Matthew Bernath, based in South Africa, has been a financial modeler for 15 years. Such was his thirst to learn best practices in the field, he set up a podcast, The Financial Modelling Podcast. Eighty episodes and 100,000 followers later The Financial Modelling Podcast is now ranked as one of the top finance podcasts.
Matthew is head of data ecosystems at Shoprite. In his previous role, Matthew steered the data analytics capability of Rand Merchant Bank, building a Rand-wide data ecosystem. He is also a startup investor.
In this special crossover edition between FP&A Today and The Financial Modelling Podcast Paul Barnhurst (aka The FP&A Guy) and Matthew Barnhurst, explore:
- Why Many FP&A teams are missing a trick to perform real analysis (the “a” in FP&A)
- How FP&A can better use financial modeling
- Key skills you need to improve your financial modeling
- The vital importance of understanding macro events in FP&A
Matthew then turns the tables asking Paul key questions such as
- His take on the state of FP&A?
- How non-finance people (who hate finance) should approach dreaded budgeting and finance?
Paul Barnhurst
Welcome to FP&A Today I am your host, Paul Barnhurst aka the FP&A Guy. And today we’re having a special episode. We have with us the host of the financial modeling podcast. Matthew Bernath. Welcome to the show.
Matthew Bernath
Hey Paul. Great to be here.
Paul Barnhurst
So Matt, could you maybe start by just telling us a little bit about the Financial Modeling Show. Tell us a little bit about your podcast and how that came about?
Matthew Bernath
Yeah, sure. So I guess I I’ve been doing financial modeling for a long time. Probably started in about 2008. Um, so yeah, going on 14, 15 years and in about 2018, I was working in an investment bank, focusing on financial modeling, focusing on building a quantitative center of excellence in the infrastructure finance space. For your listeners that know infrastructure finance, it’s very structured, very highly structured financial models. Typically looking, you know, 20 to 30 years into the future. And I just absolutely loved financial modeling. And I, realized that there was this community of financial modelers globally that I could connect with and speak to and learn from. And so I decided to start reaching out to people and I thought, hey, it might be cool to record a podcast. And the first podcast I ever did, um, doing, you know, we were briefly chatting before we started recording now mean I had no idea what I was doing and I recorded it, I think on my room table with this tiny microphone and it’s called the future of financial modeling and you can go and to it’s very first episode, I guess now on episode number, 80 whatever the might be.
Matthew Bernath
And I’m sure the sound quality is terrible. And after about five or 10 episodes, people say to me, oh, I’ve been listening to he podcast, but I think you should get a, a better mic. And then I realized, OK, well, if people are actually listening to this, maybe I should improve the sound quality and invest in a better microphone. And, yeah started taking a bit more interest in that. And yeah, now I’m on season five, as I said, 80 episodes in hundred thousand listeners in over a hundred countries. So it’s, it still blows my mind when I look at stats, but it’s been a lot of fun.
Paul Barnhurst
No, that’s great. No, and it is amazing. I’ve been about, I think, 10 weeks into doing a podcast. Now, I think we released nine episodes and just, you know, following the stats and seeing it grow and learning it is, it is pretty amazing. So, you know, that’s great that you’ve reached a hundred thousand followers and accomplished what you, what you have. So, you know, we speak about financial modeling as you know, the podcast we run is FP&A Today, and obviously in financial planning and analysis, modeling is a huge part of that. So maybe talk a little bit about, you know, how you see the FP&A world using financial modeling, why it’s, you know, so important to the, to the FP&A space.
Matthew Bernath
Yeah, sure. So I think, I think there’s a lot of disciplines from the financial modeling world that I’ve seen being adopted in the FP&A space, um, you know, going really well. And I think, I think, you know, a lot of people, a lot of people have to do financial planning analysis and put together budgets and forecasts. You don’t necessarily even understand financial models. So maybe don’t come from a financial background, but maybe they’ve been, you know, promoted to a senior position or they’re running a division of the company. And now they all of a sudden have to put together a budget and forecast and much money the divisions gonna make. And they aren’t that comfortable with the numbers. And so what typically happens is a kind of copy paste of last year, just for inflation,. You know maybe we overspent here underspent there and maybe did a little bit of fiddling. Generally it’s an adjustment to last year and I find this is obviously the easiest way to do it, you know, copy paste.
