Josh Aharonoff
Sep 14, 2023
Welcome to a fresh episode!
In this edition, we're delving into the world of financial modeling with 7 easy steps to build your own, exploring how Finance & Accounting can be an art form, and taking a tour through the "House of FP&A" to master financial planning and analysis.
What we’ll be covering in this edition:
Build a Financial model in just 7 easy steps
Finance & Accounting is Art 🎨
The House of FP&A 🏠
Let's dive in...
I’ve been fortunate to build over 100 financial models in my career…
and each time, I learn something new.
But the general process is fairly consistent across each one…
and can be summarized in just 7 steps
Let’s get into it:
1️⃣ Connecting your Data
Connecting your data is the starting point in your financial model.
The foundation here is importing your existing P&L and Balance sheet from your Accounting Software.
Other data to connect would be your existing hires, and any information about your existing / pipeline customers.
2️⃣ Link the Financial Statements
Now that your financials are imported, it’s time to link them.
The concept is pretty simple…
P&L connects to the Balance sheet via Net Income & Retained Earnings.
The Cash Flows gets generated by taking the difference in each Balance Sheet account
3️⃣ Forecast Revenue
Here comes the biggest part in you forecast…your revenue
Here, you would start by analyzing the activity from your existing customers, and customers who are warm in your pipeline.
You would then ask yourself these questions from the A∙R∙S∙R framework:
• How you Acquire those customers (Acquire)
• How long you Retain those customers (Retain)
• How you generate Sales to those customers (Sell)
• How you record revenue, and any other P&L / Balance sheet items (Record)
4️⃣ Forecast Headcount
Now comes your biggest opex account…your headcount
You would start by reviewing the existing headcount that you imported in step 1…
then add in projected hires.
5️⃣ Forecasting Opex
Now that we have our headcount projections out of the way, it’s time to forecast out the rest of our Opex.
Since we’re building all of this in excel, we have full control over how we want our forecast to look.
I like to forecast Opex most commonly using a 6 month average + buffer, but it all depends on the nature of the account
6️⃣ Forecasting Balance Sheet
Now we get to the last section of our forecast…the Balance Sheet.
Here, we need to analyze the balance of key accounts, and plan how those balances will change in the future.
Each account generally follows this structure:
• Beginning Balance
• [+] new amounts added
• [-] amounts recognized
• Ending Balance
7️⃣ Present with Pretty Design
Now we get to my favorite part…presentation 🤩
It’s here that we take all of our hard work, and present it in a manner that will woo the crowd…
whether that be the CEO, management, investors, the board of directors…anyone
Here we utilize the principles from my CFO Dashboards course...
allowing us to create dynamic and appealing dashboards that drive insights...
and make us feel happy to stare at 😊
That’s my proven system for building a Financial Model…
like I mentioned earlier - with each one, you learn something new!
Looking to create a Financial Model with me?
Simply message me “let’s build a model” if you’re interested, and I’ll get you the details
FREE ebook with 18 Infographics to teach you Finance & Accounting concepts…presented with art
Many may not be familiar with the fact that I got laid off from my very first job 😱
as I sat in the office, my boss asked me whether I felt Accounting was for me…
“the left side of the brain handles logic, while the right side of the brain handles creativity…which side do you want to focus on in your job?”
I was convinced that I had chosen the wrong major…
after all…I’ve always been a “right side” of the brain type of guy 🧠
and at many points in my career…I almost threw away all of my training as a CPA, thinking it wasn’t right for me.
Now, reflecting back on more than a decade since I’ve gotten my CPA…I realize that there’s SO much more to Finance & Accounting than just numbers & logic
See…Finance & Accounting IS art.
The way the Financial Statements connect…
the metrics you showcase to explain what is happening to the business…
the way you design your Chart of Accounts.
