We’re going to run out of cash in five months time. So what do we do to avoid that situation? Because if we have to go into liquidation and start up again, that’s a lot of pain. Staff are going to lose our jobs. We’re going to lose our company. It’s not going to be that easy to recover afterwards,” as opposed to, “What are the steps I can do now to sort of lengthen that five-month period to, say, six, 12?” And what are the steps I need to take over time?
It’s very much understanding time periods. So if we have no income, no clients, maybe we need to let go of a few staff, or maybe we need to sort of explore different premises, if we can get out of our rental lease. Maybe we need to sort of do other things, hold off any major capex other than maybe we need to help people work remotely. But maybe we don’t need to buy that new car or invest in that new technology. Maybe we need to sort of look at our strategic spend and make decisions that sort of help the situation.
Today I’m speaking with Lance Rubin, Founder of Model Citizn
In this episode, we talk about . . .
- The journey from being a Chartered Accountant to a Cash Flow Financial Modeller
- How Lance tackles simple financial modelling problems to make an informed, relevant and purposeful decision with insight.
- And yet – with all the data and technology – why making decisions is still difficult
- Questions accountants can ask their clients and
- How businesses can utilise modelling to prepare for uncertain times
- Plus, the different technology Lance uses for data modelling, including DataDear, Power BI, Etani Business Platform, Tableau
What’s the most dangerous thing you’ve ever done?
Lance Rubin: Thanks, Heather. The most dangerous thing, well there’s a couple. I had a motocross bike, and I jumped through the air on a motocross bike, flew off and sort of … Yeah, it was injury related, unfortunately. I dislocated my shoulder. I’ve done diving, scuba diving, and I’m also a third dan martial artist in taekwondo. So yeah, I have a bit of a wild side, although that doesn’t come out very often when I go and talk to people. But yeah, there’s another side. Particularly back in South Africa there are not a lot of rules around doing stuff, around riding bikes and that. So yeah, a lot of that was back in South Africa, the wild west.
Can you share with us, your taekwondo journey?
Lance Rubin: Yeah, so I started, I actually started martial arts doing … I did judo first in school, and I kind of enjoyed it. But then when I left high school, and I went into university, I realised that being on the floor when you’re … Because a problem with someone or someone is trying to attack you is not the greater place to be, so I actually wanted to learn what they call standup martial arts, which means I want to stay on my feet as opposed to go onto the ground. So I wanted to learn how to stand on my feet. And so yeah, so taekwondo always impressed me. It’s the Korean martial art. Tae is the foot, kwon is fist, and do is the art of. So it’s the art of foot and fist fighting. Karate obviously is well known, but it’s very static. The taekwondo I actually do is the International Taekwondo Federation, the ITF. And it’s very, because I’m quite mathematical and scientific, it’s actually a very scientific martial art. So they use sign wave and actually work out body mass and how you integrate your whole body in movement. So that’s the thing that really impressed me. And it’s got, I competed for Australia in South Africa in the world championships.
Lance Rubin: And martial arts is great just in terms of personal resilience, release of stress. And I think as an accountant and now a business owner, managing stressful situations, I actually went to a NAB leadership course, where they said neurologically our brains process stress exactly the same, whether it’s physical stress or emotional stress. The amygdala firing and our fight and flight response is exactly the same. And I didn’t realise it, but having done martial arts for over 20 years, that I have an innate sort of capability to not overstress and sort of get all stressed out in stressful situations. So that sort of helped me through my career and of course also in taekwondo.
You described yourself as a cash flow financial modeller, a finance innovator of data and a finance business technologist. What does this mean. What do they all mean?
Lance Rubin: Great question. I was waiting for someone to sort of pick my LinkedIn, say, “Can you explain to me?” So I guess I created a business called Model Citizn, and the purpose or the why around what we do and what I do is really help businesses simplify complexity by making relevant, informed and purposeful decisions with insight. Rest in peace, is how I remember is, relevant, informed and purposeful decisions with insight, because really it’s the decision making that’s critical. So if you look at any sort of decision that you’re going to make, it’s going to relate to data. Today’s world, all decisions should relate to data. And again, if you’re talking about data, you’re then talking about technology and how do we use data, using the tools and the technology through cloud accounting apps or even desktop apps is really, really important. So cash flow financial modeller, people don’t understand financial modelling or data modelling. So I’ll bring it back to cash flow, and I think that’s really critical for people to understand. What does that mean? So when they see cash flow financial modeller, I think they get it. Innovator of data, I mean again that’s probably related more to the data analytics, data visualisation work that I’ve been doing with CA catalysts and others.
Lance Rubin: And then finance business technologist is sort of a … It’s almost similar to you, in a way, Heather. It’s sort of a [fundy 00:05:05] or a passionate person around technology and tools. So I like to partner with clients in terms of assessing different tools. We have our view of the tools that we use, but already helping them with the tools and technologies is where the finance business technologist comes in. And I was David’s CTO and group CFO for SQL’s CFO up until recently, and a lot of that was sort of assisting the group and the CFOs around what technology we should be using for financial modelling, for reporting, for data analytics. So yeah, I mean that’s pretty much those three aspects.
Heather Smith: Yeah, absolutely. Now for those listening in, David was David Boyer, the host of From the Trenches, which you’re perhaps more likely to know him from. But he also … CEO of SQL’s CFO. So you’ve mentioned a few things there that I’d like to draw on.