Matthew Bernath
But I think that, you know, companies that have really focused on bringing in financial modeling disciplines like scenario analysis and forecasting and bringing in other data feeds, those are the ones that dealt with let’s say the Black Swan events best, you know, those are the companies that were able to say, geez, you know, during COVID, it was obviously terrible, but we, we have , a downside scenario and we forecast that , and, you know, try to make sure that we have covered these various scenarios. We had three months, six months worth of cash flow to keep us going. And the budget wasn’t just copy paste, but we had also, you know, we had done these various analysis that also allowed us to identify opportunities better, not just in Black Swan events, but in all markets you know, we have identified opportunity and we really focused.
Matthew Bernath
We put additional budget to that. We ran perhaps a bit of, um, you know, a solution to see, you know, how we could optimize funding of our portfolio and of our business. And so companies that are adopting more financial tools into FP&A like portfolio, let’s say optimization, cost optimization, understanding where they’re getting the most bang for their buck, uh, doing a bit of scenario and sensitivity analysis, visualizing it and monitoring on it a real time basis. Being able to kind of react to your budgets on a real time basis and make real time or relatively real time decisions is also so important because I think that’s great skill from financial monitoring. You know, previously with budgets, again, people aren’t, a lot of people have to do FP&A that aren’t professionals, the people in business that have kind of been dumped in the deep end, they just do it.
Matthew Bernath
And they think thankfully budget season is over and I’ll only have to do it again next year. And they don’t track it on a real time basis. Then they’re missing a trick there. You’re missing such an opportunity to react to your market in real time, understand where you can pull cash from in order to attack certain opportunities. So I think there’s obviously some differences that I think that there’s a lot of opportunity for overlap as well. And I really like the word analysis, right. Analysis. I mean, I think that’s the key word there, you know, a lot of people, they missed the opportunity for deep analysis into their budgeting, forecasting and financial planning. And, and that’s really the bigger overlap with financial modeling as well.
Paul Barnhurst
No, I really like the last one you mentioned there, you know. There are a couple things, but just the analysis part reminded me. I was talking to someone who had been a CFO and he goes, I’ve had analyst come in and they drop a report on my desk. He’s like, here’s the analysis you wanted. He’d pick it up and look at it. He goes, this isn’t an analysis. It’s like, this isis a report. Where’s the analysis. Where’s the recommendation, where’s the insights? He goes. I only had to do that once and I’d never get a report like that from them again. And I really like that, because I think that’s the part a lot of people forget. And historically I think it was something that often was missing from FP&A, I used to call it financial planning and reporting. Here’s your a hundred page deck that they would do every month. And it’s like, nobody read it. Right. It just went to the filing cabinet or the waste basket, so to speak. So no, that is definitely great advice. So, you know, what do you see as the key skills for somebody who hopes to be better at financial modeling who wants to improve in that area?
Matthew Bernath
I think a lot of the financial modelers, they focus too much on the, the let’s call it the micro aspects of financial model. That’s the tools you use and they become Excel experts. And I, I love Excel, right? I love Excel probably just much the next guy and I spot the Excel books behind you. And I’ve got a lot of the similar books. I think we’ve got a 70 to 80% book overlap there. And, and obviously I love the tools, you know, and I’m really interested in the tools, but I think too many model focus on the tools. I wanna automate this and that, but they don’t sometimes look at the macro things. So to be a good financial model, you gotta understand what’s happening in the macro environment. What’s happening in global politics that could affect your financial model , that could affect the deal.
Matthew Bernath
You’re working on, what’s happening in inflation. You know, you can be the best financial model in the world, but if you haven’t taken into account inflation, which is such a big topic at the moment, then how good is your financial model? You know, if you didn’t stress test to say, geez, inflation for the past, whatever 30 years has been 2%. And all of a sudden it’s 8%. If you didn’t stress test, then make sure that you your analysis or your financial plan forecast of works, then you can throw it out the window. You know you could be the best financial modeler in the world, but you didn’t take into account these external factors. So I think too many modelers focus on the micro things, you know, oh, I wanna be the best in Excel. I wanna be the, the quickest throw away my mouse, all only use keyboard shortcuts, you know, really understand cash analysis and forecasting. But don’t forget to bring in all these macro variables because in today’s very highly globalized world, you nobody lives in an island, right? And everybody’s affected by things like the supply chain and inflation. And if you aren’t having the look at understanding those sort of macro factors that could affect your financial model, then how good is your financial model? It’s just a pretty picture.
