Sarah Schlott, Senior Director of Finance at Tray, a leading point of sale system in entertainment, joins Glenn Hopper to tear down the sacred rituals of corporate finance. Rising from billing temp to strategic finance leader, Schlott who has been in corporate finance for 18 years, delivers brutal honesty about what’s broken in FP&A and how to fix it. She challenges everything from annual budgets to variance analysis (“forensic accounting in disguise”) while advocating for a bottoms-up, operator-first approach that actually works.
In this episode:
- The power of aggressive curiosity in finance
- My most accurate forecast was also the one that failed
- My views on variance analysis
- Running a $100M forecast in Excel
- Why we shouldn’t treat the annual budget as a “golden idol”
- Moving away from a “spreadsheet guilt trip” every month
- From Singer-Songwriter to Finance Leader
Connect with Sarah Schlott: https://www.linkedin.com/in/sarahschlott/
Transcript
Glenn Hopper:
If you would like to earn CPE credit for listening to the show, visit earmark cpe.com/fpe. Download the app, take a short quiz, and get your CPE certificate. Finally, if you enjoy listening to FPA today, please go to your podcast platform of choice. Click the subscribe button and leave a rating in review of the show. And now onto the show from Data Rails. This is FPNA today. Welcome to fp and a. Today, I’m your host, Glenn Hopper. Today we’re joined by Sarah Sch slot, an fp and a advisor, strategic modeler, and one of the clearest voices in modern finance. If you’ve read her writing, you know, she doesn’t pull any punches. She’s led finance inside high growth, SAS and PE-backed companies, rebuilt forecasting systems from the ground up and challenge the most sacred rituals in corporate finance. In this episode, we’re digging into what’s broken in fp and a and how to fix it. Sarah, welcome to the show.
Sarah Schlott:
Thanks so much for having me. And wow, <laugh>, what an intro. I don’t know if I should be intimidated or really happy about that. So, you know, I’ve read a lot of comments that this format feels like group therapy. So let’s, let’s get into the therapy discussions.
Glenn Hopper:
<laugh>, I’m gonna, I’m gonna be the worst therapist you’ve ever had. It’s gonna be <laugh>, probably Me too. Well, when we were doing background for the show, obviously we read a lot of your writings and, um, I know you’ve had this rise from billing temp, right? Like all the way up to now being the strategic finance leader. So with that in mind, I’m wondering if you can kind of walk us through your background and your journey and talk about how the path that you’ve carved out, how that’s shaped your view of what good finance leadership really looks like.
Sarah Schlott:
Yes. Well, there’s a lot there. That’s kind of a loaded question. It’s been a long laborous journey with a lot of like head binging against the window, right? But, um, I started in, in a billing temp role, really just looking for work kind of out of desperation. And I was dropped right into the middle of a startup company that was in a high growth phase looking to become PE backed. So data processes, people, it all mattered, and none of it was working beginning to end. But unfortunately, my name was on everything. And I, I tend to take more of an extreme ownership. And I think back then, in those first few years, it was more about not wanting to be wrong than it was, okay, no wait. This is the way that I wanna lead. And so, naturally, when revenue missed, because I was a billing temp, I was the one that got the questions.
And as I was kind of mentioning before, the problem is that no one had clean data. So I started digging, tracing the numbers across the silos, figuring out downstream impacts, but also what data and processes were coming to me that maybe made that baton handoff kind of clunky and messy. And it turned out that it was usually a process break long before it was a people break. And then so naturally that curiosity, it turned into control, right? I wasn’t just fixing the formulas or fixing the process, but I was reworking how the business saw itself from the top down and the bottom up. And that’s typically how I lead now by stepping into more of a aggressive curiosity. Why are we asking in trying to track these numbers, but what is breaking along the way that’s not making it possible to flag these early indicators, right? More about alignment and translation and making sure that the numbers that we’re trying to track as well as the levers that we’re trying to pull, really fit the process of the business end to end, to not just like a top down directive.
Glenn Hopper:
Yeah, and it’s interesting now with where technology is, I started to say in the SMB space, but really this is, you can have bad processes in any size company, but there’s so much push towards automation and can you sprinkle some AI on this and, and make it better? But you know, if you have a bad process, are you gonna automate a bad process or are you gonna go back and fix the process first? So I think like you understood, I mean, in being a billing temp, you’re like the lowest person in the order there, but you’re being held accountable and responsible for it, for a bad process that you inherited. But that’s, we learn from that and see where, wow, this is where <laugh>, the junior person here is, is put in a, a terrible spot and ask questions with, with bad data. So there’s one, fix your processes because, you know, I, I think automation and data kind of go together in, in clean process. It all starts with good data and clean processes, but now though, the expectation that we automate more and more of this, you’ve gotta go back and do that sort of bottoms up not to top down. You’ve gotta understand what everybody on your team is doing and how they’re doing it, and where those inefficiencies are, identifying those roadblocks and, and all that.
Sarah Schlott:
Yep. And for me, that became just a natural way that I kind of approach finance and even management, if you’re not understanding the, the bottom up to your point, you’re putting people in very impossible situations. And so now not only are they repeating those bad processes and it’s, you know, garbage and garbage out, but now they feel all this tension and pressure to try to defend their role or defend their practice without having any support. And then now you’re getting bad, you know, outputs because just of that tension and that power struggle, rather than everyone being on the same page and understanding what’s coming to them, but also how they impact the next person, and then how that data all flows back up to making the decisions that we’re all trying to understand.