Can you describe a simple financial modelling problem, just a simple one that you typically would deal with and then maybe how you go about tackling it?
Lance Rubin: Yeah, sure, great question. So a simple one would be a startup. If you think about when startups started business, I’ve worked with lots of different startups, even app developers and creating … They have a great story. They have a great vision, but they don’t know how to create that vision and that story and that strategy into numbers. So a financial model is a financial construct, mostly in Excel around how do they execute their strategic plans, how do they raise money. So what’s the problem? We’re trying to help them raise money as a startup, get their message across around where they’re going to spend their money, how much the business might be worth in the future, although that’s a very rubbery and slippery slope. Because when you can’t really model COVID-19 before it happened. But there’s certain things around uncertainty that financial modelling helps with. And I guess startups have a huge amount of uncertainty. So it’s sort of bringing uncertainty a little bit closer to reality, but I think the importance, and I say this time and time again, models are just a tool for decision making. They’re not gospel. They cannot tell you the future exactly. Now maybe reasonably accurate, there’s a great quote. I don’t know who it is, but I’ll use it. I should dedicate the source, but, “All models are wrong. Some are useful.”
Lance Rubin: So I think the key thing is that it’s not the absolute result of that model but the relativities of one decision against another with a set of assumptions. So models have assumptions. They have calculations, and then they have outputs at a basic level.
Heather Smith: They help you make an informed decision.
Lance Rubin: Spot on, yeah. So to answer the second part of your question, how do we go about that? Well we go through three stages. The first one is scoping, so we actually try. We spend quite a bit of time on scoping, because I think people think, I need a model. And then we say, “Well why do you need a model?”
Lance Rubin: “Because my accountant tells me I need one, or the bank tells me I need one, or I need to do my budgets.” And sort of, yeah, that’s relevant, but we always try to get to the bottom of the why. What decision are you going to make? How is this going to impact your business, and how are you going to improve performance and manage cash? That’s why, I guess back to my LinkedIn profile and cash flow modelling is critical in terms of understanding. Most businesses fail because of insufficient cash. So we understand in scoping what their problem is, and we actually go through the steps of how to make money and understand their business model before we even build the financial model. In most cases, we actually start with a word document. And so we actually type it out. We talk about what they want to achieve. We might discuss some dashboards. We might mark up a few things we might even have whiteboard sessions with clients during the scoping phase. They may give us some of their existing spreadsheets and models and files that we can analyse to get a better understanding of, let’s say, logic. But we don’t build anything. We might do a little bit of a prototype just to get them comfortable, but we don’t really go into that build phase until we’ve done a good scoping phase.
Lance Rubin: And that’s where we uncover things like I want a scenario manager. I want to be able to stress different scenarios for this startup or my business. And so that becomes really useful. Then we develop or build a model kind of similar to a house. To have your land. You have plans, and then you’ve got to build. And this is where it becomes really tricky, because during the building process, there’s insight. There’s information that gets discovered, that they weren’t aware of or that we weren’t aware of during scoping. So we have to deal with that. We have to talk about, was that scope creep? You said you wanted two bedrooms and an en suite. Now you want a double story and five bedrooms. That’s a change in scope. So scope creep is really important to manage in the development phase. And then the final phase is the implementation, where once you’ve built it, we then train our clients. We don’t like to build models and keep it to ourselves. We actually like to hand them over the keys and so that they can run it themselves and only come to us when they need extra support. So I’ll need to be able to scale my business. If I’m supporting all my clients’ models, then I can’t get more clients. And so it’s about maintaining relationships, training, and clients love the opportunity to learn new skills.
Lance Rubin: So a lot of what we do is training, which is partly why I do a lot of public speaking and training in workshops, because it sort of fits well with the other part of what we deliver for clients in terms of implementation.
Heather Smith: For a simple financial model, that sounded quite massive. Sounded like there was a lot of time involved in rolling that out for your startup client.
Lance Rubin: Yeah, I mean if you think about it, it can be, but also the good old KISS principle, keep it simple, stupid, so 80% of every financial is going to be exactly the same. Every single business has got an income statement, balance sheet, cash flow. So we do use a dynamic templating system called Modano, which is sort of an Excel add-in which builds models really quickly. And then we only customise, say, 20 to 30% of the model. Because if you’re a business, you have staff, and depending on the country that you life in, there’s PAYG. There’s tax. There’s super. There’s the stock, standard stuff. There might be rent. If you’re selling goods or services, you’re going to have inventory, or you’re going to have people to deliver those services. So most of the businesses that we model are largely the same. In fact, someone challenged me once, saying, “There’s no reason we can support different industries.”
Lance Rubin: And I said, “Well totally we can, because there’s only three things that every business has, an income statement, balance sheet and a cash flow. There’s only one thing that they’re worried about, and that’s cash.” So I think trying to dumb it down, but then we need to tailor it, so I guess there is a bit of work around customisation. But once you get to understand the foundation of a model, then you can really help anyone.
Can you share with us how you went from being an accountant to the journey to be a data modeller?
Lance Rubin: Yeah, so I guess I’ll probably say primarily a financial modeller and then moving into the data space. So I guess it’s totally fine. Data modelling is probably more predictive modelling and more analytics focused, where financial model is more sort of three way cash flow and Excel based. But to answer your question, yes, I qualified as a chartered accountant in South Africa with the South African Institute of Chartered Accountants. I then worked for PWC for three and a half years as a manager in audit, in banking and financial services. And then I emigrated to Australia 18 years ago. I worked for PWC again in banking and financial services. And it wasn’t until I was asked to audit an actuary’s financial model as part of a model engagement, and that’s actually where I discovered this concept called financial engineering or financial modelling. And so the actuary, whether it’s by design or by the complexity in their structure, was able to make one plus one equals three. And so splitting cash flows with property and putting them in different parts of the organisation made it really tricky.
