Ian Schnoor Financial Modeling Masterclass

CFO Yeah! Podcast

Financial Modeling Masterclass with Ian Schnoor of The Marquee Group

Patrick Whatman Spendesk

“Modeling has become one of the most important skills for accounting and finance professionals. It's its own discipline, its own skill. And yet, there's no requirement, no rigor. So, we believe that it's critical to have a bar that determines that people have the skills.”

Working in finance for over 20 years, Ian Schnoor realized that companies needed to drastically raise the bar when it comes to financial modeling. So he took the lead and created his own training program for finance professionals.

Today, The Marquee Group has taught financial modeling to tens of thousands of people all over the world. Ian has also created an accreditation to help validate finance professionals’ modeling skills.

In this episode of the CFO Yeah! podcast, we discussed the pitfalls of inadequate financial modeling, and the importance for finance professionals to step up their Excel game. Ian also shared useful, actionable tips and insights to make anyone’s models better!

Listen to the full episode on Apple, Spotify, or RSS.

Teaching & upskilling finance professionals in financial modeling

I come from a business background. I started my career in Canada in the late nineties as an investment banker. At the time, I was involved in doing lots of financial modeling, but these were very early days of spreadsheet capabilities.

I didn't really like the way things were, so I kept trying to push and make models better, more elegant, more usable. I spent about six years in banking, and 20 years ago I left and started a business called The Marquee Group. We provide training all over the world in financial modeling.

I have now taught financial modeling to tens of thousands of people. And more recently, about five years ago, I was involved with some people internationally building a separate organization called The Financial Modeling Institute (FMI), which is focused purely on accreditation for validating people's modeling skills.

The reason for this accreditation is that many people's financial models are a mess. Modeling has become one of the most important skills for accounting and finance professionals. It's its own discipline, its own skill. And yet, there's no requirement, no rigor. So, we believe that it's critical to have a bar that determines that people have the skills.

And that's why the FMI was created in general - not just for the certification purposes, but to recognize, and to upskill people in financial modeling.

The need for accurate financial forecasts

Around the time of the last financial crisis, I started noticing a major uptick and a change in terms of rigor and quality when it comes to forecasting and modeling. There were a lot of errors, a lot of volatility.

Having a strong discipline around spreadsheets and building models is key. So right around that time, we noticed an increase in demand for skills.

Today, we're seeing huge demand for people to take our courses at The Marquee Group. And so we believe that organizations want those skills.

I have a team of around 25 people and most of the training we deliver is B2B. We get brought in directly by financial service organizations, banks, pension funds, asset managers, lending organizations…

They’ll bring us in to run a wide range of training offerings. We teach them modeling as our flagship, but we also do courses on accounting, on advanced Excel, and on valuation methods.

The importance of spreadsheet-based financial models

Spreadsheets are still likely the number one tool that organizations use to make decisions.

Financial models have become the most important decision making tools in modern finance. We make so many decisions on the backs of spreadsheets, on budgeting, on operating plans, on hiring and firing, on M&A.

But so many of these spreadsheets are a mess! They’re hard to use, hard to read, hard to follow, and often have errors in them.

And the other option, if you're not going to use a spreadsheet, is to use what we call a black box software - a packaged software application. Some of them work well, but they never give you the flexibility that you want.

When you’re relying on Excel, there's a risk of a formula error. So, if you're a senior executive at the very top, you want to avoid the risk of someone making a mistake. That's why a lot of black box software was born. But on the flip side, the corollary is also true. When you're using black box software, by definition, you don't have flexibility.

So, I think the solution is to continue to use your spreadsheets in Excel, but to understand and elevate the level of discipline around it.

How to ensure your Excel model succeeds

There are two main criteria to know if a spreadsheet model works well. If it achieves these two tests, it’s probably a pretty good model.

And surprisingly enough, most models that I encounter don't achieve either of these criteria.

First, a good spreadsheet based tool has to work well electronically. When you build models, you have formulas which wrap around and around and around. It’s classic, but it’s not optimal.

It should never be that way because it makes it very difficult to understand, to read and to communicate.

Second, I always tell people that a good model has to work well on paper or as a PDF. Because even in this day and age, the vast majority of decision makers are going to make a decision based on a printout. Your senior executives are not going to get into the same spreadsheet and start playing with cells and typing in numbers as they make a decision.

So, those are the two high level evaluation tools to make sure your models work.

Optimizing your model layout

There’s another issue that I see quite often, that has to do with the structural design of the spreadsheet. When people build models, there are two general categories. You can either build a spreadsheet model horizontally, or vertically.

A horizontally built spreadsheet model means that every component of the model was built on a separate sheet - on a separate tab. You’ll have an income statement sheet on its own, called ‘income statement’. And then the next sheet over will be called the cash flow statement. And then the next sheet over is the balance sheet, etc. So every component of the financial model is on its own sheet.

That can mean 30, 40, 50, 60 sheets. More often than not, that approach leads to all sorts of errors and frustrations and challenges. But people do it because they think it makes sense, it seems intuitive to build horizontally. Of course, the downfall is that when you do that, every single formula in the spreadsheet has to link to lots of different sheets.

So, what we recommend is taking a more vertical approach. It doesn’t mean building the entire model on one sheet, but rather using a manageable number of sheets. So, I recommend something like 5 to 10 sheets.

[Listen to the episode for Ian’s full advice on vertical spreadsheet models.]