Mastering Financial Modeling for Top Business Decisions

October 4, 2022 Mimi Torrington

master in financial data modeling reviewing last year's performance

Many employers nationwide and worldwide require that their new hires have exceptional financial modeling skills. But you’d be surprised how many CFOs don’t fully understand what financial modeling is – or its importance. Mastering financial modeling is critically important for improving business decisions. Our next guest can bring some value to the topic.

Ian Schnoor, Executive Director of the Financial Modeling Institute, joins us in the next episode of the CFO podcast. The Financial Modeling Institute is the only Financial Modeling accreditation body in the world. It was founded in 2017 and is presently serving major corporations in fifty different countries. Ian is also the President and Founder of the Marquee Group, a leading provider of financial modeling training, consulting, and accreditation.

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Megan: Today, my guest is Ian Schnoor. Ian is a chartered financial analyst and a certified financial modeler. He is also the executive director and one of the founders of the Financial Modeling Institute in 2017. He oversees the organization including its strategic direction. Ian is also founder of the Marquee Group, a leading provider of financial modeling, training, consulting, and accreditation.

Over the last 20 years, Ian has taught thousands of business professionals and university students around the world. Ian is passionate about teaching and brings a hands-on interactive approach to every course. Ian teaches at Queen's University in Canada and is the recipient of the Instructor of the Year Award and the Master of Finance program at the Smith School of Business. Previously, Ian spent a number of years in the investment banking departments at Citigroup and BMO Capital Markets.

Ian completed his bachelor of commerce honors degree with academic distinction from the University of Manitoba and has also attained the chartered financial analyst's designation. Ian, thank you very much for being my guest today.

Ian: Thanks, Megan. I'm thrilled to be here.

Megan: Yes, today we're going to be discussing financial modeling, its importance as well as why you may want to consider accreditation to distinguish your skills and elevate your career. As someone who values lifelong learning and self-improvement, I'm interested to learn more about this myself, so let's get started.

Ian: Great.

Megan: First, let's start with you. Can you tell us a little bit about your career journey and how it is that you ended up where you are today?

Ian: Yes. Thanks. Again, thanks for having me on. I'm thrilled to be here. I went to university a number of years ago, graduated in the mid-'90s. Managed to get lucky, and found a job as an analyst in investment banking. I did an undergraduate business degree up in Canada and had a bachelor of commerce. Managed to get a job in Toronto on Bay Street at a large bank. I spent a few years at BMO and then a couple of years at Citibank. I got lucky and managed to find a job as an investment banker.

At the time, financial modeling was a fairly new pursuit and it was nascent in its early days. I always loved and enjoyed working in Excel and thought that models could be better, and really took pride in trying to improve them and push the envelope and get them to the next level. That's how I got started.

After spending six years as an investment banker I left, and at the time, in the late '90s and early 2000s, banks all trained their own people internally. Every year, the new cohort, the new class would join every summer and they would tap a few slightly more senior bankers on the shoulder and say, "Hey, you're going to train the new guys." I always was one of the people that got asked to train the new class every year. I had been doing some training and I was familiar with that.

When I left banking, I had told people that I know that I could run some training programs. I didn't want to go back into banking. I wanted to take a bit of a break. It was a pretty intense stretch to six years and I wanted to try something on my own. I told people I could run training programs but I hadn't actually done anything formally. There was no market. Nobody was using external vendors at that point.

As luck would have it, a friend of mine was at a bank and that bank was interested in bringing in a vendor. They were tired of using their own people and so they brought me in to do a day of training. Literally from that, word traveled quickly and I started getting called all over the place. I started our business and it was called the Marquee Group.

At the Marquee Group, we run financial modeling, training, and courses on valuation and accounting, all sorts of courses in things like Excel and advanced Excel and data science that are geared towards finance professionals, accounting professionals, business professionals. At this point, we're running courses all over the world. That's how I got my start through that training business which then led to the FMI a few years ago.

Megan: Do you still own that business or is that something that you sold off or how did you make that transition from Marquee to Financial Modeling Institute?

Ian: I am still very much involved to some extent. I wear two hats these days. I am involved, I'm still the president and founder of the Marquee Group, but I only spend part of my time-- A number of my partners at that business manage the day-to-day operations on the training side. We actually have a consulting practice as well at the Marquee Group where we actually build really user-friendly, beautiful Excel-based models for companies to help them improve their planning tools. A number of my partners run the various divisions there, and that's because more of my time these days, probably most of my time is spent at the FMI.