Lance Rubin: So it made me realise that you can achieve some amazing things just by engineering and modelling numbers in a different way. And I guess unfortunately we lost the client. There was quite a long history in terms of what happened with that client. But I sort of felt like I was going back to ticking and bashing and debits and credits and fixed assets and payroll and all the stuff that I wasn’t inspired by. But I was really inspired about this financial modelling concept. So I went and really looked for a role outside of PWC and joined Investec Bank in their corporate finance and M and A team. And I guess that’s where typically financial modelling is done a lot. Investment banks do a lot of financial modelling for IPOs, project finance, capital raising, unlisted trusts, raised capital using a information memorandum or a PDS. And nine times out of 10 is a financial model, if not all the time is a financial model that underpins that investment from a legal perspective. So yeah, I sort of went into that industry when it was really just contained within investment banks. And then I left Investec Bank and joined the National Australia Bank, and I brought those skills with me.
Lance Rubin: So what I realised is that typically accountants, most of the accountants that I meet don’t know what a three-way financial model is, have never built a proper model in terms of cash flows and balance sheet and income statement. Yes, they’ve done some forecasting. I’m talking more in the corporate space. And so yeah, I realised that there was an opportunity to sort of bring this to the broader audience. And so I started my own business. I’m also an approved trainer for the Financial Modelling Institute, the FMI, which is a globally recognised training body specifically for financial modelling. So you have your CA, CPA, CFA qualifications which are sort of more broad based accounting and finance. And yes, they would touch on financial modelling, but they wouldn’t go as deep as what the FMI would do in their exam. And then the CFA does again a little bit of financial modelling, but it’s more in the financial markets, derivatives and investments in equity analyst space as opposed to the business space around a small business. So yeah, that’s sort of my journey, and it’s great. And I think it’s huge demand particularly in today’s times around being able to model different scenarios and different decisions.
Heather Smith: Absolutely. And it’s great to hear that someone can go through the professional accountancy route and sort of pivot into an area of interest that they like, that obviously is providing a lot of opportunities and challenges for you, which is great to hear. We love our problem solving. Can I ask you, Lance, you’ve touched on some of the tools that you like to work with.
Can you expand on what are some of the technology, the tools you’re working with and perhaps if you can sort of briefly described them for our listeners?
Lance Rubin: Yeah, great. So I’ll probably put them into three buckets. So I think the one bucket is automation tools. So there’s a bunch of automation tools that allow us to do things much quicker. Even both you and I use Calendly. I’ll call that an automation tool. Because really the amount of time that you spend going back and forth to book a meeting is just waste, and so automation is about removing waste. And I know people don’t find it a bit offensive to sort of click a link, but get over it. This is 2020, and we’ve got to be more efficient in the way that we work. So automation tools, Calendly. DataDear is one that we use quite a lot for financial control automation. So if you want to push and pull information from Excel, which hashtag, Excel is not dead. We love it. Push and pull information from Excel to either QBO or Xero. You can do it using the DataDear API, so we use it. I use it in my own business. When I do my quarterly BAS, rather than having to do manual journals, there’s a manual journals template that you can just push up and post. We have a few clients that we do some bookkeeping for them, and we help them on generating some information there as well using DataDear.
Lance Rubin: Then I guess the next bucket, I’d say, is the analytics. So I think when we start looking at the analytics world, for me, yes, there’s lots of tools out there around Tableau, ClickDomo, but for me there’s only one that we focus on, and that’s Power BI. It’s built by Microsoft. It’s got a huge amount of development, and it’s a leading platform. And there’s lots of other sort of add-ons and connectors that people in the industry are building, which is great. But ultimately I think Power BI for us is our go-to for analytics. And then I guess part of the analytics platform, there’s more advanced analytics. So as the machine leaning studio, when you start getting into the predictive modelling space. So Power BI is a somewhat of a data analytics and data visualisation, and it has aspects of modelling. But when you want to do some really complex modelling and machine learning, you need Python or R coding and then Azure machine learning is very powerful for those aspects. So that’s the analytics world around backward looking descriptive diagnostic and forward looking being predictive and prescriptive.
Lance Rubin: And then the financial modelling is the third bucket, where we build financial models. So right now we use a tool called Modano. It’s an Excel add-in. It’s a content management or a CMS for Excel, and so it enables us to really build those three ran models far quicker than we would manually. Yes, there are people that have templates, but most of the templates are what I’d call fixed templates. So if you want to add in the assumptions, you’ve got to also add that row into their calculations and also add that row into the outputs. So the process of making a model expandable both horizontally, i.e. adding rows or vertically adding more time series is a huge risk in terms of errors but also time. So Modano automates a lot of that through its linkage mechanism between different modules. And it’s actually, probably the one primary tool that we use most, because most of the work that we do is in the financial modelling space. And it’s probably one of the tools that I sort of relied on a lot in the beginning. Right now we’re sort of expanding, and we’re using other tools like Power BI. But fundamentally Modano is still our go-to for financial modelling. Yes, there are other tools in the market out there, but ultimately right now we … And we’re always testing it. I don’t own any of these apps.
