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From data reels, this is FP &A Today.
Welcome to FP &A Today.
I'm your host, Glenn Hopper.
Today, we're joined by Sarah Schlott, an FP &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 SaaS 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 &A and how to fix it.
Sarah, welcome to the show.
Thanks so much for having me, and wow, 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 get into the therapy discussion.
I'm going to be the worst therapist you've ever had.
Probably me too. Well, when we were doing background for the show, obviously, we read a lot of your writings.
And 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 shaped your view of what good finance leadership really looks like.
Yes. Well, there's a lot there.
That's kind of a loaded question.
It's been a long, laborious journey with a lot of like headbanging against the window, right?
But I started 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 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 way, this is the way that I want to 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?
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 and not just like a top -down directive.
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 is in any size company, but there's so much push towards automation and can you sprinkle some AI on this and make it better?
But, you know, if you have a bad process, are you going to automate a bad process or are you going to 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 Learn from that and see where, wow, this is where the junior person here is put in a terrible spot and ask questions with bad data.
So there's one, fix your processes because, you know, I think automation and data kind of go together 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 got to go back and do that sort of bottoms up, not the top down.
You've got to understand what everybody on your team is doing and how they're doing it and where those inefficiencies are, identifying those roadblocks and all that.
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 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 garbage in, 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.
Yeah. And you're I mean, and you're passing the baton that nobody wants when they get to and you're 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.
So 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 got to 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 yeah and then with another part of your background 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 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 high growth era, what are some early signals that financial
operations are really about to break?
We've kind of hit our max of what we can do right now.
Yeah. So, I mean, 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 &A say your subscriber count is X and then sales is sitting there shaking their heads.
What are you talking about?
That was last quarter's number, right?
So that's kind of the main leading indicator for me is that there's not enough talk.
And also if there's too much fighting, there's misalignment somewhere.
Yeah. And that misalignment could be in the data itself.
It could be in the data dictionary, how the KPIs are defined, 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.
Exactly. And I look at finance as more of a, you know, like a watchtower.
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?
Right. But really, you've got to be able to translate those numbers into understanding the business.
And if those aren't working hand in hand, then you're going to have misalignment.
You're going to have these arguments.
And what that really creates is this internal turmoil against teams that then turn into silos and put walls up.
And now you're not just fighting against a metric or an objective, a growth objective.
Now you're fighting against each other and no one's getting ahead in that environment.
Yeah. And then in those kinds of environments is where I used to always like to just retreat into my models and all the chaos has got, you know, before, especially before being in a leadership role, it's like, well, this is insanity.
Let me just go find the comfort of my budget model and spreadsheets.
And when I think about first coming into finance, that was the first thing I thought, because I came up through FP &A, not through audit and CPA and all that.
I loved building the models and I loved, you You know, bringing in all the historical and internal and 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 love the piece you wrote about the worst forecast you ever delivered was also your most accurate, which sounds like how could that possibly be the case?
So maybe walk us through that, what happened and why was accuracy the wrong goal in that case?
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, 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 FPNA, 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 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 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 and 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 kind of started to lean more into my first couple of years working as an operators?
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.
Yeah. And I know you've worked with private equity backed companies and, you know, private equity groups have been some of 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 sort of the reality.
And that was always really tough for me because I had a role 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 nothing, 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 going to make that it takes so much of your time because these were smaller companies that I was with where 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 a recipe for disaster.
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 going to hit this?
This is impossible.
possible. 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 not reality.
Yeah. And that goes into something else you've written about.
And it's crazy to me because I think about how much time and effort goes into the annual budget and annual operating plan and going back and forth.
And when you do it right and you get everybody's, all the department heads, you get their input and everybody, sales has their target, marketing has figured out their budget, you're rolling it all together and everything is sort of tied together.
And we say, say, okay, this is what we're going to do.
This is what we're basing the budget on.
And this is what we think the economy is going to do.
You can try to think of everything in the world that could impact your budget.
You finally get this plan finalized and then COVID happens or the global financial crisis, or just you read the tea leaves wrong with where the market, where the economy is going.
Or you lose your biggest customer or the CEO doesn't want to hire.
And then all of a sudden, And, you know, it's Q4 and he wants to hire everyone that was originally in the plan.
It's just timing. Yeah.