Glenn Hopper:
Yeah, and you’re, I mean, and you’re passing the baton that nobody wants when they get it too. And you’re,
Sarah Schlott:
We used to make this joke, and this is nothing against sales, but it’s kind of like how finance and sales in the beginning of my career interacted as we, we would make this joke that sales would just take an order form, they’d fill it out, they’d skip a bunch of spaces, and then they’d crumple up the piece of paper and throw it over the cubicle wall, and we’re just kind of like, did something land on our table? Right? And so you gotta fix all of that first, whether it’s automation, but really, even if you’re just trying to grow, you gotta kind of button it up a little bit.
Glenn Hopper:
Yeah. And then with another part of your background, it, it’s one thing if it’s business as usual and everybody’s kind of working at the same pace, but you’ve been embedded in billing ops, hr, and revenue teams all during that kind of, that high growth, uh, chaos period too. So, I mean, thinking about processes and how you went through that, I mean, what are some, maybe from both, but I’m thinking more in that, that high growth era, what are some early signals that financial operations are really about to break? We’ve kind of hit our, our max of what we can do right now.
Sarah Schlott:
Yeah. So I mean, it, it kind of goes hand in hand with the first comment when everyone in the room either is too quiet or there’s too much arguing, right? If they’re too quiet, then that means no one’s really using this model. They don’t really care where the numbers are coming from. You haven’t created buy-in, they’re just not into it. So something’s broken somewhere. But if they’re arguing too much, it also means that you, your process was built backwards. Your data is not flowing correctly. There’s not alignment on what the number should be, how the number’s getting there, what timing you’re using, right? You can have fp and a say, your subscriber count is X, and then sales is sitting there shaking their heads. What you talking about? That was last quarter’s number, right? So that’s kind of the main leading indicator for me is if there’s not enough talk, and also if there’s too much fighting, there’s misalignment somewhere.
Glenn Hopper:
Yeah. And that misalignment could be in the data itself. It could be in, in the data dictionary, how the KPIs are defined, what identifying those sources of truth, or it could be in the processes or usually the two go hand in hand. And they’re sort of linked together. Bad data, bad processes, <laugh>.
Sarah Schlott:
Exactly. And I look at finance as more of a, you know, like a watch tower. We’re an operator. We’re not record keeping, right? There is an aspect of do we have the math right? Do we have the historicals right? But really, you’ve gotta be able to translate those numbers into understanding the business. And if those aren’t working hand in hand, then you’re gonna have misalignment. You’re gonna have these arguments. And what that really creates is this internal turmoil against teams that then turn into silos that then put walls up. And now you’re not just fighting against like a metric or an objective, a growth objective. Now you’re fighting against each other and no one’s getting ahead in that environment.
Glenn Hopper:
Yeah. And then in those kind of environments is where I used to always like to, uh, just retreat into my models and just <laugh> all the chaos is go, you know, before, especially before being in a, in a leadership role, it’s like, well, this is insanity. Let me just go find the comfort of, uh, of my budget model in, in spreadsheets. And, um, when I think about first coming into finance, that was the first thing I thought of. ’cause I, I came up through fp and a, not through, you know, audit and CPA and all that. I loved building the models and I loved, you know, bringing in all the historical and internal and, you know, having all the best drivers and then even pulling in external factors and really just digging into those models, which it’s harder to do when you don’t have great data. But I know you’ve written about, I, I love the piece you wrote about the worst forecast you ever delivered was also your most accurate. What sounds like, how could that possibly <laugh> be the case? So maybe walk us through that, what happened and and why was accuracy the wrong goal in that case?
Sarah Schlott:
Yeah, so I think first just having a solid understanding that I have come up kind of through the ranks and through more of an operator. Like who would be using that model, who’s trying to manage those levers, right? Rather than someone who just has extensive knowledge in building kind of like from your background through fp and a, right? So it’s kind of like the other side of the same coin. So when I started building models, there was always this intimidation that I wasn’t getting the formula right? I wasn’t using the flashiest Excel formatting or the flashiest, you know, code or formulas. And I felt behind some of my fears. But what I was able to bring to the table was something that was more transformative. And it’s that operator side. So when I say that, um, my most accurate forecast was also the one that failed, it was because while the math was right, the formatting was beautiful.
It had all of the color codes that you expect. It had the nice dashboard, the nice roll up. There wasn’t anything that really told the story or like flagged leading indicators. No one really had a say in our next year numbers or what levers they could drive and have impact in it. So no one bought into the model and the assumptions didn’t reflect how the team actually operated. So it was modeling all of these levers that the business just couldn’t believe in. And I hadn’t pressure tested it with the department heads or with the teams. And so it’s really, even though the math was accurate, it was that exercise that I kind of started to lean more into my first couple of years working as an is, well, what do they need? What are they seeing? Where’s the disconnect? How am I wrong? How are the assumptions wrong that’s driving the correct math? And then once they can see themselves in it and can see their ownership and take hold of that ownership, then now you have a model that works rather than just a model that has correct math.
Glenn Hopper:
Yeah. And I know you’ve worked with private equity backed companies and you know, private equity groups have been some of the best financial analysts I’ve ever worked with. But they have that problem that I think I default to this too, where you can confuse the map for the terrain and you can get so lost in the model and focus so much on the model that you forget that operational side of it as well. And, and sort of the reality. And that was always really tough for me because I had a, a role when as a CFO where it was the same investor group would put me into companies that maybe they weren’t full turnarounds, but they were long in the tooth for private equity investments. They were four or five years in and, and nothing, you know, not getting the growth they were supposed to, not getting the EBITDA numbers they were supposed to hit.
