modelling
Modelling is building a spreadsheet that predicts how a business or deal will perform in the future, using numbers instead of guesswork.
In plain English
How do people who work in banks and boardrooms seem to know what a company will earn three years from now, before it has even happened? They are not psychic. They have built a model.
A financial model is simply a spreadsheet that takes what you know today, like how much a business sells and spends, and stretches those numbers forward using assumptions. If a Lagos supermarket chain wants to open five new branches, someone builds a model that says, if each branch does ₦8,000,000 in sales a month and costs ₦5,500,000 to run, here is what profit looks like in year one, year two, year three. Change the assumptions, and the whole consider shifts.
This is how big decisions get made in real life. A bank deciding whether to lend a company ₦200,000,000 will ask to see the model behind the request. A private equity investor looking at a Nigerian fintech before putting in money will build or check a model that shows how the company grows, what it costs to acquire customers, and when it might turn a profit. In the United Kingdom, analysts do the same thing before a company lists on the stock exchange, testing what happens if inflation rises or a key contract is lost.
Even outside the corporate world, the logic is familiar. Someone in the diaspora planning to send ₦300,000 home every month is calmly modelling their own life, working out what happens to their savings if the exchange rate moves or if an emergency comes up. Good modelling is just organised thinking about the future, written down so other people can check your assumptions instead of just trusting your gut.
The skill is not in the formulas, which are usually simple addition, subtraction and percentages. The skill is in choosing honest assumptions and being willing to change them when reality disagrees.
A property developer models a new estate in Abuja. They assume 40 plots sold at ₦15,000,000 each over two years, with construction costs of ₦380,000,000. The model shows profit only if at least 30 plots sell within that window, which tells the developer exactly how much marketing pressure they need to apply.
Questions people ask
Do I need to know accounting to build a financial model?
It helps, but the core of modelling is logic, not accounting rules. If you understand that revenue minus costs equals profit, and you can be honest about your assumptions, you already have the foundation. The accounting knowledge helps you refine it, especially for things like depreciation or working capital.
What software do people use for modelling?
Excel remains the standard almost everywhere, from Lagos investment banks to London corporate finance teams, because it is flexible and everyone can check your work. Some larger firms use specialised software for very complex models, but the thinking underneath is still spreadsheet logic.
How do I know if a model is any good?
A good model is easy to follow, clearly shows its assumptions separately from its calculations, and changes sensibly when you tweak one number. If changing one assumption breaks the whole thing or gives a strange result, the model has a problem worth investigating before anyone trusts it.
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