Financial modeling is the process of organizing and analyzing raw data to create forecasts, insights, and recommendations. While financial modeling has always had a place in finance, the number of jobs, both in and out of finance, that require financial modeling skills continues to grow. The following are some of the top careers for those interested in working with financial modeling.
Investment Banking
Investment banking is a classic financial modeling career. Investment bankers must use financial modeling to evaluate everything from mergers and acquisitions (M&A) to the long-term impact of taking on additional debt. Those looking to pursue a career in investment banking must have a deep understanding of Excel and be comfortable spending most of their day working with spreadsheets.
Corporate Development
Corporate development often works closely with the investment banking department and has many of the same responsibilities. At some companies, the bulk of the financial modeling is completed by the investment banking team but having financial modeling skills can help set those in corporate development apart. Not all companies have corporate development teams, but those that do tend to be quite large. Therefore, a career in corporate development is not ideal for those who prefer the culture typically found at a smaller organization.
Commercial Banking
While investment bankers deal mostly with buying and selling stocks, commercial bankers deal with loans and/or deposits. Commercial banking careers are typically not as sought after as those in investment banking, but this has the benefit of making them less competitive. Commercial banking also has less of the complexity involved in investment banking.
Private Equity
While investment banking is on the “sell-side”, private equity is on the “buy-side”. The difference between the two is that, as the name implies, the goal of the sell-side is to sell and/or trade securities, while the buy-side purchases securities. Private equity jobs often involve creating financial modeling for a leveraged buyout (LBOs). While private equity may be a good option for those interested in financial modeling, it is worth noting that private equity has far fewer jobs than most other careers on this list.
Equity Research Analyst
Equity research analysts typically work at banks. Their job is to create reports for clients of the bank that provide information on certain equity investments. To create these reports, an equity research analyst must spend time analyzing publicly traded companies. While the analysis is not limited to financial modeling, it is a key part of it.
Financial Planning and Analysis (FP&A)
The financial planning and analysis (FP&A) team is an in-house department at most larger operating companies. The job of the FP&A team is to track the performance and cash flow of the company. Those starting in FP&A usually begin as analysts. Those who excel may move on to become managers and then directors.
Mezzanine Financing
Mezzanine financing is a combination of debt and equity financing that allows companies to raise capital, typically for a specific project or an acquisition. This kind of funding is usually only for larger, more established companies. Valuation models are required in mezzanine financing to help evaluate potential opportunities.
Venture Capital (VC)
One financial modeling career option a bit different than those listed above is one with a venture capital (VC) company. VCs are often more fast-paced than huge corporations or banks, which some may find appealing. VCs provide capital for companies still at an early stage, but that show high potential for growth. Though the strategy used to evaluate companies differs from firm to firm, financial modeling is often involved. VC has the potential to be highly lucrative, but it’s also highly competitive.
Real Estate Development
This is another great option for those looking for a career that uses financial modeling, outside of the typical finance and banking jobs. In real estate development, there’s cash flow, financing, leverage, and many other variables to account for, all of which financial modeling helps with. This is why, even though it may not be the first career that comes to mind when thinking about financial modeling, it’s a great option.
Startups
Financial modeling is far from the only skill needed for those looking to run a startup, but it is an important one that is all too often overlooked. One of the biggest issues for most startups is an operating model that doesn’t have enough cash flow from one round of funding to the next. To avoid this common obstacle, startups need employees experienced in financial modeling.
As you can see, while financial modeling is often associated with investment banking and other finance roles, the information it provides is important in many other careers as well.
