When you decide your company’s financial models are not as good as they should be, is the first thing you do; send your staff on an Advanced Excel course?  Whilst this is helpful, there’s an awful lot more to Financial Modelling though than being good at Excel!

Do you need an Excel Jockey, a Finance Wizard, or a Financial Modeller?

People who need to get a financial model built sometimes think they either need to find someone who is a complete super user in Excel to build a model or an accounting pro who knows every in and out of accounting rules.  I’d argue you need a blend of both, along with someone who actually has business common sense.

The Excel Jockey

Excel is a very powerful tool.  Almost no single Excel user will have the need or desire to utilise most of the functionality this program offers.  Still, there are those select few people who understand every single in and out of Excel, every single function, and can answer those “How do I _________ in Excel?” questions in no time.  Seems like these would be the people to have build you a financial model.  Unfortunately, having great software skills doesn’t always help when it comes to applying it to a specific area of business.  Realise that Excel is used in several capacities, so finding someone smart with Excel doesn’t mean they have any experience building financial related spreadsheets.

Having said that, to be a good Financial Modeller, you do need to know Excel exceptionally well.  You don’t have to be a super user – the 99th percentile in Excel knowledge – but you must certainly be above average.  A complex financial model might use features in Excel that the everyday user doesn’t know.  The best financial models use the solution that is the simplest tool to complete the task (as simple as possible and as complex as necessary, right?) so the more familiar you are with the tools available in Excel, the easier it will be.  An array formula might be the only way to achieve what you need to achieve – but it might not; a simpler solution may well be – and often is – a superior solution.  So when looking for the right person to build your financial model, extensive Excel knowledge is a good start.

The Finance Wizard

Now, stuff like financial statements, cash flow, NPVs and economic forecasts are an important aspect of many financial models.  A professional accountant will know every single accounting rule and law there is, so are they the person you need to build a model for you?  The relationships between your financial statements will be 100% correct, and the taxes done immaculately.  Again though, you don’t need a wizard’s level of knowledge to build a financial model.  A good accountant, or even one qualified with a Masters of Applied Finance, whilst they will undoubtedly be a competent Excel user might not be familiar with all of the modelling technical tools.  In fact, financial models are often relatively straightforward from an accounting standpoint.

The Financial Modeller – the best of both worlds!
Enter the solution, a true Financial Modeller.  You knew I was going to say that, didn’t you?!
What a Financial Modeller brings to the table is a combination of skills.  First they know Excel well enough to be able to choose the simplest yet most functional tool to build a model.  They can create a pivot table, array formula or macro (but only where necessary of course!) use a simple or complex nested formula and choose the best technical tool to perform a scenario analysis, for example.  As well, they understand all the relevant business and accounting principals.  At the end of the day the Balance Sheet has to balance, and the ending cash is on your Cash Flow Statement needs to tie to the Balance Sheet, to name a few.

They bring a unique combination of skills neither the Excel Jockey nor the Finance Wizard possesses.  They understand relationships between variables, they understand sensitivity and how fluctuations in inputs will impact the outcomes and how they need to be modelled in Excel.  A Financial Modeller as well can take a step back and realise what the ultimate user of the model has a goal.  Are they building a model for in-house use, or to present to investors?  Do they need a valuation, a variance analysis, a nice summary, or a detailed month by month P&L?  The Financial Modeller can take information, build an Excel model that is technically correct from an accounting standpoint, utilise the power of Excel to dynamically set up the model, and ultimately reflect what the business is looking to achieve.