Introduction to the co-author
Cindy is a CPA and FP&A (Financial planning and analysis) practitioner with senior technical and leadership experience, mainly in Canada’s Energy sector.
She has worked at small private companies to larger multinational public companies in various capacities including supporting strategic initiatives, leading budgets and forecasts and implementing business improvement processes.
She has been involved with the Association for Financial Professionals (AFP) since 2012, writing and reviewing exam questions for the FP&A certification exam.
She believes in continuous learning and sharing of expertise and experience, which is why she decided to join as a Director on two Boards. One is a non-profit organization with a cause she is passionate about; providing mentorship and assistance to new immigrants to help navigate the Canadian job market in hopes of successful employment. The other is a profitable start-up fitness studio with a national presence in Canada.
Why did Cindy select the topic and is passionate about it?
I have worked in the FP&A area most of my career and find this to be the most rewarding area of Accounting and Finance. FP&A provides the finance professional the chance to be a business partner leading and supporting strategic initiatives across the entire organization. Providing models that integrate financial data to drive operational decision is very rewarding. A key function of an FP&A practitioner is providing the model (mostly in Excel) as a mechanism for liaising between Accounting and Operations to drive better decisions and value creation.
Topic and context in no more than 3 sentences
The simplest way to describe the difference between a spreadsheet and a FP&A model is that the spreadsheet is the simplified tool to manipulate and report data whereas the model can be used to test assumptions, predict and analyse future outcomes of business decisions.
The spreadsheet can therefore be very static generally whereas the model will be dynamic around decision making.
An FP&A model should be structured with assumptions and outputs that provide the reader with useful information that guides decisions that would either mimic the actual business or predict what the business would look like if certain key financial decisions were made.
If you had to teach this topic in a class to school kids what key tips would you give them to focus on
The first would be to focus on Financial literacy (knowledge and understanding).
Understand the interrelationship (think puzzle pieces) of the financial statements (think lots of numbers on those puzzle pieces) and how to build forecasts and assumptions for each business decision (think of future dreams and stories).
For example, if the company is increasing how much it spends (e.g. capital expenses), how would that affect their profit (income statement), their financial position (balance sheet) and how much money they made or need to make (cash flow)?
The FP&A model (think big calculator), would then need to link all those pieces and tie them together (think marriage), happily ever after.
Next would be Business acumen.
In the FP&A model it can be different for every company depending on the business model (think different shops or candy stores).
You don’t need to know the technical aspects of your business, but you’ll need to know the drivers, business environment and risks (think about all the people that visit the shop and what they buy).
Next would be focusing on Communication skills.
If you are going to be a good FP&A modeler (think builder of a house) being able to work with others (like the electrician, plumber etc.) and extracting the right information required for the assumptions is important. In the FP&A model (think of the plans to build the house) a key to building a useful FP&A model would be people can use (think understanding the plans and live in the house).
Aside from clear verbal and written communication skills, a good FP&A model’s logic and flow should be easy to follow and aesthetically pleasing (think well landscaped castle with clear entrance gate).
Next would be your Aptitude for Technology (think going to school on a hover board not in a car).
Strong excel skills are essential to ensure the most efficient formulas are used so that you can spend more time on analysing and communicating the results rather than manipulating and reconciling data.
Being able to get up to speed quickly on different software applications is important so that you can navigate through different systems and extract or link the right data to the FP&A model is just as important.
Lastly would be Data integrity (having all the correct game pieces for your board game)
If you are going to build a house, the land that you are going to build on needs to be clean and all trees or rubbish removed. It must be organized and ready to be used. There are often many things that can change during the process and will need amending, so ensure your model versions are backed up and saved so you can tell the story of why you did what you did if someone asks you.
Each version should show clearly defined changes and supporting back up (emails, meeting notes etc) from the group or people providing the changes in assumptions.
If you are missing game cards for your board game, it won’t be good.
As the builder of the model (house) it’s your responsibility to ensure things don’t go wrong. There should be built in checks and balances in your model so that the data you’re using does not have errors (mistakes) otherwise the output could be materially incorrect (roof caves in or you can’t finish your game).
What practical steps can people take now to learn more
At a minimum, take some accounting courses so you understand how each assumption affects the various financial statements.
Even though the FP&A model is forward looking, you need to understand what happened in the past so that your financials carry forward in the appropriate places.
Learn about the business and the company’s strategic direction.
Build trust and get to know people from the Sales or Operations team (other departments depending on your business). You’ll need their input for assumptions into the model and they’ll need your help with financial impacts to those assumptions.
Brush up on your Excel skills and be open to continuous learning.
Once a model is built, it can always be refined and improved upon.
Keep it simple.
When building the FP&A model, have a mindset that this model will be used by another person. The most complex formulas that only you can understand may be fun and fancy but does not necessarily result in more accurate forecasts.
Where are good places (links) to find out more on the topic
The following links are useful to find out more
Your company’s management discussion and analysis (MD&A) or another company in the same sector as your company might be private or doesn’t produce one. This would help with business acumen and partnering.
How important are these skill in the context of learning FM?
These are some of the core skills required in the context of learning financial modelling.
Ability to create an FP&A model and communicate financial data is a key component of financial modelling and driving better decision making and value for the company and its stakeholders and customers.
How does all this disruption, AI and automation talk impact this topic
Ideally AI and automation will be a key part of FP&A everywhere.
It would be a powerful thing to combine this with the FP&A model.
AI could support and provide real-time data, improve the quality and speed of the FP&A function so that the FP&A Professionals have more time to analyse and tell the story.
I see this as a complement to the FP&A function and can level up the skills of financial modellers.
The FP&A model is dynamic, constantly changing and pulling in from different data sources, therefore this is just another change (albeit huge) that FP&A can embrace and transform into a more skilled resource for the company.
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I encourage you to also take a peak at my past articles on financial modelling which is the foundation of business decision making, planning and forecasting.
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Here are also some past blogs that might be of interest.
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.