t been enough time to check through it more thoroughly. And people aren’t happy with the end result in terms of how the numbers came out. All the time gone into the production of the numbers and too little time left to think about them and massage them.

So how do you work your way around this?

Try an alternative approach. Start very simple. You have to begin by having a very simple balance sheet, P&L and cash flow together. Then you know you have something that’s integrated. The balance sheet ties out and balances. The cash flow flows and flows into the cash balance. The income from the income statement ties out to the balance sheet.

Then work on drilling down to deeper levels. Add the revenue sheet. Add the sheet for cost of sale. Add sheets for various different departments. Continue then to go another level or two deeper as need be because you have an integrated piece you can now make sure with each step of the way that you still keep that integrated model that works. Each step along the way too you’ve got a glimpse of the big picture and how all that is turning out.

So when it goes to constructing that financial model, get the big picture done then fill in more of the details. You won’t be scrambling as much at the end and you’ll find you have more time to think about the numbers.