So they’d bring me in to try to fix that. And it was very hard at that point. You have so much pressure from private equity to model and show the improvements you’re gonna make, that it takes so much of your time. ’cause these were, these were smaller companies that I was with where you, you can forget the people on the other side. And it’s very easy to build that model that is what they want to see, and then think, oh, we’ll just figure out how to make this work later. And that’s, that’s a recipe for disaster.
Sarah Schlott:
It, it is a recipe for disaster. And I tell you, it’s a recipe for disaster for the people who are left behind. Right? Maybe it’s not disastrous for the CFO who’s taking an exit as soon as this deal is finished. But then for everyone, like your director and your managers and your team leads, we’re all left with how are we gonna hit this? This is impossible. And we’re beholden to a plan that we really can’t support. And had we been asked, we probably could have been a little bit more creative on not a no, but a yes if, right? And we don’t do enough. Yes. If we just kind of assume that, you know, a 20% growth on revenue and a only a five to 10% growth on operating expenses is the magic number, and that’s just not, that’s not reality.
Glenn Hopper:
Yeah. And that goes into something else you’ve written about, and I’m <laugh> it’s crazy to me because I think about how much time and effort goes into the annual budget and the annual operating plan and going back and forth. And when you do, when you do it right, and you get everybody’s, all the department heads, you get their input and everybody, you know, sales has their target marketing has figured out their budget, you’re rolling it all together and everything is sort of tied together. And, and we say, okay, this is what we’re gonna do. This is what we’re basing the budget on, and this is what we think the economy’s gonna do. You can try to think of everything <laugh> in the world that could impact your budget. You finally get this plan finalized and then COVID happens, or the <laugh> or the global financial crisis, or just you read the tea leaves wrong with where the market, where the economy is going,
Sarah Schlott:
Or you lose your biggest customer or the CEO doesn’t wanna hire, and then all of a sudden, you know, it’s Q4 and he wants to hire everyone that was originally in the plan. It’s just timing.
Glenn Hopper:
Yeah. So you made, and, and I agree it, it’s that Mike Tyson quote where, you know, everybody has a plan till they get punched in the mouth. But <laugh>, you make the strong case that most annual operating plans are DOA by Q2. And I agree with that, especially with this year trying to make a plan around tariffs or, you know, what, whatever the global changes that could happen. But in an environment like that, or even if we think all things are gonna remain equal and we’re, you know, and it’s not volatile, knowing that that’s the case, what should fp and a teams be doing instead of the what we’re doing now just to kind of stay relevant and agile and have something that works that they can manage to for the next year?
Sarah Schlott:
I think a few things kind of flow into this, right? And from my vantage point, I just, I have a different perspective in my experience has given me that perspective. I’m in the trenches kind of person, right? So I understand the need for bottoms up, but I also understand why the revenue targets are there or why the EBITDA targets are there. And it’s really, you need to be able to bridge the two. And I tend to approach finance in depth p and a and my modeling more from being that bridge rather than a hundred percent bottoms up or a hundred percent top down. You’ve got to find where’s that convergence. And so when I write online that the annual plan is dead, I’ve been part of fast growing organizations where the annual plan doesn’t even make sense before we’ve gotten corporate to sign off on it, but we’ve already submitted it and everyone’s objective and bonus is now tied to that.
And we already know we’re gonna miss it and probably significantly. And so it’s not so much anti annual plan. I know we need a baseline, we need that structure, we need that compliance spot box checked, but we can’t freeze ourselves in time. And when we build on assumptions that stop being true by February, we’re not remaining flexible enough to move and adjust and pivot with the business. SaaS companies and high growth companies taught me that early on. We always reforecast that. It’s crazy to me that, that not everyone has a rolling forecast and not everyone builds their model to be able to shift or have different scenarios based on good, better, best assumptions. That seems like something that’s so easy to incorporate. And companies that aren’t just SaaS based or aren’t just high growth, could do a little bit more of the rolling forecast. And then suddenly what you see is that teams aren’t held to numbers that no longer reflect their actual constraints.
So finance in the old scenario, becomes the enforcer that no one wants to talk to, nobody believes in. And your model is just kind of a spreadsheet guilt trip practice every month, <laugh>, right? People like bang their heads on their desk before they walk into the meeting. And, and that’s not, that’s not planning at that point. That’s, that’s kind of making everyone pretend that what you guys decided on six months ago still makes sense and everything on a macro and, um, micro level, it’s, it’s just changing too quickly. So you’ve really gotta be able to roll your forecast forward, build models that have like that flexibility built into like just the nuts and bolts of it, right? And then tied to operational reality. Don’t force a a top down number, that’s where you really get stuck.
Glenn Hopper:
Yeah. And it’s depending on where the business is, size, growth stage, whether they’re public or private. I can remember in, in several situations where private company heavily leveraged bank financing with serious covenants. So we would go through and we would make our annual plan based on what we thought it was gonna be, but we, that’s not what we would submit to the bank. We would then turn it around and make another budget for the bank that was sandbagging and was, this is the minimum we need to hit our covenants, and we would turn that over. But then similarly, on public company, if you’re making a budget, you can’t miss your numbers. So you’re gonna have a tendency to sandbag then, but then, you know, what, what are you gonna base everybody’s objectives and, and bonuses on out of that when you have two versions of the budget?
Or if you’re in a, a startup phase in a business and you don’t have data and everything is, you’re just waiting for that inflection point. It gets really tricky to think, you know, and, and depending on where you are in, in financing, projecting one year is hard enough, let alone three or five years out what you’re gonna do. And then your plan for how you’re gonna get there, and then you don’t know what your funding’s gonna be and what your hiring’s gonna be. It’s very tricky trying to come up with this plan. I mean, you, you start with the business strategy and the business goals and you back into that, or you take historical data. It’s just, it can easily get swayed away from what any kind of reality is based on what the purpose of that plan and budget are.