So you made, and I agree, it's that Mike Tyson quote where, you know, everybody has a plan until they get punched in the mouth.
But 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, whatever, the global changes that could happen.
But in an environment like that, or even if we think all things are going to remain equal and we're, you know, and it's not volatile, knowing that that's the case, what should FP &A teams be doing instead of what we're doing now to kind of stay relevant and agile and have something that works that they can manage to for the next year?
I think a few things kind of flow into this.
And from my vantage point, I have a different perspective and my experience has given me that perspective.
I'm in the trenches kind of person.
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 and FP &A and my modeling more from being that bridge rather than 100 % bottoms up or 100 % 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 going to 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 box checked, but we can't freeze ourselves in time.
And when we build on assumptions that that stopped being true by February, we're not remaining flexible enough to move and adjust and pivot with the business.
SAS companies and high growth companies taught me that early on.
We always re -forecasted.
It's crazy to me 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 cheat guilt trip practice every month 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 it's kind of making everyone pretend that what you guys decided on six months ago still makes sense and everything on a macro and micro level it's just changing too quickly so you've really got to be able to roll your forecasts forward build models that have like that flexibility
built into just the nuts and bolts of it right and then tied to operational reality don't force a top -down number that's where you really get stuck yeah and it's depending on where the business is size growth stage whether they're public or private I can remember in several situations situations where a 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 going to be.
But 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 a public company, If you're making a budget, you can't miss your numbers.
So you're going to have a tendency to sandbag then.
But then, you know, what are you going to base everybody's objectives and bonuses on out of that when you have two versions of the budget?
it, or if you're in 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, depending on where you are in financing, projecting one year is hard enough, let alone three or five years out, what you're going to do and then your plan for how you're going to get there.
And then you don't know what your funding is going to be and what your hiring is going to be.
It's very tricky trying to come up with this plan.
I mean, 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.
Right. But then that's where I challenge upper management, 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 percent and your current sales pipeline doesn't support that, there is no amount of praying and worshiping idols that will get you there.
All 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.
You mentioned levers earlier.
So to your mind, when you're budgeting, do you really, is that your primary focus of, okay, we're going to increase sales by 30 or 40 percent?
Well, let's look at this is, you know, whatever the metric is.
we're doing this by market, this by 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.
Exactly. And, you know, 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 &A.
And it just naturally, naturally, 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 going to 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.
Yeah. And it is great to be in a sector that you can get that level of granularity because there's so many businesses out there too, where you don't you don't have the click throughs on the website and deals that you can track in HubSpot or, you know, whatever, based on, you know, marketing leads or whatever.
So it can be harder to, in other sectors to drill down like that too.
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 that only keeps me relevant and challenges my own 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, 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 and one version for this guy.
We're really driving reality.
It's funny when you mentioned that.
I immediately had this flashback to a company where it was a 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 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 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 got to have that buy -in And beyond just the finance team, it's got to be top down.
We have these systems. We're going to use them because we got to have that data.
Yes. And deeper than that, too, you have to understand within teams 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?
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 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?
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 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 3x commission, right?
And that right there was the single most...
It was like she was now wanted to be an apostle of finance, right?
Right. She was just like, guys, look at this.
We need to follow this 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.
Yeah, I love that you said that because it reminds me and regular listeners to the show will know 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 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 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 most of them have never taken an accounting course or anything.
But when we started with the profit sharing that was based on EBITDA, that they didn't know what that meant, but I would go to the units and I would go through their unit P &L with them every month.
And because they saw the impact to their bottom line, if they were able to hit their and exceed their EBITDA targets, you would think I was talking to a Goldman Sachs analyst 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 &A, we can't just stay in that ivory tower of finance.
We've got to get out there and talk.
We've got to partner with the other business units and be a partner to them and make their lives better.
Yeah. Yeah. And not every role within FP &A has the time for that or even the green light to do that.
But someone within the FP &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 because this has always worked so well for me to be team forward and work from a bottoms up kind of solution.
Yeah. And in finance, we want to 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.
It doesn't matter what widgets we're selling.
And 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 even doing our flux analysis every month.
I love one of the things you've written about is that most variance analysis is forensic accounting in disguise.
And I love that because if you're not digging in 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 divine correlations or whatever it is what's driving this expense and how does it impact the rest of the P &L 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.
Yeah, FP &A as a function, of course, you've got to have those math skills there.
