All About FP&A with Carl - Part 1/2

On 14 April 2022, I had a very interesting and engaging discussion with Carl Seidman on several FP&A relevant topics.

Carl lives in Chicago with his wife and twin sons. His credentials include a Bachelor's in Finance and Economics, a Master's in Managerial Accounting. He's also a CPA and holds several other professional credentials. He's a member of National Association of certified valuers and a certified Anaplan model builder. He is also a business advisor to several Fortune 500 corporations, middle market companies, and startups in the areas of financial planning and analysis, business strategy, and finance transformation.

Carl's FP&A methodologies and curriculums have been implemented by leading organizations as a part of their finance leadership development programs. More than 13 thousand people have globally attended his training programs, workshops, and seminars.

Asif Masani: Based on the diverse experiences you have had, what according to you are the skills transferable to FP&A? What are the new things that people should learn?

Carl Seidman: Sure. So, recognize that all of my prior experience, all of these different fields fall within the realm of accounting and finance, in different ways.

• Valuation: So when we talk about valuation, we're valuing a business entity, or we're valuing intellectual property, or we're valuing equity interests. And that's very specific.
• Forensics: within the realm of finance, forensics is a bit more diagnostic and exploratory in terms of identifying what has occurred. Why did it occur?
• Turnarounds and restructuring: That is a focus on the distress side. What have been the drivers of distress? What are the drivers of cash bleeding? What are the drivers of the lack of profitability that we've been seeing over a period of time.

So those are four areas of accounting, forensics, valuation, turnaround, etc.

Now, when we think about FP&A in the most simplistic form, what I often say is if you think about a CFO and you were to sprinkle all the duties and capabilities of a CFO, what's expected of them upon a group of people, those duties and those focus areas would largely be FP&A

So it is elements of valuation, it is elements of forensics, it is elements of identifying what is causing distress in the business or bleeding of cash flow.

But ultimately, all of these people or all these roles are connected and collaborate together in forecasting, planning, budgeting, analysis, valuation, capital allocation, identifying the drivers of the business.

And so, while you may be a bit more specialized in some of these more traditional finance or accounting roles, FP&A is really the umbrella over all of them. And so you may find somebody who is in FP&A who is responsible for valuation. You may find somebody in FP&A who's responsible for working capital, optimization and management. You may find somebody in FP&A who's responsible for forecasting a certain line item or collective line items within a certain group of the business. So the skills are very similar. The context and application might be a little different.

Asif Masani: Moving on. I know Matthew had a question when we joined about what different types of companies in their FP&A journey, look like from their startup phase to going into maturity and maybe getting listed on the street? So what does the FP&A department or the FP&A teams look like? You are advising several companies across different phases of their growth. It will be very interesting to understand how the FP&A function evolves from a one - person or the CFO managing the budget to having a team of like ten, twenty, or fifty people.

Carl Seidman: Sure. I say that there are generally four levels within FP&A evolution and maturity.

At level one, I call it immature and fractured. At level two, I call it immature and connected. At level three, I call it mature and connected. And at level four, I call it mature and integrated.

Level 1 (Immature and fractured)

So for a level one, for a company that is either just starting out or as a small private business or a family owned business, let's assume that this is a company doing between zero and $25 million worth of revenue, not a huge business.

I'm also identifying that the size of the finance team is one or two FP&A professionals. Now, if you go into a company, and you say, how many FP&A people do you have here you might have a head of finance or a business owner say, we don't have any FP&A professionals.

And you say, well, do you have anybody who's doing forecasting, bookkeeping analysis, relationships with the bank? And I say, of course, we have that. I said, well, that's FP&A. And they say, I've never even heard that term before.Oftentimes you have people who are taking on accounting and financial responsibilities, but they don't see themselves as true FP&A. That's why I call this immature. You may see a CFO, oftentimes you don't even see that. You may see a controller or ahead of finance, but there often is not a CFO.

