Financial Modelling 101 For Non-Financial Guys

It was in April 2010.

After 1 and a half years enduring a toxic working environment, I found a way out of that hell.

I joined Alstom Wind, a wind turbine manufacturer headquartered in Barcelona, Spain.

I was hired to replace a woman who was in charge of Product Marketing for wind turbines in Europe.

I had no idea what was Product Marketing of wind turbines.

Before joining, I expected some kind of transitional period. I imagined me sitting with that woman for a few weeks before she left. I would then learn the ropes of my new position.

On my first day, my boss greeted me: "Welcome to the team".

He then continued: "By the way, the woman you're replacing left yesterday".

Instead of the expected transitional period, all I found was a desk, a computer, and a mountain of tasks I was responsible for.

"One last thing", he added before leaving me on my own. "You're in charge of the proforma".

"Okay", I got to mumble.

"What the heck is the proforma?", I wondered. First things that came to my mind were sales document, budgets, or commercial templates.

As it turned out, the proforma was the financial model that Alstom Wind used to simulate the financial performance of wind farm projects. The purpose was to see things from the customer's perspective in order to assess the competitiveness of our wind turbines, or those of our competitors. Understanding our competitive position allowed us to propose improvements in performance, price discounts, or better contractual terms, etc.

Long story short, it was my very first time dealing with a financial model.

I did what engineers are supposed to do when looking for solutions.

I googled. A lot.

I also experimented with the proforma. I screwed up. More than once and twice.

My learning process of financial modelling was bumpy, to put it mildly.

Looking back, it would have been much easier if somebody had told me:

1. That financial modeling is a discipline in its own right.

2. That there are standards that facilitate the construction and review of financial models.

3. That a basic understanding of accounting and finance is essential for building robust financial models.

I can't go back in time and do things differently. But I can share with you what I would do differently today if I had to advise an engineer with no financial background (me in April 2010) who wants to learn the basics of financial modelling:

1. Learn basic finance. I took the "Introduction to Finance" course offered by the University of Michigan on Coursera. This course provides fundamental concepts for financial modelling. This course has now been divided into the "Foundational Finance for Strategic Decision Making" specialization, split into four mini-courses.

2. Learn basic accounting: "Accounting: Principles of Financial Accounting". If you're looking to get a basic understanding of accounting, this course is a great start.

3. Learn basic financial modelling, with a focus on the FAST standard: "Essential Financial Modelling". This course is exceptional. It forms the basis of 90% of my financial modeling knowledge today.

All 3 resources are free.

Completing these courses does require a time commitment, but take my word - it's worth it.

Yeah, I know. Life is complex. We're all busy and stuff.

If you have financial modelling needs today but don't have the time to go through these courses, let me propose you a shortcut:

Financial modelling services.

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