From Ledgers to Levers: What Accountants Should Know About Financial Models

Many accountants, myself included, have at one point or another toyed with the idea of making a shift from traditional accounting or audit into a more finance-focused role. Maybe it’s curiosity. Maybe it’s the allure of more strategic involvement. Or maybe it’s simply wanting to flex different muscles within the same business environment.

Whatever the reason, one of the biggest distinctions between accounting and forward-looking finance roles—especially within FP&A (Financial Planning & Analysis)—is the importance of the financial model.

In this post, I’ll walk through the basics of what a financial model is, how it differs from the type of work most accountants do in Excel, and how you can start thinking like a financial analyst—even if you’re just starting to peek over the fence.

What Is a Financial Model?

At its core, a financial model is a spreadsheet-based tool used to forecast a business's financial performance. Unlike traditional accounting schedules that look at what happened, a financial model attempts to estimate what could happen.

Think of it as Excel used not for summarizing the past, but for simulating the future—layering historical data with assumptions to guide decision-making.

The Accountant’s Edge (and Blind Spots)

If you’re an accountant, chances are you already know your way around Excel. You’ve probably built plenty of reconciliations, rollforwards, and schedules. You may have even done some lightweight forecasting during budget season.

But here’s where the shift happens:

  • Accounting models tend to be anchored in accuracy, completeness, and compliance.

  • Finance models (especially in FP&A) are about reasonability, flexibility, and what-if analysis.

The difference isn’t just the data—it’s the mindset.

Key Components of a Financial Model

Let’s break down the anatomy of a basic forward-looking model. Here’s what you’ll often see:

1. Historical Inputs (The Foundation)

These are typically the last 2–3 years of actuals:

  • Revenue and cost of goods sold (COGS)

  • Operating expenses (SG&A)

  • Headcount and payroll data

  • Unit economics (e.g., cost per unit, price per unit)

Historicals give the model a grounded starting point. They help establish growth rates, seasonality, and baseline margins.

2. Assumptions (The Levers)

This is where modeling becomes more art than science. Analysts build out forward-looking assumptions based on:

  • Sales volume growth

  • Pricing changes

  • Cost inflation or deflation

  • Hiring plans

  • CapEx timing and depreciation

  • Interest rates and tax rates

These assumptions are dynamic. In many models, they're adjustable inputs the user can manipulate to see how the future changes.

3. The Forecast (The Output)

Once assumptions are layered in, the model projects:

  • Revenue

  • Gross profit and EBITDA

  • Operating income and net income

  • Cash flow (operating, investing, and financing)

  • Ending cash and key ratios

Often, this section is built for the next 3 to 5 years. Depending on the business, it might be monthly, quarterly, or annually.

Common Types of Financial Models

While there are many variants, a few core model types pop up often in FP&A:

  • Three-Statement Model: Links the income statement, balance sheet, and cash flow statement.

  • Operating Model: Focuses on business drivers like units sold, customers acquired, or production costs.

  • Budget vs. Forecast Model: Tracks actuals against budget, with rolling reforecasts.

  • Scenario Model: Allows toggling between different assumptions (base case, best case, worst case).

Each serves a specific business purpose, but all follow a similar logic: historicals + assumptions = forecasted outcomes.

Why This Matters for Accountants

You don’t need to become a full-time financial modeler to benefit from this skill set. But if you want to:

  • Collaborate more effectively with FP&A

  • Transition into a finance-adjacent role

  • Add strategic value to your accounting work

…then understanding the structure and language of financial modeling is a game-changer.

Just like accountants speak the language of debits and credits, financial analysts speak the language of levers and forecasts. If you can learn to “speak both,” you’ll stand out in either world.

Final Thoughts

Financial modeling may feel foreign at first, but the gap between an accountant’s Excel skills and an FP&A analyst’s models isn’t as wide as it looks. You already know how to build logically and think critically. Now it’s about applying those same skills to what might happen, not just what did.

In a future post, we’ll explore how to get started with a simple model of your own—but for now, take a moment to look at the next forecast you come across. Don’t just review the numbers. Ask yourself:

“What assumptions drive this forecast?”

“Where did those assumptions come from?”

“How would I build this differently?”

That’s how you start thinking like a financial analyst—one cell at a time.

Your CareerJohn The CPAComment