Josh Aharonoff
Jul 20, 2023
Welcome to this week's Legit Numbers!
Whether you're going on a Finance & Accounting interview...
or you're hiring at your company, and want to know the best way to qualify your candidates...
This edition of Legit Numbers has got you covered
We'll also cover the most common Finance & Accounting roles that you may find in an organization, and end with my favorite technique for forecasting revenue
What we’ll be covering in this edition:
10 Finance & Accounting interview questions (with answers)
33 Finance & Accounting roles
How to Forecast Revenue using the A∙R∙S∙R Framework
Let's dive in...
1️⃣ What are the 3 financial statements, and how are they connected?
The 3 financial statements are the Profit and Loss, the Balance Sheet, and the Statement of Cash Flows.
The P&L connects to the Balance sheet via an account called Retained Earnings
And the Cash flows pulls balances from both the P&L and Balance Sheet
2️⃣ What’s the difference between Cash vs Accrual accounting?
Cash accounting for the most part means you classify money in as income, and money out as expenses
Accrual accounting means you classify income only when it’s earned, and expenses only when they are incurred
3️⃣ What is Deferred Revenue?
Deferred Revenue represents the $$ amount of goods or services you owe to your customers
4️⃣ How do journal entries work?
Journal entries help communicate which accounts on your general ledger are increasing or decreasing.
They are denoted via Debits and Credits, and must always match one another
5️⃣ What’s a bank reconciliation, and why is it important?
Bank reconciliations allow you to compare & match the balance in your bank accounts to the amounts reported in your General Ledger
These are crucial as with cash balances, there can be no room for interpretation
6️⃣ What is a accrued expense?
An accrued expense is an expense incurred, but not yet paid
It can also represent an expense incurred in which a bill has not been received, resulting in an estimate
7️⃣ What are workpapers, and how should you organize them?
Workpapers showcase the supporting calculations for entries recorded in your general ledger, often times prepared in excel.
It’s important for these to not only be accurate, but also easy for someone else to read & understand
8️⃣ What are the chart of accounts, and how should they look?
Your chart of accounts represent the line items that show up on your P&L and Balance Sheet
It's important to design these accounts in a manner in which readers can understand what’s happening easily
9️⃣ What’s a contra account and how does it work?
A contra account is an account in a section that behaves in the opposite manner of the accounts in that section.
An example can be a discount (contra revenue), and accumulated depreciation (contra asset)
🔟 How do you build a statement of cash flows?
You can easily build a statement of cash flows via the indirect method by taking the net ▲ in your balance sheet, as well as your net income
It is most commonly presented via your Cash from Operating Activities, Cash from Investing Activities, and Cash from Financing activities
Those are my 10 favorite Finance & Accounting interview questions…
Finance & Accounting continues to be one of the most versatile fields, yielding incredible ROIs for anyone who decides to pursue a background in Finance & Accounting
Here are a list of 33 roles spanning a a range of areas & levels of seniority across the profession
◼️ Accounting → Responsibilities include producing financial statements, and managing financial operations
Bookkeeper
Accounts Payable Clerk
Accounts Receivables Clerk
Payroll specialist
Senior accountant
Controller
Cost accountant
Financial systems analyst
Inventory specialist
◼️ FP&A → Responsibilities include providing projections, analyzing projections vs actuals, and drilling deep into margins & metrics
FP&A Analyst
FP&A Manager
VP of Finance
◼️ Auditing → Responsibilities include evaluating the accuracy & completeness of financial records, compliance, and relevant controls
Internal Auditor
Forensic Accounting specialist
External Auditor
IT Audit manager
◼️Treasury → Responsibilities include managing an organizations financial resources, monitoring risk, managing investments
Credit Analyst
Risk Analyst
Treasury Analyst
Chief compliance officer
Foreign exchange analyst
Corporate Treasurer
◼️ Tax → Responsibilities include ensuring tax compliance with tax laws & regulations, reducing tax liabilities, and providing tax strategies
Tax associate
State and local tax specialist
Tax director
International tax specialist
Tax attorney
Tax research analyst
Transfer pricing manager
◼️ Corporate Finance → Responsibilities include identifying investment opportunities and assisting with various financial objectives
Investment Banker
Head of Mergers & Acquisitions
VP of Capital Markets
Valuations Analyst
And then ofcourse…there’s one more role - the grand daddy (or mommy) of them all…
The Chief Financial Officer
I had trouble putting this role in a specific area, since a Chief Financial Officer can have their hand in almost any of these areas, depending on the nature & size of the organization
Those are 33 roles that I’ve seen - there are countless more
What would you add?
Previously, I posted on the different components of forecasting revenue
(see here if you missed it: https://lnkd.in/euQDgNk5)
Now let’s do a deep dive on how you can apply these techniques to ANY forecast
➡️ What is the A∙R∙S∙R Framework?
The A∙R∙S∙R Framework stands for
A → Acquire
R → Retain
S → Sell
R→ Record
Each section is a critical component in your ability to forecast sales
Let’s have a look at each:
1️⃣ ACQUIRE
The first part of the framework focuses on all the different channels that you used to acquire customers
this is a BOTTOMS UP approach, showing how you can get to an ending revenue with the right inputs
The most common channels I’ve seen after building 100+ revenue builds are:
👥 Sales reps → Each sales rep undergoes a ramp period in order to meet their net quota
📊 Digital Marketing → where you take ad spend / customer acquisition cost to get to new customers
🤝 Partnerships → each partner refers customers each month
🏟️ Conferences → each conference brings qualified lead, which convert to customers
🌐 Organic & Referral → prospects visit your website, or are referred to by existing customers, which convert to customers
2️⃣ RETAIN
Once you have your build up for how you can get new customers, it’s time to focus on RETAINING those customers
Customers typically fall under one of these categories:
🗓️ Monthly Recurring → customers continue to buy each month
🗓️ Annual Recurring → customers get locked into annual contracts
🗓️ Month to Month → Customers can opt out at any point
🗓️ One time → Customers buy one time only
Once you have this figured out, you can move onto the next area:
3️⃣ SELL
Now’s when you make your money 🤑
Here you can define your average contract value (ACV), or sales price, and structure things a number of different ways…
💰 Sell to new customers
💰 Sell to net active customers
💰 Sell to customers upon renewal
💰 Upsell to existing customers
Which now brings us to the last part…
4️⃣ RECORD
Sales affect many areas of the business… such as:
📈 Revenue → amounts earned after delivering your product or service
💸 COGS → cost to deliver your product or service
💲Accounts Receivable → amounts owed to you by customers
⏳ Deferred Revenue → the $$ amounts of goods or services owed to customers
📦Inventory → goods held or sale
👛 Commissions & Sales compensation → amounts owed to your sales team
Design your revenue build in a way where upon each sale, the appropriate actions hit each of these accounts, allowing you to understand the full picture
Revenue builds are COMPLEX…I have yet to see 2 business models that are exactly identical…
but with the right framework in place, you can forecast ANY business with accuracy and ease.
I hope you enjoyed this week's edition of Legit Numbers!
If you have any questions or need further assistance, feel free to reach out. I reply to all my emails personally :)
Till next Thursday!