A tale of 2 CFO's: One petrified of a financial model wanting its removal, whilst another embraces it and wanting to learn more.
Which one are you?
Model Citizn builds operational 3-way rolling driver-based financial models.
It's the budgeting, forecasting and monthly management and compliance/covenants reporting processes all rolled together. Arguably the most efficient finance process most organisations lack.
Often each of these is a separate workbook, model or report run by different people or groups of people and are therefore not in sync at any given time.
We work with many CFOs, CEOs and Co-founders to help them simplify their decision-making that is relevant, informed and purposeful.
These models are highly automated and at times reasonably complex where there are multi-entity and multi-currency calculations required.
The customised logic within the business (and therefore model) can be complex like:
Revolving working capital facility on accounts receivable.
Goal seek-driven credit pricing based on target and current loan losses
Reverse engineered IRR driven revenue forecasting of interest and principal repayments
Multi-tranched debt and investor returns with cascading waterfall distributions
So it's no wonder when a newly appointed CFO gets concerned when having to get their mind around these complexities and the way the business actually operates in the real world.
However, in an almost parallel universe, other CFOs relish the opportunity to develop themselves and their modelling skills whilst benefiting the organisation as a whole.
Which one will you be?
Which one will survive this sort of automation long-term?
Out with the old
The “X% growth on last year” mentality is dying (if not already dead).
The jobs that go with this mindset fail to see the value and these jobs are reduced too through automation. The X% growth is too easy and frankly too lazy and won't survive the 4th industrial revolution.
A revolution where all of these complexities are highly automated and sophisticated enough to predict with 90-95% accuracy.
Nobody makes real business decisions purely based on the past. Successful businesses base their decisions on information from the past, present and future strategies.
At times requiring the logic to be amended where these change (and they do).
So why was he so scared?
Surely this would make his life easier?
Perhaps just holding on to old ways.
Resistance to change is futile change is inevitable and happening now
The financial models we build are primarily used to assist the investors, boards, banks and other advisors get comfortable with the veracity of the cashflow projections and viability of the business.
Whilst elements of the model supported debt facility covenants, monthly reporting, budgeting, forecasting and other compliance matters, it was primarily used for decision-making and steering the ship.
Resisting the demand for robust decision-making is pointless. Finance business partnering and value-based decision making is here now, albeit not well executed in most cases, but it's only a matter of time.
Resisting this approach is driven by fear, perceived lack of control and frankly laziness.
Rather than embracing technology and digitisation, he preferred the flight and fight reaction as though he was being attacked.
Fear of exposing his lack of commercial awareness perhaps?
Fear of exposing his somewhat very ordinary Excel skills?
Lack of control over the “black box” which it wasn't, but more of a black mindset.
Laziness is really getting stuck into the model to understand it front to back.
He lacked a growth mindset to see this as an opportunity to learn new skills, opting for the typically fixed mindset.
Many of our other CFO clients love what we do and are thirsty for more knowledge.
These are the CFOs that will survive and thrive in the 4th industrial revolution, whilst those resisting will remain unemployable.
A possible approach
It's completely understandable to question and resist change to validate whether it’s needed.
Being a CFO the financial health of the business rests squarely on your shoulders.
It's completely in your mandate to challenge, question and debate alternatives when these add value (vs destroy value).
Whether it's a 3-way rolling driver-based model or some new AI-driven forecasting technology is irrelevant, the technology is here.
Given this fact, one possible alternative is to explore other new-age options that may exist rather than going back to old habits.
Old habits die hard, and so will accountants who are already struggling to find jobs and resist learning new skills.
Being overqualified with lots of “old school” experience will not guarantee success.
Adapting to new ideas and approaches will.
Time to take the blue pill and really see what's going on around us.
The cost of not learning new things will be painful.
Conclusion
If you want to learn more in 2022 and also understand how you can upskill in FM be sure to reach out to us or stay tuned.
I encourage you to also take a peek at my past articles on financial modelling which is the foundation of business decision-making, planning and forecasting.
We have also redesigned our website to help you along your journey of levelling up in this space.
We will continue to discuss this topic and you can click to follow me on Twitter or LinkedIn or subscribe to our short but sweet newsletter.
Be sure to check out our pods and video page.
Here are also some past blogs that might be of interest.
Forecasting skills doesn't guarantee good modelling skills
How Technology Will Change FP&A Forever
Why so many unemployed accountants are already struggling..and how I can help?
Father battles cancer, son battles career extinction
Why being a 1-man/women VCFO business is a really bad idea?
Why Vlookup (vs Index(match) shows your lack of embracing change, innovation and better Excel skills
Financial Modelling Innovation: Predictive analytics vs Financial Modelling
Financial Modelling: Diamonds in the rough
Why Monte Carlo will change the way you make financial decisions and think about scenarios?
Driver Based Planning & Forecasting in the context of FP&A
Inside the mind of a spreadsheeter vs a financial modeler
Virtual CFO the Good, Bad and the Ugly
Do You Model Off against the Masters of Financial Modelling?
NEED HELP searching for the best advisory tool in the market?
Part 2 of Finance Innovation - Data Analytics / Big Data is not Financial Modelling
Why I disrupted my own role and you should do the same?
Consulting, Advisory, Finance and the art of influencing is about to change forever.
Your Financial Model can save lives !
The Machines Are Not Coming… they are here!
The Demand for Financial Modelling Skills Reaches new Heights
Lance Rubin is the Founder of Model Citizn, partner of theOutperformer, approved training provider to the Financial Modelling Institute and Group CFO for SequelCFO.
I have more than 20 years of combined experience working in model audit, investment banking, corporate finance, finance business partner and Fintech CFO.
Organisations I have worked with include PwC, KPMG, National Australia Bank, Investec Bank and Banjo small business lender.
I have a YouTube channel dedicates to the Future of Financial Modelling and also provide access to Models via Eloquens with thousands of viewers and downloads.