Lance Rubin: I’m a huge fan of using and testing different apps and also testing new ones in the market. Because if you don’t, sometimes I give my team mini projects to go look at a new app. So we’re looking at a few of those as well. The other tool that we use in the financial modelling space is Modeller, M-O-D-E-L-R, single L, not double L like Australians and English people spell it. And in fact financial modelling as well has got two Ls or one L, depending on where you live in the world. But Modeller is modelling visualisation. Power BI is data visualisation. I guess it has two-way visualisation of modelling. So it has Excel as an engine. It has PowerPoint as the body of the car, and Modeller creates that dashboard as the race car driver to driver the decision. So you really want to just drive that decision, and you want to make it really easy for people to use the model. You don’t want to have people open up the Excel file and go through all these tabs and update all the cells. You want to make it really engaging. It sort of looks crazy, but it’s not, but it really has got the zooming feature and allows you to interact. So we’ve got a YouTube channel, future or financial modelling. If you Google it, and you can see some examples of the videos, there we use the Modeller.
Heather Smith: And that’s your own YouTube channel, is it?
Lance Rubin: Yes, yes, so future or financial modelling. I think I originally had it as one L to try and attract all these American people. And then I realised actually that Google rankings rank modelling with two Ls higher than single L, just because I think there’s more people particularly in Australia. Australia is probably one of the global leaders in financial modelling. We have a two-time world champion in Model Off, which is the world financial modelling championships, believe it or not. There’s actually competitions in this skill, and Model Off was actually founded in Melbourne. And Modano was developed out of Melbourne. So yeah, the financial modelling world is … How do we say? We punch above our weight in terms of Australian capabilities in financial modelling.
Heather Smith: Well that’s excellent to hear, that we’ve got something going for us and that we’re not just digging something out of the ground and selling it, which is normally how we base our business. But no, excellent to hear, that it’s sort of something that’s both challenging and interesting to be doing.
With all of this data and all of this technology, making decisions is still really difficult. Why is that, and what can we do about it?
Lance Rubin: My god, that is such a good question, Heather. I don’t know where you pull these out, but decisions are hard, because no one can predict the future. I mean that’s the bottom line, right? If everyone could predict the future, then decisions would be easy. If I knew that the schools were going to close, and COVID-19 was going to impact it, I’d pull my kids out now. But the government is not closing schools, because they’re worried about the impact on the health system and health workers. So no one knows the impact of a particular decision and how that is going to impact our lives. If the kids are at home, and depending on the school’s infrastructure, whether they can … Now we’re suddenly doing home schooling. That has an implication for us, so we need to think about that. And I’m running a business and home schooling, and how does that work? So I think decisions are difficult, because no one can predict the future. But I think this is where financial modelling is really useful, because you may not be able to predict the future, but you can at least have an estimate of the financial impact or the magnitude of potential impact. A financial model doesn’t give you the answer. It gives you a range of answers.
Lance Rubin: And I think when you know that you’ve looked at all the different permutations, then you sort of can feel more comfortable in that decision knowing that it’s never going to be guaranteed. But you’ve sort of explored all the different avenues, and I think that’s the challenge with decision making. We have this big decision like, do I pull my kids out of school or not? Or actually let me just do the good old … What’s the pluses and minuses? What are the impacts? If I do that, what happens then? If and then, in fact in Excel you have an if statement formula. That’s probably the most fundamental around building a model, is if this, then that. So once you start looking at all the different scenarios and calculating them and estimating them, then at least you can make a decision that’s less scary. There’s always going to be some element of risk, but it’s about reducing that risk, and I think that’s the problem. We don’t do enough of that analysis and that scenario planning to say, “If this happened, then these are the likely outcomes. And that’s where accountants are great, because we understand the financial impacts. We understand balance sheets and cash flows, and sort of we can translate business decisions into financial decisions.
Lance Rubin: And like I said, businesses fail for one reason, and they run out of cash. And cash if a financial asset. It sits on the balance sheet, and an accountant can really help business owners make better decisions, understanding implications of that decision on cash, like my stock is going to run out. My supply chain is going to get stuffed up. What impact does that have on my cash? It looks good on profit. I’ve sold out on all my inventory. My stock levels have gone, but I actually can’t get the stuff I need to sell. So I’ve now got fixed headcounts. I’ve got fixed overheads. How long is my cash going to last if this continues for three, six or 12 months? So I think even just having that, it’s a scary thing to face into. A problem shared is a problem halved. I can’t remember who said that, but it’s so true in decision making.
Heather Smith: I think it was Popeye.
Lance Rubin: What? No, it really helps people sort of get over the anxiety of the decision when you can actually say, “Okay, I get it. If I do this, then this will happen. And if I do nothing, even doing nothing is still a decision. And that’s what people need to remember, that doing nothing is still a decision. I know some people say it’s a cop out, but in the end there’s an impact for doing that.
Heather Smith: Yeah, absolutely, and I think sometimes accountants and bookkeepers in the industry are reluctant to dip their toe into the advisory, because there is not a certain answer. But with what you’re explaining, and with our skill-set, we can give them good guidance on the implications, which is kind of what you were saying there, that we can give them good guidance on this.
