E-BOOK
Building a Three-Statement Model
Eight chapters on how the statements link, why the balance sheet is the check, and the errors that break models. One company runs through every chapter, and its model is free on this hub, built exactly as the book describes, so you can read the mechanism and then take it apart.
- Eight chapters, one worked company, the model itself free alongside
- The three links that make a balance sheet balance by construction
- The five errors that break models, each with its tell
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Who this e-book is for
Founders and finance leads building a model, inheriting one, or about to hand one to a lender or investor, who want every number on it to be able to explain itself.
Your model is really three separate spreadsheets
A P&L here, a cash forecast there, a balance sheet nobody updates. Chapter five is the cure: cash on the balance sheet is the cash flow’s closing balance by reference, retained earnings roll up each month’s profit, and every accrual that is not yet cash sits as a liability. With those three links in place, the check row is zero for any assumptions, because equality is built in rather than checked in.
Your profit and cash disagree and nobody can say why
Chapter four itemises the gap on the worked year: £282,901 of profit after tax becomes £330,048 of cash, because £94,300 of corporation tax is accrued but not due for nine months, less the working capital that growth absorbs. A model that cannot explain its own gap between profit and cash is a drawing, not a model, and the book shows the reconciliation line by line.
A lender or investor will read it soon
Diligence reads the model before it reads the deck, and it tests the same things chapter six lists as the classic breaks: the plugged balance sheet, growth without working capital, depreciation without capex, tax paid the month it accrues, the circular interest calculation someone silenced. Each comes with its tell, so you can find them in your own model before anyone else does.
FACTS
The balance sheet is the check
The P&L and the cash flow can both look plausible while being wrong. The balance sheet cannot: if assets do not equal liabilities plus equity, something upstream is broken. That is why it is the statement modellers skip, and the one that catches them, and why the book’s whole method is to make it balance by construction rather than by plug.
8 chapters
One worked company throughout
£47,147
The gap between the demo year’s profit and its cash, itemised
FACTS
Drivers, not numbers
The moment someone types 268,000 into a cell instead of 40 clients times £6,700, the model has started to die. The book’s discipline is that every line is a driver times something, the drivers live on one visible sheet, and the conventions, whose EBITDA, which tax rate, what net debt nets, are written down where an argument can find them.