Data for a model

Effective financial modeling is driven by data, but different types of models require different kinds of data. In the next couple of minutes, I'll show you how to determine what data you will need to build an effective financial model. All businesses have access to lots of data. There's a variety of different sources of data that you can use when it's time to start gathering data to build a financial model. You'll probably have access to proprietary data, like customer data, for example, you certainly have access to publicly available data, for example from the U.S. Census Bureau or the Federal Reserve. But you probably want to start with internal data. Most financial models begin with internal data, for example, data about historical financials for the firm, revenue, costs, profits, et cetera. You wanna build in some external data for scenario analysis, though, or where you are trying to model something that's particularly complicated, and where external factors may play a big role on the outcome the company sees. So where can you get the data you need? 

You have three choices: buy it, build it, or gather it. Those are the three options to get any piece of data that you need, and they're the only three options. If you're going to buy data, there's a variety of vendors out there that you can choose from, depending on the type of data that you need. Building data is more difficult, but it won't necessarily cost your company any money directly. If you're trying to build a data set, you might, for example, be able to rely on internal data the company already has, or at least be able to build data based on an existing customer base, your CRM, et cetera. And then finally, you can gather data from a variety of public sources to build your data set. So, what type of data do you need for the project? Well, that's the key question in any financial model. Your data needs are driven by your project needs. So ask yourself, what are you trying to model? Is this a short-term financial model, meaning less than a year, or is it a long-term financial model over multiple years? Is this a model where external factors are gonna play a major role in the decision making process? If so, you probably want external data about the marketplace and competitors. Or is this primarily an internal financial model, where success or failure of the decision will be driven by internal decisions made by the company. In that case, you may not need any external data at all. So start by thinking about what you're trying to model, and then ask yourself what the characteristics are of that decision, and that'll tell you what data you need for your project. Now you're ready to start identifying and collecting data specific to your firm and its particular needs and issues.