Lance Rubin, a chartered accountant who spent 20 years in financial services, opened a financial modelling consultancy two years ago under the name Model Citizn. After contracting as a financial modeller for the past two years he is now a part-time CFO for Banjo Loans and Sequel CFO.
Rubin says more powerful financial modelling techniques he learned in investment banking can give more accurate and useful advice to SMEs, a skill he refers to as “visual influencing”.
In this preview of his session with Brad Eisenhuth of The Outperformer at the Accounting Business Expo 2018 (click here to register for free), Rubin explains what is involved in financial modelling and what makes it superior to forecasts in Excel.
Digital First: What is financial modelling?
Lance Rubin: I don’t think a lot of people understand what it is. Many accountants think they know what it is but they definitely haven’t built models in the way that investment bankers build models because they just don’t have the time. You just mock up a spreadsheet, call it a model and away you go.
Cashflow modelling is a form of financial modelling, so is a budget, everyone would understand that. But forecasting the balance sheet, P&L and cashflow together, this is holistic modelling.
Digital First: How is that different to what you would do with Excel or one of the reporting apps?
Rubin: Cashflow is the outcome of movements in P&L and the balance sheet, not the other way around. Most people do their numbers as the cashflow. But an invoice doesn’t go to bank it goes to debtors, unless it’s a cash sale.
But most importantly how do you use the skill of financial modelling to influence decision making. This has really helped in my career. I got my roles at Sequel and Banjo for my financial modelling skills from working in investment banking.
Digital First: How have you used financial modelling in these companies?
Rubin: I discovered that technology can scale that skill – which is effectively what I did when I disrupted my own role. My role at Banjo went from three days a week to three days a month. Not many accountants would do that because they wouldn’t know what to replace it with. I fundamentally changed my brand in terms of what I do.
Digital First: How would you rate the reporting apps in the SME accounting ecosystem for financial modelling?
Rubin: Futrli does some forecasting, so do Calxa, Fathom, Spotlight Reporting, etc. It’s a form of forecasting and budgeting but not modelling. Microsoft Power BI is a great tool for visualisation of data, much better than Excel, but it is not going to help you model a decision. Power BI is about getting insight, not foresight.
This is about the power of having something where you can run an infinite number of scenarios. The Monte Carlo model creates thousands of simulations. The question you want answered is, What are the key drivers and how do you customise that?
Digital First: What do you mean by visual influencing?
Rubin: The skill of financial modelling is to influence. Everyone wants to make decisions. What sort of decisions do you make if you’re going with gut feel? You make bad decisions. The best way is with facts and data and a model. If all else stays the same and you did this, then this would happen.
How long will it take a new hire to be efficient? What revenue will they generate? What’s the return? Are you going to hire them on a small base plus commission and your business earns revenue off the back of that?
Most CFOs don’t have the models or skills to influence the boardroom. Keeping people engaged with a table of numbers is hard. Using images is far more engaging. Visual influence is about taking a numerical conversation into a graphical user interface and user experience.
For more on the trend towards financial modelling check out Lance’s very interesting LinkedIn post.
Lance Rubin is talking to Brad Eisenhuth in “Why financial modelling is the most critical skill for any CFO” at 1.00 pm – 1.30 pm on Thu 22 March 2018 at the Accounting Business Expo, Darling Harbour.