The FMI is a completely separate business that we, with a number of other modelers and finance professionals around the world started. We started it before 2017, but it formally got launched as the FMI, as the Financial Modeling Institute in 2017 as a separate independent accreditation body. We realized something happened.

A switch went off around 7 or 10 years ago, something pretty significant happened. That is that when I joined banking a number of years ago, 20 years ago, or more, they hired people, they found people that they liked, they hired you and they expected you just to figure out job and roles and modeling and technical skills on the job.

Around 7 or 10 years ago, we noticed a huge shift where recruiters and banks would start putting it on job postings. As they were recruiting people, they were saying, "Yes we're looking for MBAs or undergrads and--" There was an and, and they would say "And we're looking for people who have strong modeling skills."

I was new. That was new 7 to 10 years ago and had never happened before. Suddenly there was a bit of a panic and people realized, "Wow, I somehow have to prove that I have good modeling skills." Where we teach and we teach at a lot of business schools as well, a lot of MBA programs, all of our students would put on their resume that they had taken one of our courses, a Marquee Group course. Any student that took any course with any modeling training-- There are a number. There's probably half a dozen financial modeling training providers in North America. Students would indicate on their resume that they took a course, but we knew that simply taking a course doesn't actually mean anything. That doesn't mean you're actually any good at it. It means you sat through a course.

We looked around the world and discovered that there was truly no way to validate your modeling skills. There was no way to get external validation. There were a few training firms that offered a bit of a multiple-choice test, something very gentle to give you a certificate, but it wasn't rigorous. It wasn't proctored, it wasn't serious. We realized that there was a huge gap and a need to build a truly rigorous accreditation body within the field of financial modeling, much like the CPA organization, much like the CFA organization. I have my CFA designation and the CFA Institute has been very supportive of us for the last few years.

In fact, I'm very pleased to report that the former CEO of the CFA Institute, his name is Paul Smith, based in Hong Kong, is going to be joining our board and joining our team as a senior advisor at the FMI in the coming weeks because he's really excited and passionate about the work we're doing to build up an accreditation body in the field of modeling because one doesn't exist. As I was saying, so many employers are looking for this skill in their professionals.

Megan: Just out of curiosity, is it technology agnostic or how does technology play into--? [chuckles]

Ian: Yes, that's an excellent question. I guess you mean in terms of the buildup of financial models or in terms of running the FMI platform because it's two different things? I guess you're more interested in the modeling piece of it?

Megan: Yes. The modeling piece of it.

Ian: It's an excellent question and it gets to what we mean when we say financial modeling. In the broadest terms of all-- And I like that you're asking this. In the most broad terms, financial modeling simply means, for your listeners, taking something that exists in the real world and creating a virtual representation of that in some software. You could be building some statistical model in a statistical data science package, a software package, so that in theory is a model. Anything that we're trying to do to build a tool in a piece of software, I guess in theory is a model, but that's a very broad definition.

In the world of corporate finance, in the world of banking, and financial planning, in the world of accounting, when we talk about financial models, we are typically talking about a tool that's a forecasting tool of a company. We're building a forecast for a business, sometimes for a department, sometimes for a project but typically, we're forecasting some sort of an organization, most commonly a company, and we're usually doing that within Excel.

Now more and more we're seeing people do that work in other spreadsheets like Google Sheets but the vast majority of finance models are built these days still in Excel. Yes, the technology we use is Excel, and Excel has evolved a lot. We've evolved a lot with Excel but that is really what we're talking about.

Megan: Are you one of the founders of FMI then?

Ian: Yes. It was myself, a couple of my partners, and a number of modelers in Australia that we worked with initially to envision and dream up the notion of the FMI. We quickly put together an advisory council board of expert modelers and the advisory council includes people that are in the US, in England, in Australia-- I'm trying to think, in Singapore, where all of our advisory council members are. Collectively we put it together this organization to make sure that we could really, truly, thoroughly test people and allow us to validate their skills.

All we wanted to do, the only thing we really cared about was demonstrating a level of excellence so that we could prove and we could promise, I should say, that if someone gets one of our designations-- Our first level designation is called our AFM, the Advanced Financial Model designation, it's our level one exam. If anyone gets through that exam, they're designated with the AFM and they get a certificate and a badge that they can share, and they're in our network and we will tell people that they have it.