Lance Rubin: Yeah, spot on, and I think you hit the nail on the head. That’s the biggest hurdle at the moment that there is going into advisory, because like tax and compliance, it’s binary. It’s black or white. There’s no ifs, buts or maybe. This is how much your tax is, this is how much tax you’re going to have to pay, or this is the government funding subsidy. 50%, up to $25,000 of your PAYG withholding, you can calculate it. It’s a given, and you can estimate how much PAYG you’ve had over the recent months, forecast that. That you know with 100% accuracy, assuming you don’t hire anyone. You don’t give anyone salary increases. That’s the refund you’re going to get. That’s a given. But in this world, you have many other variables that you just don’t know. And I think that’s definitely what’s holding accountants back into going into the advisory space.
Lance Rubin: But I think the key thing is, when we build models, we also don’t say to clients that we know what the answer is. We’re just giving them a tool to make that decision. We don’t say, “This is what you should do.” That’s a very bad place to be, and it’s a very dangerous place to be in. Even when it comes to the assumptions in the model, they’re not our assumptions. We actually completely disown the assumptions in the model, whether they want to put in five FTE or 10 FTE. We’re not going to say that’s wrong, right or otherwise, but we will help them understand the five or the 10 and what impact that has. So we give them the tools to make an informed decision themselves. We may have a view, but we never impose that view. So we might say, “Well 1% cash rate, that’s going to last for a while, but it can’t stay there forever. It’s going to go up at some stage. What does that look like?” Right now it probably won’t for a much longer period. How long is COVID-19 going to last? I don’t know, three, six, 12, 24 months. Let’s do three years. For Christ sakes, let’s just see what impact that has. And in most cases, businesses won’t survive three years or 12 months, even.
Lance Rubin: So I think once we know how much runway we have, we can then make a decision and actually advice clients and help them understand those different mechanics. Because that’s where an accountant is really, really useful, and their knowledge of accounting and cashflow is important.
Heather Smith: Yeah, absolutely, and they can ask the questions. And they can assist in that consideration process. And there’s not that many people in the business world who I would want to be referring to to go through all of those consideration processes that you’re talking about, that filter through to that informed decision. So as you’ll mention, we’re recording this interview, and this week the World Health Organisation declared COVID-19 a pandemic.
How can businesses utilise modelling to prepare for uncertain times.
Lance Rubin: Great, Heather, and I’m so glad you’ve jumped on the LinkedIn post that I was involved in. I guess I’ve given some examples earlier, but I guess the key thing is really sitting down with employees and key stakeholders in the business to really understand their plan of action. So there’s a couple of things that are a given, no overseas travel and largely no local travel. So that’s nice and easy. You say, “Okay, well our travel budget is going to go down.” We’re going to save money, but what’s it going to mean for working from home? We may not have the infrastructure, and people might not have laptops, so we might need to increase our capital expenditure. Or we may need to increase, people don’t want to go on public transport if we’re still allowing them to come to work in the office. So we potentially need to support them on Uber rides into the city or whichever ride sharing app you prefer. I think the key thing is really sitting down and working out what are you going to do as a business. And it’s very different for different businesses, and I’d say at the very least, there’ll be a dozen things that you need to consider, everything from actually how does this impact our services and what we’re doing as a business, so if we don’t have any clients for the next three, six or 12 months, what does that look like?
Lance Rubin: So I think that’s probably the most important thing and saying, “Well if we don’t have clients, and we don’t have people helping us, what does that do to our bank account, given that we want to retain staff? We don’t want to lay people off. We have a rental lease that we can’t get out of. We’re going to have to burn cash.” And so the burn rate of their expenses relative to how much they’ve got in the bank account is probably the first thing that I would recommend that any business does to really understand. Well if we’ve got no more business through the front door, either through or not necessarily because of lack of demand, but it might be because of lack of supply. So whether it’s the demand side or supply side, let’s assume we’re not going to have any revenue for the next three, six and 12 months. What does our business look like, and how quickly will we run out of cash? So I’d say that’s probably the number one thing that businesses should look at straightaway in terms of COVID-19.
Lance Rubin: And then you can sort of say, “Okay, so we’re going to run out of cash in five months time. So what do we do to avoid that situation? Because if we have to go into liquidation and start up again, that’s a lot of pain. Staff are going to lose our jobs. We’re going to lose our company. It’s not going to be that easy to recover afterwards,” as opposed to, “What are the steps I can do now to sort of lengthen that five-month period to, say, six, 12?” And what are the steps I need to take over time? So I think it’s very much understanding time periods. So if we have no income, no clients, maybe we need to let go of a few staff, or maybe we need to sort of explore different premises, if we can get out of our rental lease. Maybe we need to sort of do other things, hold off any major capex other than maybe we need to help people work remotely. But maybe we don’t need to buy that new car or invest in that new technology. Sorry for the app people that are listening. Maybe we need to sort of look at our strategic spend and make decisions that sort of help the situation. I mean exactly like what the government is doing now, though to be honest, the Australian government is a bit behind in terms of reacting.
Lance Rubin: But New Zealand closed their boarders, and Australia decided after, so what are the social distancing measures we’re going to take to prevent further cases from rising? So what are the things that we’re going to do to prevent our cash from running out quicker? We want to lengthen that runway, that cash runway. So what are the things we need to look at? So I think I’ve given one example around just assuming no revenue, current cost base. When do we go out of business? And I actually helped Banjo when I was their CFO. When I left the NAB, I started Model Citizn, but I was also CFO of a fintech startup called Banjo. And I was able to give the board six months notice on when the startup would face a few challenges from a cash flow perspective. And then it enabled them to make decisions earlier on what they were going to do. And the reality was it actually lasted seven months. So I was a bit conservative, as accountants are, but it really … Now they’re going gangbusters. They’ve hired. They’re expanding, so it really helped the board make informed decisions around how they would navigate. Any startup is going to have that. They’re going to raise money, and they’re going to run out of cash. So this sort of environment is very familiar for startups like Banjo and other startups out there, because they’re not yet profitable. They’re not generating income.
