17 July 2019
UHY has recently been involved in projects where critical business decisions, for example, whether or not to tender for a contract, have been influenced by a Long Term Financial Model (LTFM).
Some may argue that it’s difficult to predict what may arise in the future, and there are a number of assumptions you have to make to get there. However, a strong understanding of your organisation/industry, whilst ensuring the model delivers key features, should allow your LTFM to become a key planning tool underpinning your organisational and financial strategy.
An LTFM is a vital modelling tool to enable financial issues to be identified in advance and allow changes to be made to ensure a project has sufficient financial stability to move forward. Conversely, it could also identify that a project or contract cannot be achieved in its current format and should be ceased or modified.
Key benefits of a LTFM include:
- Understanding the impact of service developments, disinvestments and other key business decisions on:
- Long term financial viability
- Setting KPIs against which long-term performance can be measured
- Identifying future savings and efficiency requirements
- Identifying future borrowing requirements
- Assessing the revenue and cash consequences of capital projects
- Tax planning
- Overall one-stop-shop for forecast financial statements and key metrics.
Initially, building your LTFM can be a complicated and daunting process with many variables and sources of information to consider. If you would like any help or advice on building a Long Term Financial Model, please contact me or your usual contact within the team.