2026-04-29 · Modeling · Analytics · 6 min read
The Seven Rules of a Model That Survives Review
A financial model that you build for yourself can be a mess. A financial model that someone else has to read, change, or defend cannot. Here are the seven rules that separate the two.
Rule 1 — Single Source of Truth for Inputs
Every input lives on one Inputs sheet. Every other sheet references back to it. If a number appears typed into a formula somewhere in the calculation sheets, the model is broken — even if today the number happens to be correct.
Rule 2 — Consistent Units and Time Periods
Pick a unit (thousands, millions) and stick with it across every sheet. Pick a time frequency (monthly, quarterly, annually) and stick with it. Mixing units is the single most common cause of "off by 1,000" errors that escape into board decks.
Rule 3 — One Formula Per Row, Filled Right
Within a row, every period column should contain the same formula structure. If you have to write a different formula in column F vs. column E, the row is asking for variant logic — pull that out into a switch on the Inputs sheet rather than encoding it into the formula.
Rule 4 — No Hard-Coded Numbers in Formulas
A tax rate that lives as * 0.21 inside a formula is a model that fails the first time tax rates change. Every constant goes on Inputs and gets named. The only numeric literals allowed in formulas are sentinels: 0, 1, and -1.
Rule 5 — Visual Hierarchy by Cell Color
Inputs in blue. Formulas in black. Cross-sheet references in green. Hard-coded numbers (the rule-4 exceptions) in red — and there should be very few of them. A reviewer should be able to scan a sheet and immediately see which cells they can change vs. which cells are derived.
Rule 6 — Error Checks Built In
Every model that produces a balance sheet has a row that explicitly checks assets - liabilities - equity = 0. Every cash flow has a row that checks ending cash matches the balance sheet. These checks live at the top of the Outputs sheet, in red if non-zero. A model without explicit checks is a model whose errors are waiting for someone else to find.
Rule 7 — Documentation as You Go
A Documentation sheet at the back of every model. Five sections: purpose, key assumptions, sensitivity drivers, version history, contact. Written as you build the model, not at the end. The sheet that gets written at the end is the sheet that isn’t written.
Why These Rules Are Non-Negotiable
Every senior analyst has watched a junior analyst spend a weekend rebuilding a predecessor’s model because they couldn’t trust it. The seven rules are what make that not happen. The rules look like overhead in week one and look like essential infrastructure by week three.
Module 01 of Course 002 — Excel Modeling for Financial Decisions works through each rule with worked examples and a reference card.
— Dr. Kareem Tannous