Paul Barnhurst
Yeah, no, that, that’s a great point. If you can’t stress, test it, you don’t understand the macros and can adjust to the environment. It’s like you said, it’s a pretty picture. [Datarails ad] You know what? It is like 13 different spreadsheets emailed out to 23 different budget holders, multiple iterations, version control, errors, back and forth updates. You never really feel in control of the consolidation and collection process. Yep. I’ve been there. Stop. Breathe.
Paul Barnhurst
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Matthew Bernath
Sure I mean, it’s, it’s, it’s a good question. Right? So especially like Excel’s evolving all the time. I’ll say though back in the day, I think 2008, 2009, I started doing a bit of Excel training and you know, used to explain VLookUp up and then explain, well, okay VLookUp issues you can back with, then you’d have to explain index and match . And I think just for the time it could have saved me not only and my own work, but in terms of all the training courses as well, I have to go with XLookUp. Yeah.
Paul Barnhurst
XLookup. And why, why X lookup? You said the, the time it will save you, but what is it you like about it?
Matthew Bernath
I think what I liked about it. So many companies, you, you make recommendations to them and they never listen to you. Right? It’s like, cool, cool. Thanks Paul for recommendation. Um, see you next time. Uh, goodbye. And they check your recommendation. But what I, what I actually think I like about XLookup, so many people recommended it to Microsoft Excel. I know the guys in Excel and they were actually like, yeah, that’s a good idea. Okay. We’ll, we’ll fix that issue. And they went ahead and they fixed it and they released a new formula. I like that. You know, they were innovative and they listened to their audience.
Paul Barnhurst
No, that’s a great point. And I, I’m a big fan of XLookup . I prefer it. And I teach it and it’s fun to see people’s eyes open when they’re like, oh, that makes a lot of sense. That’s an easier way to do it and addresses some of those, you know, challenges that you face with VLookUp and index match. So I’m also a big fan of that one. So you to give you a minute here, do you have any kind of questions for me that you would like to ask for your audience?
Matthew Bernath
Absolutely. So I think, I think, you know, as I said, FP&A is it’s really well understood by like a core group of people, but then many people that have to do ad hoc financial planning analysis. As I said, budgeting, forecasting. If you think about it every single manager in every company around the world probably has to put, get level of for their team, for their department, whether their center or profit center. And my question for you is what advice would you have for somebody who, who maybe they hate finance? You know, they work for an advertising company. They’ve always worked a creative person that they didn’t do accounting. They hate finance. They hate accounting, and now they have to do this budget and forecast. And again, the easiest thing to do is copy paste, but they realize that maybe there’s a better way of doing it. What advice do you have for them to make their lives a little bit easier or things they should focus on to make this whole FP&A analysis or the FP&A process a little bit more bearable, a little bit more enjoyable for them?
Paul Barnhurst
Yeah, no, that’s a, that is a great question. And I think there’s a, you know, a couple layers to that. I think the first thing is developing a relationship with their finance person and working with them. Because the finance person can help them understand and put together the budget for them if they help the finance person understand what they’re trying to accomplish. So I think that first step even before is making sure you understand your strategic objectives, make you understand what you’re trying to accomplish and then let your FP&A person help you translate that, help them understand, okay, to be able to achieve this revenue or, you know, marketing to generate this many leads. It’s gonna cost me this. Well, why is it gonna cost you that? And how do we get there and make it more strategic instead of, okay, this is just a number exercise that I gotta get done.
Paul Barnhurst
And I’m not gonna look at it again for 12 months, which we’ve seen in companies,. Make sure it ties to your operational plan and really, you know, focus on the planning so that you understand how you want to get there. Instead of just a number, especially if you’re doing a static budget, because the reality is you’re never gonna achieve that number. Anyway, it’s the process. And going through that process and letting finance be a partner with you to help find ways to ensure you have the most robust plan possible to accomplish things and to help you correct when you get off course, because finance can do analysis and has access to, you know, all that company data and understands those unit economics in a way that you may not. So I think the biggest advice I would have is step back. Remember, it’s a strategic exercise and finance is there to help you. And if they’re not, you need to have probably an open conversation with your head of finance and figure out why there’s the disconnect.