Sarah Schlott:
Right? But then that’s where I challenge upper management, you know, CFO board investors, to be honest, right? Let’s, let’s have some real candor in our discussions. What is reality? What can we do? And I’m not saying that we need to sandbag just so that we can overperform at the end of the day, but if it’s coming from the top down that we need to grow by 30, 40% and your current sales pipeline doesn’t support that, there is no amount of praying <laugh> and worshiping idols that will get you there. Right? So you have to be confident enough in yourself, confident enough in your product, your process, your business, the team that you say you trust to be able to understand how your business is breathing and how it can perform, and then communicate that confidently up and land on goals that are based, right, based on reality and able to be supported.
Glenn Hopper:
You mentioned levers earlier. So to your mind, when you’re budgeting, do you really, is that your primary focus of, okay, we’re gonna increase sales by 30 or 40%. Well, let’s look at this is, you know, whatever the metric is, we’re doing this by market, this by a channel, this by a number of salespeople we have. So let’s build that in. If you want to grow by 30%, we need to drive by hiring this many sales headcount, by the way, they have a 90 day ramp up or whatever it is.
Sarah Schlott:
Exactly. And you know, it’s, it’s maybe a little bit of an unfair advantage because I’ve always lived in a SaaS world, you know, while I was growing up in fp and a. And it just naturally, naturally, it’s, that’s how SaaS tends to build, is it’s very granule down to the lever. And exactly what you just said, if we need to grow revenue by X, that means the pipeline needs to be y and we’re gonna go all the way down to how our marketing is converting online and then roll it up from there. How many hunters, how many closers, all of that.
Glenn Hopper:
Yeah. And it is great to be in a sector that you can get that level of granularity. ’cause there’s so many businesses out there too, where you don’t, you don’t have the clickthroughs on the website and deals that you can track and HubSpot or, you know, whatever based on, you know, marketing leads or, or whatever. So it, it can be harder to, in other, uh, sectors to, to drill down like that too.
Sarah Schlott:
Yes. And, um, you know, I’ve got a lot of pushback online about some of my comments. And actually, I, I highly value them, right? Because I consider my online presence or what I’m writing and not only keeps me relevant in challenges, my own thoughts, but when, when I have people who challenge me, it helps me see things from different perspectives. So I know that not every company or industry has the ability to drill down the ways that I’m describing. But rather than just saying we can’t do that, I then challenge companies to say, okay, well how can we <laugh>? Like what is more important be having an accurate math model or having a model that we can use to operate with and oh, it’s what we use for the board too. We’re not carrying one version for this guy in one version for this guy. Like we’re, we’re really driving reality.
Glenn Hopper:
It’s funny when you mentioned that I immediately had this flashback to a company where it was long sales cycle B2B business, very personal sales cycle, and you’d get somebody in and they would be there for a long time, but it took forever. And the head of sales at this company would not make his team use the CRM. So we would get, you know, I’m doing air quotes now, pipeline reports, but if, if I can’t go see that pipeline, what are you talking about? You know, I don’t know where the deals are, I don’t know what percentage or I can’t base it on anything. And that is a, a real challenge when you don’t have the stats that you can get from systems where you’re tracking everything and you’re relying on people. You’ve gotta have that buy-in beyond just the finance team. It’s gotta be top down. We have these systems, we’re gonna use them because we gotta have that data.
Sarah Schlott:
Yes. And deeper than that too, you have to understand within teens and individuals, what is their reward system look like? Are they avoiding or are they like the golden carrot? Because then that lets, you know, it’s not a manipulation, but it’s a how can we create alignment, right? So if you have someone that is really just like a golden carrot type of producer, then what can you give them to have them lean in or, or carry your objective? What do you give them? For instance, in one company, we were trying to change our entire go-to market strategy with, instead of like one flat rate that sales went in heavily reduced every single time they got up against an ankle biter, we wanted a good, better, best pricing platform. And sales did just, they just did not buy into this, right? They, it was too much work.
They had to do more of like a lean into a solutions based model, right? And they just did not want to sell that way. And so what I did is I pulled aside the top performer, not the sales director, but the top sales performer. And I kind of gave her a view of, here’s your commission right Now, you land leads all the time, you close them better than anyone else in the company and, and here’s your commission, that’s probably enough for you, but here would be your commission based on the customers that you’ve already sold to. If we split them on the good, better, best pricing model, and it was like three x commission, right? And that right there was the single most, it was like she was <laugh>, she was now wanted to be an apostle of finance, right? She was just like, guys, look at this. We need to follow this, uh, new strategy. And sometimes that’s all it takes, right? You can’t just communicate what you want people to do. You have to communicate in their language why it’s good for them. Because when they perform better for themselves, they perform better for the company.
Glenn Hopper:
Yeah. I love that you said that because it reminds me, and regular listeners to the show will know I’ve, I’ve used this story before on here, but it just, it really drives home that same point you just made. My first CFO role was a car wash company, an exterior express car wash company. And we were, uh, private equity backed and we were growing quickly and we had very, very strict targets that we had to hit. And one of the ways that we wanted to motivate our employees, the, the managers of each of the units and the regional managers and all that as well, we had a profit sharing plan that was based on revenue and EBITDA targets. And car wash managers are blue collar, they’re excellent at mechanical, plumbing and electrical. But they’ve, most of them have never taken an accounting course or anything. But when we started with the, the profit sharing that was based on ebitda, that they didn’t know what that meant.