Lance Rubin: But for existing businesses, this is a huge blind spot, because they’ve never gone through this sort of situation. They’ve always had cash in the bank or at least cash coming through, because they have an operating business that’s hopefully profitable. Or if not, it’s marginal, but in the end, they’ve survived. And if they’re on the edge of survival, then I think this is going to send them over the edge. So what can we do to help them? So I think once you understand that end point, how do we shift it? And I guess that’s where a model is useful. So if we lay off half of our staff, nonessential staff, what does that do? Yes, it’s going to damage other nonfinancial metrics like engagement, and it’s going to really impact people. But maybe it’s time we just sort of have an open conversation with people in our company and saying, “Look, this is the reality of the situation.” I mean there’s a company, I think Buffer, which is a great company that Buffer tweets and social media. They have what’s called open financials, so their financial information is completely open to everyone in the company, including people’s salaries. This is really groundbreaking. And what that means is that everyone understands where the company is. Again, back the problem shared is a problem halved, understanding and involving people. What are they going to do?
Lance Rubin: I mean I think the government are going to help out, as they’ve announced, in terms of stimulus packages. People that are infected, that have to work from home or have to be force quarantined are likely to get some sort of help. So I think we have to work together and support each other, and I think that’s where accountants … And there’s some great stuff going on in the industry around supporting Danielle Stein Fairhurst, who I was on a quick LinkedIn live yesterday. We’re actually going to host a webinar on exactly this topic around how do you get your model COVID-19 ready. And if you don’t have a model, how do you build one, and what are the steps that you need to take? She’s been grounded. A lot of the work that she does is in the training space. We do a little bit of training. Most of our work is consulting. So she reached out and says, “Hey, I’m grounded. I’m not going anywhere. Let’s do something.” And so I think that’s great, that people are sort of finding ways to support each other. So if people want to find out more about how do they deal with COVID-19 in terms of modelling and decision making, definitely, maybe we can share the link to the webinar.
Heather Smith: Yeah, absolutely. And I would encourage, as you did mention at the start of that, that you’re having current discussions on LinkedIn. And you’re actually quite an avid LinkedIn user.
Lance Rubin: Slightly addicted.
Heather Smith: You highlighted a lot of great questions in there for accountants to have with, accountants and bookkeepers to have with clients around crisis management. So I will go through the transcript as well as having a transcript, but I’ll summarise some of those questions to make it easier for people to just cut and paste them and utilise them. But let’s circle back to LinkedIn, where you are a passionate user. And I would encourage people, if they’re interested in this topic, to connect or follow Lance on LinkedIn. But what puzzles me about you and LinkedIn, which I find I just at two extremes is I find it bizarre that you love emojis. You don’t seem like the type of person who would like emojis, but you totally like emojis. Where did your love for emojis come from?
Lance Rubin: My love for emojis came, because whenever I used to meet your typical accountant, they’re boring. And so I didn’t want to be classified as the typical accountant. That’s boring. So I thought, how do I make my posts, and how do I make things more engaging?
Heather Smith: And you said emojis.
Lance Rubin: How do I bring humour into life? Don’t take yourself so seriously. Yes, we’re going through a crisis, but I think having a bit of fun and sort of laughing, laughter is a huge cure for anxiety and a range of other illnesses. And so I think if I can throw in the odd emoji or probably a bit more than the odd, then it gets attention. And people know me for my emojis and my hashtags and all the rest. I think it started with I left corporate, started my business, and I started reading about social media and posting and things that you can do to elevate and get people to sort of read your content. And emojis was definitely one of those, and so I sort of stuck with it. And now I’m sort of known for it, as you’ve picked up. Again, it’s just a great example is the one I did for the recent workshop we did around DAD being downward around toilet paper.
Heather Smith: That was data analytics and data visualisation, for people listening in. Yeah, sorry.
Lance Rubin: Yeah, so toilet paper humour is wrapping the world, no pun intended or pun intended with anxiety. And so it’s just using these emojis really elevates the sort of feeling. And I think that’s where we’ve lost ourselves a bit. I think just being a bit more human and emotive …
Heather Smith: Yeah, absolutely. As someone who myself tries to create a lot of content that connects with the community, I will actively try and use an emoji per paragraph in whatever I’m doing. And you use way more than that, but that excites me. I like it. I’m fully on board with that, and maybe people can learn some emoji tricks from you. We should ask,
What’s your favourite emoji?
Lance Rubin: That’s a hard one. Which is your favourite child? It’s context. I think just the laughing on the side with the crying is probably the one I use the most.
Heather Smith: Mine would be the rainbow unicorn.
Lance Rubin: Yeah, no, I’ve seen your rainbow unicorn a lot, actually. So yeah, I’m just the sort of a smile with a hip to the side, laughter and crying.
Heather Smith: Yes, I think we need more emojis in this world. So we’ve talked a lot about the data modelling side of it. Now sometimes I guess in many cases, that surfaces into a dashboard.