But I've kind of reiterated through almost every single answer to this is that you have to understand the process people in the business.
And so when I look at specifically the question of variance analysis, I'm not anti -variance analysis, right?
It's useful. This was the goal.
This is how we track to that.
But when you can start to understand the business and then ask Ask the question, where was this broken upstream?
Could we have caught this real time before it showed up on the P &L or an audit?
Start to try to dig into leading indicators.
If you're tracking your pipeline or your conversion throughout the week, and you notice that your conversion metrics drop, Well, it's going to show up on a P &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 P &L and your revenue is going to 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 granule and try to get those leading indicators in there.
Yeah, because that's where you're going to find those levers.
That's really our job in FP &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 actually making an impact.
Right. And here's the thing that I challenge with that.
And the reason why as FP &A analyst or organization function, we need to do that is because at some point, if all you're worried about is the math, AI is going to do that for you.
Right? Like we used to do it on paper and then we did it on a calculator and then Excel.
sell. Well, eventually AI is going to do a lot of that math.
So if 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 going to be that value add, right?
That partner that understands the business and is the bridge to the number, not just the number.
Yeah. And that's where we shed the moniker of cost center.
You know, 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 and quite frankly it's more exciting i'm sorry but i don't want to just feel like the bad cop every month and and give everyone like their test results that i mean i almost quit several roles because it felt that way and so that's it'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.
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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 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 Data Rails and FP &A today as well.
But 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 don't have the problems with breaking formulas and all that.
But I know you ran a $100 million 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?
Yeah, I mean, it's not so much about the size of the business, right?
And in a situation like that, I've seen Excel break at 7 million, at 20 million, at 100 million.
It's when we start to, out of just ease for the role or for the job, and I think this happens more in SMB 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, where 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 in 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.
That makes sense, right?
If another plumber comes in or another electrician comes in, the last thing that you want to 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 FPNA function.
It's really just that output.
Yeah. And you said, I thought well said that Excel isn't the problem.
Fragility is. You made me think of Nassim Taleb, the anti -fragile.
I don't know if that was a reference to that, but what is a non -fragile model?
If you're building, you know, it's okay, we're going to do whatever this part of the business in Excel.
How are you wiring it and laying that foundation so that you have a non -fragile model?
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 plug it into the model, right?
And it work. But really 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've really just created a mess, right?
And we always hear that term, if Sarah got hit by a bus tomorrow, could someone here use the model?
And if the answer to that is no, then I've not done my job.
Yeah, yeah. I use that all the time too.
And that's what I always also would base when I asked all my employees to create an SOP for 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 building a narrative here, Sarah.
I think we're doing a good job.
Well, you know, it's not only that too, but like Like you're at the top, right?
And you're so far, like you're 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 you're so far removed from that, you're really not going to understand 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?
right? So they're checking the order forms before sending it to film it.
And instead of hiring five other people to hit that revenue number or 10 other people, you're really only hiring two.
Then the conversation becomes real for people who needed that burden lifted off of them.
And so they're performing better because 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 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.
I have like a laundry list of other questions here and so I want to move on.
However, before we move to the next round of questions, I have to bring up, 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 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 real businesses and what your recommended fix on that is 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 is this one situation where FP &A is budgeting based off of, hey, we're going to hire in Q3.
So we're going to take that hiring cost and we're just going to smooth it out over all three months, right?
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 his sales says, Hey, 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 Things outside looking in maybe seem like not that big of a deal, but it's really, I call it calendar creep.
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?
It's even those timing misses that mean a big deal in your model.
Yeah, absolutely. Because especially when things build on it, and I think your example of hiring salespeople, it's like, well, when do they come on what's their rent period so we're trying to drive revenue we need to know is it january or is it march and yeah 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 got to talk through and really make sure that you understand it yeah and you mentioned the real key there being not just taking assumptions
and putting them in, but communication.
And you've said that language, not models, that's the real strategic stack for CFOs.
And 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 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 to convey your findings to the management, to employees, to investors, to the board, whoever, is a very important part of the job.
And it's one that, you know, maybe doesn't, doesn't come naturally.
It's not the same. It's not from the same skill set 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 max results.
Yeah, I think it comes from just having the mindset that you aren't there just to provide numbers.
You as an FP &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 is saying our revenue was X to goal, our EBITDA was Y to goal.