But we would, I would go to the units and I would go through their unit p and l with them every month. And because they saw the impact to their bottom line, if they were able to hit their and, and exceed their EBITDA targets, you would think I was talking to a Goldman Sachs analyst after <laugh> after the third or fourth visit that they saw the results from it. So, and that, that just is another reminder that we in fp and a, we can’t just stay in that ivory tower of finance. We’ve gotta get out there and talk. We’ve gotta partner with the other business units and, and be a, a partner to them and make their lives better.
Sarah Schlott:
Yeah. Yeah. And you know, not every role within fp and a has the time for that, or even the, you know, green light to do that. But someone within the fp and a organization, be it the director or the CFO, someone needs to be talking to more than just the C-suite. And even more than just the department heads. You need to at least talk to team leads before you start building your model. And then even after, I just don’t know any other way <laugh>, because this has always worked so well for me to be team forward and work from a bottoms up kind of solution.
Glenn Hopper:
Yeah. And in finance, we wanna be a mile deep and understand everything about everything from cost accounting to revenue recognition and everything that we need to know and to be domain experts. But more and more seemingly every day we need to have a breadth of knowledge too about the business. We can’t just say I’m a bean counter. I’m, it doesn’t matter what widgets we’re selling. And having, being able to get out and talk to those other groups and understand them makes when we do our job, whether it’s budgeting or, uh, even doing our, our flux analysis every month. And I, I love, one of the things you’ve written about is that most variance analysis is forensic accounting in disguise. And I, I love that because if you are not digging in into that kind of level to understand it, you’re just reporting numbers. You’re not adding value to them. So if you do that level of forensic accounting and you really understand what’s driving them and you find correlations or whatever it is, what’s driving this expense and how does it impact the rest of the p and l or, or whatever the other financial statements. But I love that comparison to forensic accounting, and I’m wondering if you could expand on that a little bit and maybe highlight what teams should focus on instead of that just retroactive scorekeeping when you’re doing your variance analysis.
Sarah Schlott:
Yeah. Fp and a as a function, of course, you’ve got to have those math skills there, but I’ve, I’ve kind of reiterated through almost every single answer to this is that you have to understand the process people and the business. And so when I look at specifically the question of variance analysis and not anti variance analysis, right? It’s, it’s useful. This is, this was the goal, this is how we track to that. But when you can start to understand the business and then ask the question like, where was this broken upstream? Could we have caught this real time before it showed up on the p and l or an audit start to try to dig into leading indicators. If you are tracking your pipeline or your conversion throughout the week, and you notice that your conversion metrics drop, that’s gonna show up on a p and l within the timeline of your average sales cycle, right? So if your average sales cycle is three months or a year and your conversion starts to drop, that’s the leading indicator that downstream your, your p and l and your revenue’s gonna have a problem. So I typically tend to build dashboards that show those main, I should say those detailed levers, right? The ones that are really going to cause an impact, not just the high level KPIs that everyone runs, but we go a little more granular and, and try to get those leading indicators in there.
Glenn Hopper:
Yeah. ’cause that’s where you’re gonna find those levers. That that’s really our, our, our job in, in fp and a is to keep asking why and get down to that root cause and you identify the root cause, then you’re not treating symptoms, you’re treating, you’re actually making an impact,
Sarah Schlott:
Right? And here’s, here’s the thing that I challenge with that, and the reason why as fp and a analyst or organization function, we, we need to do that is because at some point if all you’re worried about is the math AI is gonna do that for you, right? Like we used to do it on paper and then we did it on a calculator and then Excel, well, eventually AI is gonna do a lot of that math. So if it’s your only value add is that you get the right formula in there, then you need to think about how are you positioning yourself within your role five years from now. And it’s really gonna be that value add, right? That partner that understands the business and is the bridge to the number, not just the number.
Glenn Hopper:
Yeah. And that’s where we shed the moniker of, of cost center, you know, <laugh> mm-hmm. That this is, we are adding real value to the business. We’re being that forensic investigator that is solving the case and figuring out how to add more money to the bottom line.
Sarah Schlott:
And quite frankly, it’s more exciting, I’m sorry, but I don’t wanna just feel like the bad cop every month and, and give everyone like their test results. Uh, that, I mean, I almost quit several roles because it felt that way. And so that’s, that’s really where I dug in and say, okay, well as an operator, I needed this, so let me provide that. Right? And maybe together we are now building something that we believe in and can follow and can understand and have discussions about rather than arguments.
Glenn Hopper:
Yeah, absolutely. Fp and a today is brought to you by Data Rails. The world’s number one fp and a solution Data rails is the artificial intelligence powered financial planning and analysis platform built for Excel users. That’s right. You can stay in Excel, but instead of facing hell for every budget month end close or forecast, you can enjoy a paradise of data consolidation, advanced visualization reporting and AI capabilities, plus game changing insights, giving you instant answers and your story created in seconds. Find out why more than a thousand finance teams use data Rails to uncover their company’s real story. Don’t replace Excel, embrace Excel, learn more@datarails.com.