Most of the work that is being done is in traditional bookkeeping accounting software like QuickBooks or Zero or a Sage. And then any kind of analysis or forecast is likely to be done in Excel or Google Sheets. Very rarely do I see anything more robust than this.

Level 2 (Immature and connected)

Moving to a level two is when a company says, look, we actually need to get more from our finance function because now we're a 25M to a 100M dollar company. You will start to see more full - time employees. So it is usually between one and four, give or take. You do see a budgeting process and a forecasting process that's likely to involve not just the heads of finance, but leadership of other groups. So you will see the finance team, you will see the sales team, you may see the marketing team. You may see human resources based upon future hiring that they anticipate seeing. So while coordinated and led by the finance team, you're going to see involvement from other people in terms of the systems that you're likely to see. You may still see reliance on Excel and Google Sheets. You may still see systems in QuickBooks, Zero etc.

Level 3 (Mature and connected)

Now you're starting to see exploration into more robust ERP systems such as NetSuite owned by Oracle as well as intact. You may see a bit of movement over to some data visualization and business modeling through Tableau or Power BI.

So you start to see connections between the company or amongst people within the company, as well as connections to other pieces of software. Not just basic accounting, to basic spreadsheet software. You're going to see more robust accounting to spreadsheet software, but also possibly inventory management, HR Management to payroll pieces of software.

All these connections start to take place thereafter. This is where we start to see the greatest amount of transition benefit, but also pain going from level 2 to level 3, which is $100M to $500M. We're still developing, we're still hiring, we're still filling roles and responsibilities. At the same time, we're now forecasting on a monthly basis.

We have financial business partners around the company who are involved in forecasting and budgeting. And by the way, we've also migrated away from QuickBooks or Sage or Zero to NetSuite or Workday or something else. It's far more connected in its native state than an API connecting here and an API connecting here and an Export going there and an import coming from here. So you start to see a lot more connectivity among people and a lot more connectivity among systems.

Level 4 (Mature and Integrated)

And then finally at a level four, I say this is at $500M and above, although I've seen companies well below that are at a level four. I've also seen companies that are multi-billion dollars that would say they're at level two. Let's say level four is mature, meaning that there's an established FP&A function as well as integrated.

When you take a look at the budgeting process and the forecasting process, this is rolling and ongoing.

Other companies saying we're not updating this every week, we're going to update it once a month. But they can do that in a day or a number of days instead of having to put in weeks upon weeks of effort. In terms of where we see this going in technology movement over to SAP, or over to Oracle, Workday, but then integration with some EPM enterprise performance management platforms like Adaptive owned by Workday Planful, Vena Solutions or Anaplan and then still using the data visualization and analytics power of Tableau and Power BI.

So again, four different stages for unique purposes and focuses on different companies of different sizes. What I would challenge and that companies need to ask themselves is what is the ROI or the return on investment of moving from a level one to level two? Why would we choose to go to level two? Why do we need it right now versus just staying at a level one? And I just mentioned a few minutes ago that you have some huge companies that say, look, we don't actually see the value of moving up the maturity curve because there isn't a ROI of doing so.

Asif Masani: I can relate to it. I started my career with a level - four company which was very matured. So, having systems processes already documented, like a well oiled machine, very limited intervention in terms of reporting where you just needed to download the reports at the press of a button. And then I moved to a level two organization where I was the first person in the FP&A team. And there was absolute chaos like you mentioned. For the first few months, we actually didn't even work on the FP&A functions, and I was actually working on accounting or on the due diligence side. So, I can absolutely relate to this. And right now, I'm working with an organization which is in level three, trying to get into level four. I did not notice this was in those roles. But now when I look backwards, I can absolutely relate to this slide and our conversation.

We will continue this discussion in the next week's episode of this newsletter where we will cover:

1. Challenges freshers in finance face in starting in FP&A roles
2. Challenges hiring managers go through to hire FP&A talent.

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