At that point, if someone has their AFM, I can promise you and I can promise anyone that this person will be an excellent financial modeler. It's a very challenging exam, it's a four-hour exam. Well, historically our exams were in-person in testing centers all over the world. Because of COVID, we moved the exams to be virtual, which is great actually for us and it's worked out really well. They're still proctored, we still have a lot of control. We're watching the person the entire time. We're watching their screen. We can see exactly what they're doing. It's all being recorded and they have to use their passport or some other ID to get into the exam. They can't use any other notes. They're given a case study and in four hours they have to build up a well-designed, beautiful, integrated financial model of a company that adheres to all best practices. If they can do that really well then they will get through and get the designation.

Megan: Was that a hard transition to go to completely virtual?

Ian: Yes, actually it was a hard transition, I'm not going to lie. It took us about four tries to get it really quite right. COVID, I guess hit in March of 2020, we had exams scheduled all over the world in April in-person exams and we realized that we weren't going to be able to run them so we canceled them, much like the CFA canceled their exams all over the world.

We started to say, "Wow, I'm not sure this is going to go anywhere anytime soon so we better think about that." By June we had made the decision in hindsight-- I'm thrilled that we did, that we were going to have to research and look at moving our exams to be virtual and our first virtual sitting was October. It was a very tight transition between, basically July and October when we started to work on it.

We hired partners. We actually tried to use external vendors that were external proctoring companies and external exam administration companies who supposedly had expertise. There are big companies to manage it and I'll be honest, the first sitting did not go very well. The proctoring didn't go well, it was frustrating.

I'm a big believer that we're all going to encounter challenges. It's not about whether or not you encounter challenges but how you deal with them and how you manage them. We worked very hard to get through it and to reach out to every single candidate to let them know how we were going to improve things and get it better. Now, most of them did get through it but they might have been one or two hours delayed, it was very painful.

We switched to another platform for the next exam, which was better but still not perfect. By the third and fourth times, we decided to move to an AI-based proctoring tool which has been brilliant and it's worked extremely well. Now, as I said, we can record the person's camera and we can record their screen, and so we really finally are onto a tool that is working extremely nicely.

Megan: Yes. Wow, so the plan for the future, is it going to stay online, or will it go back to an in-person setting?

Ian: It's an excellent question. People are really enjoying their virtual setting. Do you know what the most interesting thing that I discovered as well about the virtual exams? Historically, we were running exams, the exams would be quote on Saturday but a Saturday means if we're running the exams in six or nine different time zones around the world, starts in Australia-- The idea was that wherever you were in the world, your exam was at 9:00 in the morning.

The Australia exam would start at 9:00 in the morning which was really six o'clock on Friday Eastern Standard Time. There'd be a nine o'clock Australia time and then there'd be a nine o'clock Tokyo time and a nine o'clock-- We'd keep going West and then the Middle East and then in Europe and then Eastern Standard Time, Central Time, and then Pacific Time. It would take approximately 12 to 15 hours for all the exams to get started, and when they were physical, you went to your local exam center at 9:00 AM.

Well, when we moved virtual, we thought the same thing would happen. We said, "Okay, where wherever you are, sign up for your 9:00 AM exam slot in your local area" but we didn't actually care. We said, "Yes, well sign up for whichever exam you wanted." We discovered people were signing up for exams at the most ridiculous times on purpose. We would find out people in Eastern Standard Time were writing the exam in Singapore time which was in midnight or whatever it was because that's when they could get the time or the internet was working better for them then.

We have people in Africa. We have a lot of interested people writing the exam in Africa. The internet doesn't work as well so the internet works best in Africa in the middle of the night when no one's on it. They're choosing to write the exams in times that give them the best internet access. We might move to some in-person exams once we clear through COVID in areas where the internet's tougher but I got to tell you, the reception to virtual exams that are still highly controlled and proctored, it's been really good.

Megan: Let's take a look at the evolution of finance. Why do you think it was 7 to 10 years ago, companies started searching for financial modelers?

Ian: That's an excellent question. It's a really excellent question. I have some theories. I'm not sure that I or anyone really knows the answer. I've been in the modeling space for 25 years and teaching modeling, very, very connected to modeling for a long, long time. I would say it's a combination of a few things.