I mentioned earlier that when things get tough, it’s easy to retreat into a model. And I think all of us, it doesn’t matter what AI and what tools are out there, I, I think our happy place, our comfort zone, and maybe this will change with the next generation, I don’t know, but Excel is just the place and we love Excel here at, at Data Rails, <laugh> and fp a today as as well. But it, there are limits to what it can do. And there are systems and tools out there that can do what we did in Excel much faster. And we are, we don’t have the problems with breaking formulas and all that, but I, I know you ran a hundred million dollar forecast in Excel and wrote about what broke first. I’d love to hear that story. And then did you identify kind of where that tipping point is of the sort of do not the max speed, max use of Excel in that case that,
Sarah Schlott:
Yeah, I mean, <laugh>, it’s not so much about the, the size of the business, right? In, in a situation like that, I’ve seen Excel break at 7 million, at 20 million, at a hundred million. It’s, it’s when we start to out of just ease for the role or for the job, and I think this happens more in s and b than in a larger organization that has the larger team. But we start to protect all of our inputs and outputs by kind of just throwing it into one Excel sheet. And while Excel is massive, it can handle a lot of data. When we try to also throw in where we’re cleaning our data, where we’re organizing our data, we’re formatting it so that we can get the outputs or the calculations that we desire from that, it can break really easily, right? When we’re worrying about version controls, two people opening up an Excel and both updating it and we don’t know which is the final, final, final version.
So we’re tweaking assumptions and then we’re chasing down and reconciling the chaos between three different assumptions on one line now, right? And so that’s really where Excel starts to break. When you have too many links, you lose your version control and there’s just too much buried logic throughout. And model is really, in my opinion, needs to be built kind of how a contractor would build a house. You have to lay down clear plumbing and electrical <laugh>. That makes sense, right? If another plumber comes in or another electrician comes in, the last thing that you wanna hear is, oh my God, why did they structure it this way? Cleanly layered, adjustable, mid conversation, easy to follow, and all of your complex data cleans and data formatting need to happen outside of Excel. Excel can’t essentially be the entire fp and a function. It’s, it’s really just that output.
Glenn Hopper:
Yeah. And you said, I, I thought well said that Excel isn’t the problem. Fragility is really made me think of what a nasem tale, the anti-fragile <laugh>, I don’t know if that was a reference to that, but what is a non-frail model? If you’re building, you know, it’s okay, we’re gonna do whatever this part of the business in Excel, how are you wiring it and, and laying that foundation so that you have a anti-fragile model.
Sarah Schlott:
So I build very modular and because I am team forward, sometimes those models can, there can be a lot of tabs. I will not let it go up to 50 tabs. But modular does mean that you can break off pieces of it, have someone else work on it, and you can still, you, you can still plug it into the model, right? And it work. But really the, the kind of stress test for me is handing it either to the end user or to a new analyst and let them play around with it and nothing breaks. Then you’ve created a model that works, right? If you hand it to someone and it’s not clearly labeled, there’s outside links that are to workbooks that no one knows if you should update them or not. They really don’t understand how the assumptions are flowing through the model and where to go to change those assumptions. Then you, you’ve really just created a mess, right? And we’ve, we always hear that term, um, if Sarah got hit by a bus tomorrow, could, could someone here use the model? And if the answer to that is no, then I’ve not done my job.
Glenn Hopper:
Yeah, yeah. I use that all the time too. And that’s what I always also would I base when I asked all my employees to create a an SOP for what they, the work they did, going back to your initial process statement, because sometimes just mapping out the SOP from the employee’s perspective and then looking at it from that leadership perspective, you can recognize if you realize, I had no idea all the hoops you have to jump through to perform this task, it gets back to that process, which gets back to the data, which we’re, we’re building a narrative here, Sarah. I think we’re doing a good job, <laugh>.
Sarah Schlott:
Well, you know, it’s not only that too, but like you’re at the top right? And you’re so far like your C-suite, you’re so far removed by how the business actually functions. Not that you don’t understand your product or your people, but you don’t really know how they’re functioning end to end. And if, and if you’re so far removed from that, you’re really not gonna that, hey, maybe we don’t need to add a whole new sales team. Maybe we just really need to bring in one to two people to do sales ops, right? So they’re checking the order forms before sending it to fulfillment, and instead of hiring five other people to hit that revenue number or 10 other people, you’re really only hiring two. Like then the conversation becomes real for people who needed that burden lifted off of them. And so they’re performing better ’cause they’re happier and healthier in your organization, but you’ve now created savings that you wouldn’t have seen if you didn’t understand those handoffs that we’re talking about, right? So it’s not just for me, it is about the people, but the output for the business is you save a whole lot of money when you look at the real problem rather than trying to like bandaid fix. Just to get to a number,
Glenn Hopper:
I have like a laundry list of other questions here. And so I wanna move on. However, before we move to the next round of questions I have to bring up, I, I thought one of your best posts was the one on calendar drift, the idea of misaligned timing in models because that, you see it time and again, whether it’s, uh, timing of when you hire people versus when this result happens or things just get shifted around based on when you’re tweaking a model to hit a number or whatever. But walk me through your experience with calendar drift and maybe some examples of how it shows up in, in real businesses and what your recommended fix on that is.
Sarah Schlott:
Yeah, so calendar drift is more of just a misalignment in the definition of timing, and it can really show up everywhere in your revenue recognition, misaligned hiring dates, and even like commissions paid in the wrong quarter. And so there was this one situation where fp and a is budgeting based off a, Hey, we’re gonna hire in Q3, so we’re gonna take that hiring cost and we’re just gonna smooth it out overall three months, right? All right. I mean, this could be revenue too. This could be sales, this could be hiring new sales reps and the ramp up time and sales says, Hey, I, I need three to four months. Okay, well when exactly do you need three months? Do you need four months with hr? Are you hiring like the last two weeks or are you hiring evenly throughout the month? And those little things outside looking in maybe seem like not that big of the deal, but it’s really, I call it calendar creep <laugh>. It’s one of those areas where you really can die a death by a thousand cuts, two weeks here a week there, those costs and revenue misses they add up. So it really just comes down again to communication and asking the right question. When exactly, when you say Q2, what exactly do you mean? Are you starting to hire in Q1 so that you can fill those spots in Q2 or are you starting the process in Q2? Right? It’s even those timing misses that that mean mean a big deal in your model.
