CFO Talk: How CFOs Should be Preparing Their Business to Take Full Advantage of Modeling: An Interview with Lance Rubin and Giles Male

Steve: Would you two explain how CFOs should be preparing their businesses to take full advantage of modeling? What are the benefits of modeling? And what advice would you give them?

Giles: I think there are lots of absolute superstars hidden in finance teams who are swamped. I touched on it a couple of times now, but they’re swamped with turning the wheel manually, very repetitive processes that are error prone when they do not need to be nowadays. You look at even with Excel, what was called Power Query, there are so many tools and Excel is only going to keep getting more and more powerful. We can use these new tools to help people create more time and space to do more of the value added insight work.

I think there are two things. Number one is identifying those opportunities. And then on the other side, it is pushing individuals, finding these superstars and pushing them to take ownership of their development and giving them the opportunities to do so.

Steve I like that, Giles. I agree with you. There are people on our team with this hidden potential, that are stuck in their daily grind trying to do their cut and paste, that we don’t let them shine. One of the responsibilities of the CFOs out there is to recognize how modeling can add value to their business and then unleash these hidden resources on the opportunity.

What message would you give a CFO that they can share with their CEO and Board on why modeling a discipline they should be investing in?

Lance: I think the key thing for me is CFOs should be influencers at the highest level in organizations. I find it astounding that CFOs will influence without a model. How do you influence robustly and how do you have the confidence that you are influencing the right outcome if you don’t have a model? I guess people will say, well, nobody knows. Therefore, why do I need a model? And the point is, it’s not about the absolute. It’s not about this is the answer. It’s about the relativity. The model’s results drive discussions and comparisons and allows the leadership team to expand their thinking. That is the power of the model.

Being able to influence and engage and move the organization forward. For example, if you are worried about cash, and what CFO isn’t, then the first thing you need to think about is what is on my balance sheet?. How strong is my balance sheet? Is it robust? Having a financial model that does not have a balance sheet, one that just focuses on profit and loss means you’re missing a very substantial part of the equation in terms of cash flow. Of course, cash is a balance sheet item. Cash flow statements are the movement in the cash, but it is a balance sheet item. So for a scarce and critical resource like cash, we need to have robust models.

Many CFOs are used to the way it’s always been done. One of the challenges this pandemic has shown, firstly the word modeling, you’ve heard epidemiologists talk about modeling on the virus and how do you get out of a pandemic if you don’t consider the various measures that you have to put in place to curb the trajectory of the virus. I think it’s the same thing for CFOs. We have to move away from the sort of downward sloping cash burn or profitability decline. How do we do that and what are the levers we can pull? Looking at staff, looking at other operating costs, looking at levers and sales and all these sorts of things. We probably don’t have all the skill sets on our teams. So, to Giles point earlier, we may not even know how to identify the levers we can pul.

This isn’t because CFOs have done a poor job, it’s because no one has shown them the full potential of a well-built model. When I start showing CFOs the sort of stuff we do, they get blown away. They are like, wow, you can do that in Excel. I just think that they do not know what Excel is capable of, let alone Power Query or dynamic arrays. There’s a whole range of other innovations Excel is working on but most finance professionals are still stuck copying and pasting. The CFOs themselves may be doing that. So, I guess it’s about getting focused and understanding the value you can add if you’ve have a great set of insights you can serve up to your board.

Steve That wraps up today’s CFO talk. Thank you for joining us Lance and Giles. I sure appreciate it.

Lance/Giles Pleasure. Thanks, Steve.

Steve CFO.University is a community of member scholars, companies and trusted advisers committed to the professional development of chief financial officers.

Next in our series with Lance and Giles - How CFOs are Using Models to Create Value

Until next time; enjoy, learn, engage and stay safe.


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