Inconsistencies in Financial Model and How to Overcome Them?
The financial model works to your advantage in every aspect, and you get the most benefits while looking for investment in growth and development.
The Ernon financial model is one of the most classic examples of corporate failure due to an unsound financial model. This method manipulates financial reports using Mark-to-Market (MTM) accounting. Under MTM accounting, companies take assets appearing on their balance sheet into account at their fair market value rather than the book value. It also allows them to report future profits as if they are already earned instead of waiting for the actual numbers.
Even Ernon’s CEO, Jeff Skilling, admitted that explaining the company’s financial numbers is hard. The company filed for bankruptcy due to this incorrect financial model when its share value was 0.26. Ernon’s downfall highlights the importance of a sound, accurate, transparent financial model.
As a business owner, in order to ensure your financial model accounts for long-term stability, it’s essential to incorporate several key practices and strategies. Let’s dive into this article to know more about.
Common Inconsistencies in Financial Model
Consider a startup preparing a financial model for its potential investors. The company is optimistic about its future growth and estimates a significant revenue increase. However, they did not account for the increasing cost of running the business at scale. This means that the financial picture looks unrealistic in its current status because revenue is increasing without following the costs associated with the revenue.
Some investors will find red flags regarding the company’s credibility when reviewing the financial model. To resolve this, the startup should revise and adjust the model to balance revenue and related costs. Likewise, companies can make three possible financial model errors when developing one. We will see those and the steps to avoid those errors.
Structural errors
A well-structured financial model goes beyond the utility of its digital form. Equally important in this regard is that the model is user-friendly. For instance, if assumptions are scattered across multiple sheets without clear connections, users may struggle to understand how inputs affect outputs.
All models have several sheets; hence, improper organization and layout could be challenging to comprehend. Proper layout mainly makes sure that users can efficiently navigate and interact with the model.
Calculation errors
Any financial model will have these fundamental yet significant flaws. Correct organization can help reduce these mistakes. Linking among workbooks must be consistent. For instance, column M in a worksheet should connect with column M in the prior worksheet to keep consistent linking. Linking mistakes are primarily about maintaining consistent logical links.
It is important to understand your assumption’s impact on your model. For example, what happens if sales drop from 3% to 5%, and how do these assumptions impact your model?
Transparency errors
One of the typical mistakes in financial modeling is the lack of openness resulting from inadequate structure. When inputs and situations are kept orderly and separated yet conveniently accessible, the model becomes more transparent and user-friendly.
It is important to record the model’s stage and modifications in transparent language. This includes a style guide and version control so that the rationale of the model and its historical development become immediately understandable.
Strategies to Overcome Inconsistencies in Financial Model
Organizations can enhance the reliability of their financial models, leading to better-informed business decisions by addressing these common inconsistencies and implementing robust practices.

- Keep it simple – A simpler financial model reduces errors and enhances transparency. The structure should not be complex, and formatting should be standard.
- Consistency – You should use consistent assumptions and methodologies in your model.
- Logical Organization – When creating a financial model, break the financial model up into sections where there are calculation areas, assumption areas, and output areas. You can always easily check and review afterward.
- Regular Reviews – You should have a periodic review of your model (internally and externally) to identify mistakes before they go out of hand.
- Documentation – Record all the inputs, methodologies, and assumptions you use for your financial model. This lets others follow the logic you applied to your calculation and avoid the wrong interpretation.
Eqvista’s Financial Modeling Tool
Eqvista offers a comprehensive suite of financial modeling tools designed to assist businesses in making informed financial decisions. Whether you are a startup seeking funding or an established company planning for growth, Eqvista provides the necessary tools to support your financial strategy.
Check out our new and improved features of financial modeling:
Waterfall Analysis
This helps to understand the distribution of payouts among shareholders upon an exit event. It shows how different classes of shares will receive funds based on predefined preferences and conditions, allowing for better strategic planning regarding investments and exits.
Key Functions:
- Cap table comparisons for payout values
- Breakdown of preference liquidation for investors
- Instant updates based on input changes

Round Modeling
The Round Modeling helps businesses to analyze the implications of new investments on share dilution. This feature is useful for startups and growing companies as it helps manage ownership stakes during funding rounds.
Eqvista allows users to run various scenarios to assess potential outcomes based on different assumptions. This feature is crucial for understanding how changes in market conditions or operational strategies might impact financial performance.

Key Functions:
- Visual representation of new investments through pie charts
- Options for pre-money and post-money valuations
- Instant reactivity to input data changes
Eqvista’s financial modeling tools are tailored for startups and established businesses alike, offering insights that help navigate the complexities.
Scenario Analysis
Eqvista allows users to run various scenarios to assess potential outcomes based on different assumptions. This feature is crucial for understanding how changes in market conditions or operational strategies might impact financial performance.
Eqvista’s financial modeling tools are tailored for startups and established businesses alike, offering insights that help navigate the complexities.
Overcoming Financial Model Inconsistencies with Eqvista
The financial model works to your advantage in every aspect, and you get the most benefits while looking for investment in growth and development. This model lets you make informed decisions about business funding and planning, among other things.
Eqvista provides several financial modeling tools, such as round modeling and waterfall analysis. These models help companies make the right investments and figure out the effects of share dilution and exit strategies.
Schedule a free consultation with our experts to learn more about Eqvista’s financial modeling services. Sign up with Eqvista today to unlock the real power of robust financial modeling services.
Interested in issuing & managing shares?
If you want to start issuing and managing shares, Try out our Eqvista App, it is free and all online!