Carl Seidman, of Seidman Financial discusses how CFOs can architect and construct better financial models. We also chat about tips to becoming a better reviewer of financial models prepared by others.
Conversation to focus around three areas:
i. You are responsible for the creation of a financial model of some sort for your company that will involve inputs from several departments. What are best practices to go from “Carl we need you to model this out” to a completed, published model?
● Carl: “Where people can often go wrong is they see the creation and management of the financial model as the goal. But instead, they should be viewing the financial model as a way to facilitate conversations and better decision-making. I often see companies where finance is in control of the model as well as the planning and forecasting process, but this traditional approach brings about inefficiency in planning, a fractured system of accountability, and a poorer buy-in from non-financial groups. In contrast, finance should not be responsible for the planning process – only the financial planning elements of the process – at least in the beginning phases. As finance people, we’re not best suited to understand the intricacies outside of our function – the departments heads are. Instead, department leaders should each be responsible for their own planning but with direct coordination and collaboration with finance which may ultimately manage the model. Once ‘modeled out’, finance can further inquire and nudge other departments and become deeper entrenched in ops.
● Companies are often surprised by my approach to financial modeling and planning in that I spend a lot of time upfront conducting diligence, drafting and plan, and building a process even before I start modeling. How often does a financial modeler say “you know, I built this model months ago, and if I’d known we’d be moving in this direction today, I would’ve built this model differently.” The goal is to never have to say that. To do your research and planning upfront, build a flexible dynamic model, so that it can grow and evolve with the company rather than retire and replace it every few iterations.