When you start to, in our previous conversations, drill into the Ys, 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 I 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 your answers and solutions within that entire view, right?
Everyone else is kind of just seeing 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 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 because you have the whole picture yeah 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 post -mortem numbers.
It is to give that strategic insight.
They don't have to take it.
The CEO doesn't have to take the counsel 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.
But collaborative decision -making can be chaotic and it depends on the company where you are.
But if you ever had a situation or what's your approach where you have to kind of guide the full executive team towards understanding the real value of FP &A and not just seeing us as the referee or report card issuer.
Yeah, that's a hard one.
And I would like to say that 100 % of the time 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 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.
goals. CFO should be strategic.
An FP &A analyst, you know, depending on what you want, could either be just that output or it could be strategic.
And if you want to 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.
Yeah. You know, from talking Talking to you, I can tell that you've developed very clear insights and thoughts about this.
And 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, at first, I thought this would be a rarity.
But when you think about that storytelling and that extra level that we're doing in finance, it does make sense, I think, for a portion of us to lean towards writing.
But wondering what made you start writing publicly and tell me about your journey there and why you think your message is resonating so strongly now.
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 online.
I think COVID really helped to push that forward, right, the social media forward. 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 kept seeing organizations Organizations missed their numbers because they didn't understand the depth and the details of 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 full cast they didn't believe in?
Why we're pretending variance analysis is strategic?
And why is headcount treated like, you know, just a simple line item and calculation rather than real human constraints?
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 helpful, kind of ongoing 365 or 360 review for me too, right?
If I put something out there and it's not really landing well, my counterparts will let me know that, 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 trying to compete for the same goal.
We can kind of use each other's mindshare to collectively rise FP &A up to a more strategic level.
I love that. And I know our audience is appreciating your insights on that as well.
Well, so I ask guests this question a lot, but I'm going to, I'm going to twist the question a little bit for you because I feel like you're not scared to take aim at some sacred cows.
So, you know, I always, for people who are really tuned in and working in FP &A right now 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 going to 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?
I think we've kind of talked about both of the things I'm going to 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 forecasts and flexible modeling will be, it'll be more helpful than beholding 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 the same B, because the board and the investors want them, 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 B, right?
What does that mean for our people, process, and product?
Because there is always a trade -off.
So just getting more honest about the numbers and and how to impact them rather than just reporting on them.
Yeah, love it. All right, we're at the time of the show where we have our two boilerplate questions that we ask everyone.
And the first one is, what is something that not many people know about you?
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 trying to do that as a full -time job.
I was like a mini Joni Mitchell wannabe.
And I think for me, 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 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 going to land?
And how do we insight, change and innovation through that, I've kind of carried that into my work life.
And that's how I kind of lean into the creative side.
That's great. That's great.
Do you still play out at all?
I don't. I've passed that torch on to my son who plays guitar.
Now I miss it. My smallest kid, she loves when I sing and when I play guitar.
But honestly, it's one area where I wish I had more time.
And eventually I'll make more time for it.
Alright. Everybody's favorite question.
What is your favorite Excel function and why?
I think this is my most controversial thing I've talked about ever, especially with modern F &A analysts, right?
The new guys. Index match hands down, even over Xlookup.
Yeah, index match is actually a pretty pretty popular answer here.
There's a lot of a lot of people out there using that and love it.
So actually, I was just talking to someone the other day.
And that was the same answer they gave. 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, it's pretty much calling me out for my age with that answer.
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 right like there's some vulnerability here that was the one 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 that's how long it's been since i've been deep in models so you know i i use i think instinctively start to type vlookup And then we'll have to delete and put in an X.
All right. Well, this has been great.
Before you go, though, and we'll put it in the show notes as well, but how can our listeners get in touch with you, follow your writing, and connect with you?
Sure. I think the easiest place is LinkedIn.
Just search Sarah Schlott.
Because I do many blurbs there.
And then if you want to see the writings where I go into a little bit more detail, that's at sarahgschlott .com.
and of course, if you're a founder who's looking for the bridge between your business and your numbers, you can check us out on theschlottco .com.
That gives you a little bit more of what our services and offerings are.
Love it. Well, Sarah, thank you so much for coming on the show.
Really enjoyed it and glad we got to do this.
Thank you for having me.
It's been a pleasure.
Thank you.