Glenn Hopper:
Yeah, absolutely. Because especially when things build on it, and I think your example of the like hiring salespeople, it’s like, well, when do they come on? What’s their ramp period? So we’re trying to drive revenue, we need to know, is it January or is it March and <laugh>? Yeah.
Sarah Schlott:
Right, right. And if and if they’re coming on in January, how long do you need to source for that candidate? Are we talking three weeks, four weeks, five weeks? I mean, all of those little timing differences, you, you gotta talk through ’em, really make sure that you understand it.
Glenn Hopper:
Yeah. And you mentioned the real key there being not just taking assumptions and putting ’em in, but communication and, uh, you’ve said that language not models, that’s the real strategic stack for CFOs. And it’s, that’s a big unlock for people to understand because I think people love moving up by being that technically proficient and getting more and more insights. But that, that safety place is going back to the model and going back to, let me figure this out and let me dive in and be this forensic accountant and figure all this out. But the storytelling part of being able to convey your findings to the management, to employees, to investors, to the board, whoever is, is very important part of the job. And it’s one that, you know, maybe doesn’t, it doesn’t come naturally. It’s not the same, it’s not from the same skillset as it is to build the models. So I’m wondering, in your experience, what makes that financial communication, how do you get to that strategic instead of just informative approach? And what do finance leaders need to keep in mind? Again, going back to that map versus the terrain of, okay, we have these insights that are in our models now I need to communicate them for, for next results.
Sarah Schlott:
Yeah, I think it comes from just having the mindset that you aren’t there just to provide numbers. You as an FP and A CFO professional should understand the numbers and you should understand the business. And that kind of goes back to the communication. You should be the bridge between that. So rather than just saying our revenue was X to goal, our EBIT o was y to goal, when you start to, in our previous conversations drill into the why’s, then solutions start to present themselves. And if you establish yourself as a leader who is not bashful about saying, Hey, if we did this, the outcome would be that. And I personally have a hard time not giving my opinion. I think that’s just how it was created. But for those who maybe are a little bashful or timid about that, there’s no one else in the business who sees the business from like both the 30,000 foot view and like the detailed view because you have the numbers.
Like you should be looking for your answers and solutions within that entire view, right? Everyone else is kind of just their silo in finance we’re positioned uniquely to be able to see what happened, what will happen, what are we doing that’s creating a lag or a misalignment. And then you can start to offer suggestions. So that’s kind of where I am in, in, in that whole aspect, is communicating what you see and you have to be okay with sometimes your conversation lands and sometimes it doesn’t, but it’s still valuable to offer it ’cause you have the whole picture.
Glenn Hopper:
Yeah. And like you said earlier, you don’t, you’re not just there being the bad cop giving everybody their report cards, but the reason that management brings on strategic CFO is not just to pass on those, those postmortem numbers. It is to give that strategic insight. They don’t have to take it and the CEO doesn’t have to take the council of any of the rest of the C-suite, but that’s why you’re there. It’s not just to be passing through information and, but collaborative decision making can be chaotic. And it is, it depends on the company where you are, but if you ever had a situation or, or what’s your approach where you have to kind of guide the full executive team towards understanding the real value of fp and a and not just seeing us as the referee or, or report card issuer <laugh>.
Sarah Schlott:
Yeah, that’s a hard one. And I, I would like to say that a hundred percent of the time I, I get to lead from that perspective, but the reality is, is that not everyone is open to listening and not everyone sees it the way that you do. And that is, okay, I’m in a position where if I’m in an organization where I don’t feel like I’m contributing, I know then that I’m not giving my best work. And so that’s probably about the time that I will ensure that everything is wrapped up in a nice little bow, and then I’ll hand it over to someone else. Typically the person that I hand it over to, it’s, it would be a win for the company at that point anyway, because they’ll be less expensive, right? But you have to really as a company, decide if you want that strategic partnership or not, because those are different roles. CF CFOs should be strategic, an fp and a analyst, you know, depending on what you want could either be just that output or it could be strategic. And if you wanna be in a strategic role, then again, it goes back to brutal honesty with yourself and with the organization. And if you’re not aligned, that’s okay. Many other companies will be.
Glenn Hopper:
Yeah. You know, from talking to you, I can tell that you, you’ve developed very clear insights and, and thoughts about this. And I, I have to think that that comes from taking the time to write on this. And as someone who’s written a couple books myself, I know that that can be a way to really crystallize your own views. But I’m wondering, like at first I thought this would be a rarity, but when you think about that storytelling and that extra level that we’re we’re doing in finance, it does make sense, I think for a, a portion of us to lean towards writing, but wondering what made you start writing publicly and tell me about your journey there and, and why you think your message is resonating so strongly now.
Sarah Schlott:
Yeah. Well, I mean, first of all, I think it’s resonating because we’re just seeing a shift, I think in every vein where people are taking risks and they’re putting their self, you know, online. I think COVID really helped to push that forward, right? The social media forward. And I started mainly writing because I was tired of sitting in the room time after time watching smart people nod quietly that something was being pushed or communicated in a team, and it was just, it went unchallenged. So like we would say something technically correct, but no one would call out that, Hey, that’s not really how the business works. And I, I kept seeing organizations miss their numbers because they didn’t understand the depth and the details of, um, how all these different levers play into that main lever that the CC Suite was looking at. And the disconnect of why are we punishing teams for a echo cast?