The world started to change. It might be correlated to the financial crisis back in '08, '09 when things started to fall apart and then rebuilt. A lot of things happened in the financial crisis that mistakes were made and there was a lot of oversight. We always talk all the time about the fact that many-- In fact, I always tell people that most financial models that exist, most spreadsheet-based models are a mess. They don't work very well. In fact, I bet you, you can relate to that. Surely you've seen a spreadsheet in your day that was a bit of a mess and made you want to pull your hair out, trying to review it. I'm guessing that's happened to you. Is that fair?

Megan: Yes, absolutely. I think any accountant or finance professional can say the same.

Ian: Yes, sure. Somehow that was tolerated in the '90s and in the early 2000s and then the financial crisis hit. I think, first of all, the regulators started clamping down much more heavily and scrutinizing the work that was being done at banks, in particular, and realizing that some of these multi-billion dollar decisions, multi-billion dollar acquisitions, M&A transactions were literally based on the back of a financial model that had been prepared by a 22-year-old, who had just graduated 6 months ago with a history major and had never done any finance or accounting work before.

This is part of what got us to think. We actually started thinking about an accreditation back in 2012, that's when we started dreaming it up and launched it in 2017. It was always very frustrating to us that in our field, in the field of finance-- Think about an M&A transaction. If you're working on a large giant merger, think of all the different professionals that are involved in that deal. You're going to have numerous accountants. You have lawyers, you probably have actuaries. You're going to have a number of engineers doing due diligence. You're going to probably have some pension consultants.

Every single one of those professionals, every single one of those people, those professionals that are involved has had to go through university and get a degree and achieve some professional designation. You can't comment, you can't provide an opinion on the structure of a bridge if you don't have your engineering degree and keep it renewed all the time. Yet of all the roles that are involved in a massive M&A transaction, the only one role that does not require any oversight or accreditation is the finance person. The person that's building the tool that's ultimately going to lead to the decision over how much to pay and how is the deal going to work. That can be anyone, you don't need any designation.

I think that as a result of some of those and realizing that there was a lot of sloppiness, other banks on their own and some of the regulators started to say, "Listen, it's important that we improve skills." That's why we started seeing it on job postings. People would say, "We want to see proven modelers," but they had nothing to latch onto. They couldn't say, "You have to get designation X" because there was no such thing as any designation at the time, and so that's why we're trying to fill that gap.

Megan: How many different levels are there?

Ian: There are three levels. There are going to be a third one. There are three levels, the third one is being launched. The third one was supposed to get launched about a year and a half ago. We were going to launch it just around COVID time, so we've been delayed. Of course, when COVID hit we had to completely refocus our efforts at just survival because we had to reimagine the exam. We had to take a major operational focus just to figure how we were going to reinvent the FMI.

The first level is referred to as the AFM, the Advanced Financial Modeler level. Part of the reason why each level is its own separate accreditation is because they're all quite difficult. We felt that for someone to get through the level one exam they shouldn't have to wait. That is a signal that they have excellent financial modeling skills.

Level two is the CFM, the Chartered Financial Modeler and that takes it to the next level. That level is all about really challenging problem-solving. We'll give people a few different case studies on the exam and they'll have in four hours, a couple of major problems. The problems get a lot more sticky, a lot more sophisticated.

I would say a lot of people that are going to come to the FMI will probably be completely sufficient if they just get through the level one, AFM designation. If you're a very hardcore modeler and you're working on, let's say, infrastructure transactions, or you want to move into private equity, or you really want to be like a world-class, absolute best in class modeler, you want to demonstrate that you have some really sophisticated technical skills and that would be the level two CFM.

The third level is called MFM, the Master Financial Modeler level and it's going to get launched early next year. That level is going to be more of a lifetime achievement accreditation for people who clearly have strong technical skills, but it's more than that. It's people who have been involved in contributing to the field, who have been teaching or have been developing content or who have been leading teams at organizations in modeling and pushing the envelope, and have been doing it for a decent amount of time, and through a peer-- Almost like a fellowship at some of the accounting or accreditation bodies to really demonstrate and recognize those who have contributed a lot of their career to helping advance the field.

Megan: Sounds like definitely a meaningful milestone within someone's career.

Ian: Yes. That's what we're hoping.

Megan: Financial modeling, so why is it critical to a company's financial planning and for improving business decisions?