If someone is looking at this, what makes something a good metric that they should be looking at on a dashboard? And what are sort of some of the best practise around designing dashboards in terms of size, simplicity, language, colour, anything that you kind of want to talk about in terms of the visuals and what should be there?
Lance Rubin: Yeah, that’s a great question, Heather. So I think it comes back to if you look at when I spoke about the scoping of the model. The dashboard is almost a similar process. So I think you’ve got to really understand the story. You’ve got to understand what are you actually trying to communicate. Quite often people just dive into dashboards, and they put stuff on a page, and they just splash them, and they make it really, really super complex. And I think, wow, that’s going to impress people. But actually it has the opposite effect. It disengages people. It’s too much information. So I think a critical thing is really understanding what’s the purpose of that dashboard. And by purpose I mean, what is the key performance indicator? What’s the KPI? Now is this a dashboard around profit? Great, well maybe I should have gross margin, net profit margin. And I look at some of these key performance indicators. And what use is it as if it’s at a particular point in time? Maybe I want to see it over time. So now you start looking at metrics over time.
Lance Rubin: So I think if you’re trying to look at a key performance indicator that changes through time, then pie charts are the worst, because pie chart is one dimensional. So having multiple pie charts over time and pie charts without the actual specific calculation or percentage, you might have a number. But now pie charts, you’ve got to have a number and percentage to make it really useful. So pie charts I think are still useful but in a limited context but really making sure you’re using enough space and understanding the real estate. It’s location, location, location when you’re buying property, same with a dashboard. Top left-hand corner is the most sort of go-to place where the eye sort of gravitates to first. And then bottom right is obviously the opposite and sort of mud grade in the middle. So I think making sure that you sort of don’t have too much on one page, that you leave space for white space, I think white space sort of, again, it’s just the visual. If there’s too much colour, then apart from the colourblindness, which I know we spoke about in New Zealand not too long ago, ultimately you don’t want to overemphasise, sorry, not overemphasise, overwhelm people with what they’re providing. So nice, big numbers is really, really good.
Lance Rubin: So if it’s the gross profit margin and the net profit margin, then have them nice and big as a number on its own, but label it correctly. So this is the most recent rolling 12 months or average or whatever that … What is the metric that you’re going to have? And I think that’s where you have that conversation if you’re a business owner, make sure you have that conversation with your accountant. If you’re an accountant, make sure you’re having that conversation with your client around what is the thing that’s going to move the dial the most. Is it your cost to income ratio? By what percentage does your cost growth or your revenue growth exceed your cost growth? And that’s referred to as [JAWS 00:48:06]. So it’s the percentage differential between revenue grown and cost growth. Now what we’re going to see is we’re going to see negative JAWS. We’re going to see revenue going downwards, and we’re going to see costs potentially going up, particularly if you have to spend money on getting people remote or spending more money in other areas. So understanding the metric is critical and then laying it out in terms of colours. I’m trying to make them have as much contrast as you can. Having shades that are very similar makes it difficult to sort of see the difference.
Lance Rubin: I still love, I know there are people that don’t, I still love the red and the green, the Rag rating traffic lights, because if there’s one thing that every person understands, that’s a traffic light colour. You’re driving along, red is stop, green is go, amber is beware. It’s simple dashboards need to be simple, and so I think even just those aspects are critical in terms of understanding those various dimensions.
Heather Smith: Absolutely, yeah, thank you for that. And I know that some of the offices I walk into have a single monitor up and with a single metric on it for that sort of team’s metric that they have to monitor. And it’s key for driving performance in that particular area.
Lance Rubin: Yeah, this is more.
Heather Smith: Yeah, and dashboards can be all sorts of things, but they need to be accessible, read and understood by the people who can impact them. You’ve shared with me, Lance, your love, that you love the flexibility of technology and how it enables you to manage your son’s cricket team. Now I suspect you must have some wicked predictive cricket score modelling going on on the side. Is that true?
Lance Rubin: No, no, if anything I manage the team as the team manager in different roles on a spreadsheet. But I do use, and recently there was a cricketing app that people said, “No, you should be using the app as opposed to scoring cricket on a hard copy.” And I was very resistant, because the app was, for me, felt like it didn’t have the ability to go back and edit. So the app was great, and then more recently what happened was they actually enabled you to go back and edit. And when the moment they solved that publication, suddenly I became an avid app user for the cricket scoring. So as the manager for my team, I’m also … They don’t have a formal umpire, so I’m actually umpiring as well on a field. And I’m umpiring on the field with the app, scoring each ball. And I actually have a live score, so I’m not predictive, but I’m descriptive analytics. So I can describe exactly what happened, and I can go back to the guys who’re sitting there with their paper scoring and say, “No, no, no.”
Lance Rubin: Because in under-11s cricket, which my son just finished his season, they have a limited number of balls they can face. And they can go out as many times, but every time they go out, it adds four runs to the other team. Because you want to develop young kids in terms of cricket, and if they would just go out all the time, they’d never learn how to be facing the ball. So I’m ultimately helping, analysing the data. I love it. Cricket is probably one of the most numerical games out there, and so I think which is probably one of the reasons accountants love it as well.
Heather Smith: Yeah, I couldn’t believe that when you described taekwondo, that was numerical too, because it didn’t seem to be numerical to me. Cricket I got, but both of your sporting loves are very numerical.
Lance Rubin: Taekwondo is more scientific as opposed to numerical.