They didn’t believe in why we’re pretending variance analysis is strategic and why is headcount treated like, you know, just simple line item and calculation rather than real human constraint that can be used to hit our metrics and we can even be smart about it. It started to resonate with people when I started to say things like, I’m done pretending like it’s candor, right? And like I mentioned before, it’s, it’s helpful in an ongoing 365 or 360 review for me too, right? If, if I put something out there and it’s not really landing well, my counterparts will let me know that, hey, there’s maybe another way to look at this, or, yes. And, and by putting my ideas out online, I get a lot of great ideas back too. And so now we become a community rather than just all <laugh> trying to compete for the same role. We can kind of use each other’s mind share to collectively rise fp and a up to a more strategic level.
Glenn Hopper:
I love that, and I know our audience is appreciating your insights on that as well. So I ask guests this question a lot, but I’m gonna, I’m gonna twist the question a little bit for you because I, I feel like you’re, uh, you’re not scared to take aim at some, uh, some sacred cows or <laugh>. So, you know, I I always, for people who are really tuned in and, and working in fp a right now and, and kind of know where the landscape is, I always like to ask the guests to get their crystal ball out and picture where we’ll be in the next three to five years. But I’m gonna ask you, what is a sacred finance process or mindset that you think will just abandon entirely in the next, I don’t know, three to five years?
Sarah Schlott:
I think we’ve, we’ve kind of talked about both of the things I’m gonna mention here, and I think we’ve talked about it in great detail. One is the annual budget being like this golden idol that we use throughout the rest of the year. Again, let’s have a baseline, but with rolling forecast and knowing your business, you can shift as all of the changes start to happen in real time. So I think rolling forecast and flexible modeling will be, it’ll be more helpful than the holding ourselves to an annual budget. The other aspect that I would say is kind of that, and it goes along with the annual budgeting, is that top down directive. Like I think we need to be honest about how we get from A to B rather than just promising B because the board and the investors want them, you know, holding ourselves accountable and our team accountable, but also giving true visibility and true honesty about how we get there and what that means if we jump straight to be right. Like what does that mean for our people process and product, because there is always a trade off. So just, just getting more honest about the numbers and how to impact them rather than just reporting on them.
Glenn Hopper:
Yeah. Love it. Alright, we’re at the time of the show where we have our, our two boilerplate questions that we ask everyone. And the first one is, what is something that not many people know about you?
Sarah Schlott:
Not many people today know that I am creative at heart. So I was a singer-songwriter. I played in little bars and coffee shops around Atlanta for several, several years. I was, I was trying to do that as a full-time job. I was like a, a mini Joni Mitchell wannabe. And I think for me, you know, because I wrote songs and played live shows, a lot of what I did was with the end in mind, thinking about tone, timing and how, how my songwriting landed. And I don’t think that that ever truly left. So it’s a lot of people first, team first, what’s the outcome? How is the message gonna land? And how do we incite change and innovation through that? I, I’ve kind of carried that into my work life and that’s how I kind of lean into the creative side.
Glenn Hopper:
That’s great. That’s great. Do you still play out at all or <laugh>?
Sarah Schlott:
I don’t, I’ve passed that torch onto my son who plays guitar now. I miss it. My smallest kid, she loves when I sing and, and when I play guitar. But honestly, I, it’s one area where I wish I had more time and eventually I’ll make more time for it.
Glenn Hopper:
Yep, yep. Alright. Everybody’s favorite question. What is your favorite Excel function and why?
Sarah Schlott:
I think this is my most controversial thing I’ve talked about ever, especially with modern fp a analysts, right? The new guys, um, index match, hands down, even over X lookup.
Glenn Hopper:
Yeah, that’s index match is actually a, a pretty popular answer here. There’s a lot of, uh, a lot of people out there using that and love it. So actually I was just talking to someone the other day and that that was the same answer they gave. So
Sarah Schlott:
Yeah, I, so I wrote about it and actually challenged index match against like X lookup and the amount of analysts who were younger than me, just pretty much calling me out for my age. With that answer, <laugh>, I was kind of like shocked. I think it was the first post where I was really like, oh, okay, I, I can be attacked here. Yes. Right? Like, there’s some vulnerability here. That was the one <laugh>.
Glenn Hopper:
Well, I’ll, if it makes you feel any better. So I had my first CFO role back in 2007, so that’s giving you an idea of how old I am. So I’m still not scared to use vlookup. So <laugh>, that’s how long it’s been since I’ve been deep in models. So I, you know,
Sarah Schlott:
I, I use, I think instinctively start to type the lookup.
Glenn Hopper:
Yep.
Sarah Schlott:
And then we’ll have to delete and put in an X <laugh>.
Glenn Hopper:
Alright, well this has, this has been great. Before you go though, uh, and we’ll put it in the show notes as well, but how can our listeners get in touch with you, follow your, your writing and uh, and connect with you?
Sarah Schlott:
Sure. I think the easiest place is LinkedIn. Just search Sarah Schwa and because I do like mini blurbs there. And then if you want to see the writings where I go into a little bit more detail, that’s at sarah g schwa.com. And of course, if you are a founder who’s looking for the bridge between your business and your numbers, you can check us out on the slot co.com. That gives you a little bit more of what our services and offerings are.
Glenn Hopper:
Love it. Well Sarah, thank you so much for coming on the show. Really enjoyed it. And uh, and glad we got to do this.
Sarah Schlott:
Thank you for having me. It’s been a pleasure.