Ian: That's a great question. I mentioned earlier that if you really boil it down a financial model, at least, the type we talk about, is simply a forecast. All we're trying to do is use some forecast to forecast a business, typically. I should add that a lot of people build their forecasts in spreadsheets in Excel, but many don't. There are really only two ways to build forecasts.

You can either use Excel, a spreadsheet or you can use off-the-shelf or a customized software application. There are dozens and dozens of-- We call them black box software applications where you enter your data into fields and then it spits out a forecast. A lot of companies use those because there's really no chance of screwing it up and messing up a formula.

I got to tell you, we work with a lot of companies that use black-box software, and inevitably, someone always gets frustrated because you lack the flexibility. You can't say, "I want to add in a new piece of debt" or "I want to change the mechanics of this debt. I want to add in a new working capital item." It's often tricky or difficult to make the type of flexible changes that you want. People sometimes inevitably, come back to Excel anyway. Why have they become so important, because models have become-- Certainly spreadsheet-based models have become the most important decision-making tools in all of finance.

Virtually every critical decision that's going to get made is going to be on the back of some financial model and that could be simply a planning decision. If you work at a big company as the CFO or you're on the finance team, you might need to make some critical decisions around organic growth, investment in capital, CapEx planning, in staffing, headcount, hiring, all things. You want to understand the implications on your bottom line, on cash flow, by some of your decisions.

Models are used for a internal planning and budgeting. Models are used for M&A purposes, acquisitions, deciding on acquisitions, divestitures. Models are used to evaluate creditworthiness. A lot of credit bankers will want strong modeling skills because they have to decide, "Hey, our client is asking us to increase the size of their revolving credit facility by $100 million" or "They want a new term loan. Can they manage that? Can they support that? Are they going to start tripping covenants in three to five years?" The reality is virtually every significant major finance decision is going to be based on the outputs of a strong financial model. If they're not working well, it makes it really tough to make great decisions.

For us, modeling is so much more than just building a giant calculator in Excel. When people build and submit their exams for the FMI exams, we're looking for a lot more than just accuracy. That's just one criterion. We always tell people that a good model has to be a communication tool. It effectively has to be a presentation tool. You have to be able to use your model to tell a story of the situation that you're evaluating. Why should people make the decision to invest in this new capital project or whatever it is? We want people to use cleanliness, simplicity in their design, simplicity in their layout. Ceanliness in the way they build their Excel functionality so that it is transparent, usable, and working really nicely. It's a whole discipline around modeling. It's not just about building up a clunky spreadsheet.

Megan: Just out of curiosity, when people turn in their exams, are the results pretty similar, or are there a wide array of outputs as part of the exam?

Ian: You mean in terms of what the five-year income statement forecast or the balance sheet might look like?

Megan: Yes, I guess so, or the models that your exam takers are building, do they differ, or is there a right answer?

Ian: That's an excellent question, so it's really funny. Our exams are graded by people. We are not AI-based grade. They're not multiple choice. We have a very, very detailed, rigorous grading rubric that we use and we have graders all over the world. In fact, we use a lot of our graduates, are really excited to help. A lot of our AFM graduates and our CFM graduates are graders, so when we collect all of our exams--

The nice thing about having the exams virtually is that people simply upload-- They build their Excel model, they save it when it's time and then they upload it to a portal and we receive it. What do is we have a very rigorous grading team. Our head graders will cleanse the models, make sure that the people's names are not in the models. All they have is the student number, their participant number, then they'll allocate the models to graders all over the world. The graders go through a very detailed rubric to go through them.

You asked, 'Do the models look different" and so the reason I was asking is that could mean two very different things. I'll address both of them. First of all, in terms of style. Absolutely. They vary a lot and we love that. We love that because we-- I'll be very clear. The FMI is not a standards organization. We're not out to set out a set of standards. We're not here to tell you what font you should use and exactly where you put lines and how you indent. None of that. There are some standards documents and some people like standards for models which is fine, but to really be applicable globally on a universal basis, we believe that more of a discipline is important best practices.

We share with people best practices. There is no debating. I could show you the same formula, calculated in two different ways. One of them you would find very easy to understand and transparent, and another way might be done with a massive giant Excel formula that links to six different spreadsheets, and it's going to make you want to pull your hair out. There's no debating which one's going to be easier to understand.

