Start with a Solid Foundation:
A sound foundation is the first step toward an accurate financial model. A good model is often built on three basic financial statements: the income statement, balance sheet, and cash flow statement. This three-statement model provides a complete picture of financial performance. Start with a description of the purpose of the model: is it for internal budgeting, investment evaluation, or debt financing? This will aid in deciding the level of detail of the model and its time horizon, for example, forecast over one year versus projection over five years.
2. Gather Good Data: Quality data is literally the foundation of a believable financial model. Use history for building trends from very good sources, and when audited financial statements exist cross-check the numbers as well. Also, don't forget to gather in macro data, industry norms and peer comparisons where possible; that all gives more sense of context. If working with a new or even smaller firm with little available history, using industry averages will be helpful in putting some realistic parameters on the parameters.