What is a three-way financial model?
A model that links the profit and loss, the balance sheet and the cash flow so that they move together — because in reality they do.
It is the difference between a P&L forecast (which shows a profitable business) and a three-way model (which shows that the same business runs out of money in month seven because it is funding stock and 60-day debtors).
Lenders and investors expect one. More importantly, you need one.
Why does a profitable business run out of cash?
Because profit is recognised when you invoice; cash arrives when you get paid.
Growth consumes cash. Every new order means stock or labour paid for now, and invoiced later. The faster you grow, the more working capital you need — which is why fast-growing businesses fail more often than stagnant ones.
Add debtor days, stock, capital expenditure and the tax you owe on last year’s profit, and a business can be genuinely, sustainably profitable and still be unable to make payroll.
That is what a forecast shows you, in time to do something.
What do lenders and investors want to see?
An integrated cash-flow forecast, a P&L budget, and usually a three-way model — with clearly stated, defensible assumptions.
The assumptions matter more than the arithmetic. A funder is not testing your spreadsheet skill; they are testing whether you understand your own business well enough to be lent money. Vague or over-optimistic assumptions are the fastest way to lose credibility in the room.
We build models to a standard funders recognise, and prepare you to defend them.
How do I keep the forecast useful?
By tracking actuals against it, every month, and asking why the variances arose.
A forecast prepared once, for a bank, and never opened again is a cost. A forecast reviewed monthly becomes the instrument panel of the business — and the variances tell you far more than the plan ever did.