Heather Smith: Scientific.
Lance Rubin: Yeah, but still the same thing, you’re right. It’s still got that accuracy sort of bent to it. Maybe it’s because deep down I also feel a bit anxious about doing stuff that’s too rubbery. I need structure. I need things that have some form of structure that I can work within. So even modelling has structure, even though it’s sort of …
Heather Smith: Yeah, absolutely, absolutely. So I don’t want to take up too much more of your time. I just have two or three quick questions for you. So the first one is,
For someone who’s interested in exploring a career in financial modelling, what steps would you suggest they start taking?
Lance Rubin: Great question, Heather. So I think the first thing is we’ve actually launched the larges collection of content, crowdsourced content on the glob for financial modelling. And we’re actually calling it the spreadsheeting to financial modelling series of articles that have been published on LinkedIn. We’ve also created an app using Glide. So there’s actually an app you can download, and you can get access to all of those. We’re about to publish the 18th article, hopefully this week if not next week with Ian Bennett on model audit. But it’s about, how do people get from being a spreadsheeter to a financial modeller? And it covers all things from how do you write a formula to how do you set out your workbook to how do you deal with uncertainty to how how do you do a scenario analysis to what is model audit to what are the qualification in financial modelling. There two recognised financial modelling qualifications, the CFI and the MFI are two bodies that have qualifications in financial modelling. So that’s a great place to start, definitely. The other part I’d say is, and within that, there’s other links to other areas and other websites. YouTube is still probably the best for me. Financial modelling is very much aligned to using Excel quite a lot and more advanced formulas in Excel.
Lance Rubin: So following people like Oz du Soleil, who’s Excel on fire, he’s got tens of thousands of followers on YouTube, and he’s an absolute blast. If you think emojis, that I use a lot of emojis, he has hats and characters that he gets dressed up and literally-
Heather Smith: Does he? Okay.
Lance Rubin: So he’s next level when it comes to YouTubing, something that’s really serious like Excel but makes it incredibly engaging. So yes, I think definitely explore the series. YouTube is a great place to start. And then I think if people want to get really serious about it, have a look at the Financial Modelling Institute, the FMI. They have three levels of qualification. You do have to go in and sit in the exam. So unlike the CFI, where you can do it all online, this is a proper exam where you need to go in and build a three-way model, income statement, balance sheet, cash flow on their machine, not yours. So you don’t have any add-ins and other souped up sort of functionality or automation. You have to go and build it from scratch for four hours. You have four hours to build a model, which is quite a sort of timeframe, but people have done it. Alex in my team did the exam last year and passed.
Lance Rubin: So that level one is called the advanced financial modeller. Level two is the chartered financial modeller or CFM, and level three is the master financial modeller. So it’s only been around for, I think it’s three or so years. And the master financial modeller, I don’t think that they’ve even launched the training. Or I don’t think anyone is at the moment. So yeah, it’s a great sort of technical qualification that people can start looking at to getting qualified.
For an accounting or an advisory practise who’s interested in providing data modelling as a service for their clients, what steps would you suggest they take? And do they contact someone like you directly?
Lance Rubin: Yeah, I think that’s a good question again, Heather. You’ve really pulled some great ones. They analytics journey in data modelling, yes, you can go spend time exploring all these tools, but I really suggest people have a look at Power BI. It’s free. They can download it, have a play. If you’re an accountant, member of the ACCA or CA, come along to one of my sessions that are going to be around for a while. But also now that I’m grounded, I’m actually going to be putting some of my sessions online. So actually converting some of that to online content is going to be part of that. And so I think, one, definitely reach out to me. Two is, again, YouTube has an incredible amount of information on data analytics, Avi Singh, Enterprise DNA and even just the Power BI YouTube channel has a huge amount of information. And there’s some great people that provide useful content out there.
Heather Smith: Yeah, and if accountants want to roll it out across their client base, I think Etani Business Solutions can assist them in the rollout of the Power BI side of it, can’t they, can’t it?
Lance Rubin: Yeah, that’s definitely one of the options, and there’s a few others out there. But yeah, Etani, I think Cam and I have been walking. We’re not walking. We’ve been liming around Australia.
Heather Smith: Liming, I thought you said llamaing. I was like, what? Liming …
Lance Rubin: Yeah, certainly around New Zealand, but yeah. And we’re about to go on another trip as well, although that’s sort of postponed for the moment. But I think most COVID-19 or at least the flattening of the infection curve, I think we’ll definitely be going out.
Heather Smith: Absolutely, absolutely. Thank you so much, Lance, for spending time with us today and sharing so much knowledge and insight with our listeners. How can they get in contact with you?
Lance Rubin: So LinkedIn is probably the best place to connect.
Heather Smith: But we saw that you just got attacked from underneath.
Lance Rubin: Yes, I’ve got a little dog that I’ve got to take for a walk, my daily walk routine. So yeah, definitely LinkedIn is probably the best, or our website, www.ModelCitizn. That’s M-O-D-E-L-C-I-T-I-Z-N, or Model_Citizn is my Twitter handle, although I should change it. I did change the name in Twitter to say Lance Rubin.
Heather Smith: Very good.
Lance Rubin: That’s a discussion for another time, but yeah, LinkedIn is definitely the go-to place. Yeah, and thanks, Heather, for inviting me onto your cloud stories.
Heather Smith: Yeah, and thank you so much, really appreciate it, bye.
Lance Rubin: Bye-bye.