These are topics I’ve thought about everyday since I started sharing education content around Finance & Accounting this past year…
And it’s allowed me to connect with an amazing audience of over 200k finance and accounting professionals 🤯
Today, I’m thrilled to share my FREE e-book that summarizes many of these concepts over 18 engaging infographics.
My goal is to help you internalize these amazing concepts to boost your career and financial literacy…
all while having fun using art 🤩
Here’s what’s included:
➡️ The Periodic Table of Financial Metrics
Learn the most fundamental Financial Metrics…while studying chemistry 🧪
➡️ ABCs of Accounting
Learn to speak your first few words of Accounting 🔤
➡️ Financial Statements Mindmap
Understand the connectedness and sections of all 3 Financial Statements 🔃
➡️ Monopoly of Finance & Accounting
Take a walk past Auditing Street and avoid getting sent back to school to study for the CPA!
➡️ 33 Finance and Accounting Roles
Get to know 33 friendly faces that may see in Finance and Accounting
👧🏼🧒👦👩🏿🧑👨🏻
➡️ Accounting & FP&A yin yang
Learn how Accounting & FP&A can work in HARMONY ☯️
➡️ The World of Finance & Accounting
The world of Finance & Accounting is massive - take a trip through each continent! 🌎
➡️ The Superhero Financial Reports
The Superhero Financial Reports are at your service, and will save you from the worst doom 🦸🦹
➡️ How the Balance Sheet connects to the P&L
Understand how the Balance Sheet & P&L connect, and what journal entries overlap
➡️ Budget vs Actuals
My favorite dashboard - showcase the right info…while wowing your audience
➡️ How I Build Dashboards
8 simple steps for how I build all of my dashboards…and how you can too
and many many more!
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I hope you enjoy this ebook as much as I’ve enjoyed the countless hours put into developing these pages…
Get your FREE copy right here.
Take a journey through each floor to master FP&A
FP&A is my favorite area of Finance & Accounting
and if you’re new to FP&A…
or if you’re looking to be a more effective in your role in FP&A…
then this post is for you.
➡️ What exactly is FP&A?
FP&A stands for:
F→ financial P→ planning & A→ analysis
And before you can PLAN….
or ANALYZE…
you need DATA
🏠The Foundation: Your Source Data
Your Data can come from a number of sources, such as:
Your Financial Statements
Your General Ledger
Your Financial Model
Your Payroll Platform
Your Database
Your CRM
Your Payment Gateway
Your Sales Platform
The key here is to ensure that your data is ACCURATE and EASY TO ACCESS.
Accurate means no inconsistencies when compared to other sources…
Easy to access means you can generate this information without a heavy amount of effort, or long wait times
Without these 2 points, your entire house can and WILL collapse 💥
🏠The Structure: Your Analysis
Now it’s time to analyze your data.
This is the heart of your role in FP&A…and where insights are drawn.
Insights that will turn into ACTION.
Ask yourself… what happened this period that deserves attention?
Did the numbers wildly change from last period?
Did you miss your budget by a large amount?
My favorite methods are a mixture of horizontal analysis ↔️ (how this compares to other periods)
As well as vertical analysis ↕️ (how each metric compares to another, ex: payroll as a % of revenue)
🏠The Roof: Your Presentation
Now that you have your data analyzed, it’s time to present your insights
Start by understanding WHO is ingesting this information.
👤Is it the CEO?
👥 The Board of Directors?
🕴️New investors?
Each audience can mean a different area to focus on, and a different story to tell
When presenting your findings, it’s most common to present in PowerPoint…
though I’ve seen many presentations flow directly from excel / google sheets
Aside from presenting WHY this is important, be sure to invest in DESIGN 🧑🎨
A well designed presentation can make the world of a difference over a poorly designed presentation with the same exact data.
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Congrats, you’ve made it through the whole house of FP&A!
Now your house can survive even the worst of storms
Got anything to add to the house?
I hope you gained valuable insights into EBITDA, Month End Close processes, and Revenue Forecasting with 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!