We want people to adhere to best practices, but we also want people to put their own stamp on it. We want people to exhibit their own creativity in terms of layout inflow, in terms of the visualizations, in terms of colors, in terms of style, so we see a lot of different styles which is actually nice. As long as the model's built well you can pass with any wide range of styles, which is great.

As for the actual number, we're not looking for a specific number because we give people a case study. The case study is a few pages long, so everyone gets the same information. We'll tell them, we'll say "Here's how you should be thinking about revenues and costs, and CapEx and fixed assets and depreciation, but there is a little bit of room for interpretation." We also say to people, "Listen, if you feel the need to make up some of your own assumptions, by all means, go ahead, do that. That's fine." We're not judging them on, "Did you get exactly 29.4 million of net income in year 5?" No. That's not what we're looking at to decide if they pass or not.

The reality is, anyone who passes and does a good job is going to have a similar income statement, but just because they're going to have used the data in a similar way, one person's not going to get 5 million of net income and someone else get 2 billion of net income. That won't happen. There could be slight deviations in the results and that's totally fine, as long as they built up their model well and used good discipline, they can all pass.

Megan: If I'm looking to become a cert or an accredited financial modeler, is there an educational background that I should have, or some professional experience, someone who's obviously a good fit for this?

Ian: That's an excellent question. We get asked that a lot. In terms of background, I would say the simple answer is, no. Your life will be easier. It's funny. [chuckles] I actually have taught lots of accounting courses in my time and I like to articulate-- One of my favorite finance professors of all time when I was doing my undergrad and learning accounting and finance, he came in.

I think he was also from Texas, probably not far from you, but he came in on the first day and said, "Listen, guys, if you want to understand the difference between accounting and finance, accounting is primarily focused on the past, understanding, reconciling and making sure that the past is recorded properly. Of course, accountants will spend time thinking about the future, but the job of accounting is to think about the past. Finance is largely focused on understanding, trying to think about what the future will look like."

I would say if you want to get into modeling, it's less about where you have come from and more about where you're trying to go. If you want to get a job or work in a role that requires modeling skills, and there are so many jobs that need modeling skills. If you want to work in credit, in banking, in private equity, in corporate development, in corporate planning and the list goes on, in equity research, you're going to need modeling skills.

Now, if you happen to have an accounting background, it'll be much easier for you to get where you need to go. If you have a finance background, if you've worked in finance or accounting a little, it'll be a little bit easier to climb, to get up to speed, it's a pretty steep learning curve. I can tell you, we've had people that have had close to zero background and they worked very, very hard and they put in 100 hours and they can get themselves through the AFM exam. In the process, learn how to build a best-in-class model.

Now, at the FMI, like a lot of accreditation organizations like CPA and CFA, we have a set of learning materials for the level one exam. It's a video series, it's about 10 or 12 hours and 50 or 60 videos. It walks people through step by step, exactly what they need to do to build up a model. We're not running training courses, but we have learning materials.

There are also approximately 25 approved training providers. These are training firms all over the world that will teach people courses on how to prepare for the AFM exam. You could take a course, a live course, or an online course from an approved training provider, or you could just sign up and get the learning materials, and that might be sufficient for you. If you put in the time and you really are keen and passionate, you'll be able to get there.

Megan: What advice do you have for CFOs who are looking to better understand financial modeling?

Ian: Advice to CFOs who are looking to better-- Well, I guess what I would say.

Megan: Maybe even build out a financial modeling team or I guess just make the most out of financial modeling.

Ian: For sure, they could talk to me. I have lots of ideas, I'm always happy to chat with people and share. I was chatting with an organization in Asia earlier this morning because they're looking to understand how to improve the skills of their own teams. Given my background in modeling and all the work I've done, I can help. I should back up what we're looking to do at the FMI, by the way, is we are ultimately looking to build much more than just an accreditation organization.

We do have that, but we're looking to build more than that in the form of a community. Next year we're going to be launching our community platform. It's not easy. I tell you that because segue into the question you just ask, it's not always easy for people involved in modeling to find resources, to find people to talk to, to find a peer group, a network because you might only have one or two people at each organization who have to be really disciplined and focused on modeling. They might not have a strong peer group.

What we're looking to do at the FMI is to have a portal and a community where people can reach out and discuss these issues, For now, my team and I are happy to discuss-- What I would say, as a couple of points, there's a pretty easy gauge. If any CFO or any finance or accounting person listening, if you happen to be working or if you happen to have any spreadsheets on your team that make you mad, that make you frustrated, that you struggle with because they're a bit of a mess and you always get grumpy when you look at them, that's a problem. That's not optimal.