Matthew Bernath
I, I love that. And I think you said something that’s really important and that’s that the model it’s not gonna be correct anyway. And you know, I used to really irritate my former colleagues because I used to hit me. Matthew is the financial model correct? And I say, no, it’s not correct. And then they said, why did we close this deal? We why to go to credit? You know, what do you mean it’s not correct? And I’d say, well, this model is a forecast 20 years of cash flows into the future. If the model’s correct I shouldn’t be building financial models. I should be playing the lottery because can you tell me me what’s gonna happen tomorrow and nevermind 20 years in the future. And I think you hit the nail in the head, you know, financial modeling, FP&A, it’s all about it’s guiding something and guiding decisions. It’s never gonna be a hundred percent accurate.
Paul Barnhurst
No, exactly. And I used to always say something similar to you when people would be like, if I was really close on a forecast to be, oh, you’re good at predicting. No, if I was good at predicting, I’d be sitting on the beach somewhere right now, relaxing. because I would’ve made a fortune at the stock market. I make solid assumptions. And as long as they’re reasonable and they can help guide decision making. That’s what I do because yeah. If I was great at planning and predicting, I would be a millionaire retired right now. Any other kind of questions you have for me?
Matthew Bernath
No, I think Paul, I think that’s really good insight that you’ve given. I think, I think you’re right. It’s, it’s about, it’s about taking just strategic vision, but then partnering with the relevant experts to turn that into a realistic financial model budget forecast that then requires continuous analysis and readjusting over time. And think, I think that’s the right way of doing it. I think, you know, people that let’s say don’t love this space, they can still guide the process and provide the relevant inputs into the process, but then work with a financial partner to execute.
Paul Barnhurst
Yeah, exactly. We’re here to help make it easier for them there’s a reason they’re not in finance, right. They’re doing marketing or product management or engineering or something else because that’s what they wanna do. And usually dealing with the numbers, dealing with budgets for many of them is like pulling teeth. So anything, you know, we can do from a finance side to make that easier for them they’re gonna appreciate that. Because I’m sure all of them have their nightmare stories of, you know, those budget processes that have dragged on for months and many many revisions and you know, they kind of don’t wanna deal with it anymore. So it’s our job to help take some of that burden from them.
Matthew Bernath
Absolutely.
Paul Barnhurst
All right. Well great. Well I, you know, I appreciate the time with you today. Just kind of last parting thing. If people wanna learn more about you more about your show, where can they go? How can they, they do that?
Matthew Bernath
Yeah. Thanks Paul. So people can go to financialmodelingpodcast.com. Follow me on any of the social media platforms, whether that’s LinkedIn, Twitter or Instagram. Although my Instagram’s mostly the shots of me drinking coffee or good coffee that I found around a big coffee fan and, and yeah, I’m sure just like you on all the podcast channels as well.
Paul Barnhurst
Oh great. So big coffee fans. So what’s your favorite? Do you have a recommendation for people?
Matthew Bernath
I think, yeah. I have the recommendation to go off the beaten track. I think so many people look for a brand name and sometimes it’s the small little hole in the wall coffee shops that are sourcing great green beans, um, you know, sourcing great coffee from around the world, not over roasting not burning the coffee, not too dark, uh, and bringing up those good flavors. And I think, um, that’s what I love as well is these small businesses that are you know, thriving, providing employment opportunities as well and, and just yeah, providing the communities with great coffee and for, for, for my listeners, we’re gonna do a bit of a co-host week. How can They find out more about the FP&A podcast.
Paul Barnhurst
Yeah. So, you know, it’s FP&A Today. You can find it on all your major, podcast, channels you know, Spotify, Apple, wherever else as well as they can follow me on LinkedIn, I go by the, uh, hashtag Thefp&aguy and I, you know, post about the podcast on there also on, you know, TikTok, Twitter, Instagram, you’ll see, uh, posts about the podcast on all your social media channels. Ready. Well, thank you. Appreciate your time today.
Matthew Bernath
Thanks Paul.