All of your spreadsheets and in fact, all of your forecasting tools, your models should be really easy to use. They should be easy to navigate. They should be fun to be in. They should be inspiring to be in. They should allow you to get insight very quickly. If they don't, they can be better. That means that the discipline that your team's using and the skills on your team can be better.

If even one person on an organization sits the AFM exam and passes it, it means at least one person on a team will have learned what does it mean to build tools that are truly best in class, that you can share with anyone, that are clean, that are presentable, that everyone will understand.

I guess I would say, and last comment on this. I always tell people that every forecast you ever build in Excel has to work two different ways. The first way that any good Excel-based model has to work is electronically. When I say a model has to work electronically, it means that if I built a financial model, Megan, of any company in the world, and I emailed it to you-- Let's pretend you were my boss, and I emailed you my spreadsheet and you opened it up and you started to play with that Excel file for 15, 20 minutes, you should start to feel like, 'Yes, this makes sense. I understand what Ian's doing. I can follow and understand every single formula. It's like he's telling me a story. It flows. It'll be really enjoyable to walk through it step by step." As you know, that doesn't happen all the time. If a model's not working that way, it can be better.

You can't get through the AFM exam unless you can build models that do that. Number one, a model has to work nicely electronically, but we also tell people that a good model has to work effectively and be designed in a way, so that it could work on paper or as a PDF. Meaning, if I was going to go to meet with you in person, and we were going to sit in a boardroom together, I will bring a copy of the model on paper because you and I are going to have a conversation about it. If that model ends up being 10 pages long or 20 or 30 or 50, it doesn't matter. You should feel like I'm flipping you through a presentation, like a PowerPoint deck almost.

It should feel like I'm walking you through a presentation in the same way as if I was walking you through a set of slides. It should be nice to go through. It should be easy to follow and you could understand every single cell. If models are not achieving those two criterias, there is a lot of room for improvement.

I guess I would say "Think about your tools. Don't be frustrated, don't live life frustrated, get better, get your team better, find a way to improve so that you can really find your tools helpful and insightful."

Megan: I'm inspired. I think my financial modeling skills could do some work.

Megan: It sounds like most people probably could.

Ian: Yes, and I'm guessing you probably have done some forecasting and modeling in your time as well, like a lot of accountants.

Megan: Yes. Thank you so much for being my guest today.

Ian: Thanks, Megan. It's been a real thrill to be here. I always enjoy chatting and we'll see you again sometime. Thank you.

Megan: I really enjoyed speaking with you and learning about the Financial Modeling Institute. It sounds like you're both doing some really great things and I wish you continued success in the future.

Ian: Amazing. Thanks, Megan. I appreciate it and we look forward to being in touch.

Megan: To all of our listeners, thank you for tuning in. Please tune in next week and take care.

In this episode, we discuss what financial modeling is, why it’s critical for a company’s financial plan to avoid reaching the wrong conclusions, using team members’ existing education and professional experience to have them become financial modelers, how financial modeling can ensure success for launching or acquiring a new business.

Understanding Financial Modeling

Understanding financial modeling quote

In finance, banking, and accounting, financial modeling means building a forecasting tool for an organization using Excel. FMI provides financial modeling training and offers various levels of designation.

“In the broadest terms, financial modeling means taking something existing in the real world and creating a virtual representation of that type of software.”

Incorporating Financial Modeling in the Business Model

Incorporating financial modeling into business quote

Businesses now search more to adopt financial modeling in their organizations. Before the financial crisis of 2008-2009, financial modeling was vastly unprofessional, which resulted in many poor business decisions. This led to organizations recruiting expert financial modelers, which the market lacks. To fill the gap, FMI brings three levels of accreditation for training people in financial modeling.

“I'll tell people that most financial models that exist, most spreadsheet-based models are a mess. They don't work very well.”

Improving Business Decisions

Ian Schnoor, executive director, Financial modeling institute quote

The financial modeling outputs determine the most critical business decisions. They determine internal planning, budgeting, M&A purposes, acquisitions, divestitures, and evaluating creditworthiness.

“Some spreadsheet-based models have become the most important decision-making tools in all finance.”

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