Hey Reader,

A company once hired me for $15,000 a month to get their financial reporting in order.

They had just raised close to $20 million. Things were fast paced.

My team worked day and night to pull together everything they needed.

And all of it was powerless.

Not because we got the math wrong. Because the data couldn’t be trusted.

They had information coming from their accounting software, their database, and their vendors. All three conflicted with each other.

That engagement changed how I think about financial reporting entirely.

See, most finance leaders think the hard part is the model. Build a clean three statement model, nail the projections, and the insights will follow.

But a reporting system that actually works has three layers. And I’ve watched people skip at least one of them over and over again.

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Before you forecast a single number, you need to know the data underneath you is solid.

In finance, that data usually comes from a CRM, a payroll platform, or most commonly your accounting software.

And it all gets prepared through what's known as a month end close.

Now here's the part most people skip.

I work with a lot of FP&A professionals who can build an incredible forecast but don't understand the basics of cash versus accrual accounting.

That matters more than you'd think.

When you understand those differences, your projections get dramatically more credible.

You don't have to be the one doing the close yourself. But invest in that relationship with the accounting team early.

I was fortunate to get my CPA and spend years as a controller before I moved into FP&A. That foundation changed everything.

Step one is always the same. Master the data your company generates. Without that, nothing else holds up.

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Once you trust the data, you know where the company has been.

But that's nowhere near as valuable as telling the story of where it's going.

And there's a joke I love about FP&A. It might be the only field where you can be wrong and still get promoted. When an FP&A professional gets creative, they get promoted.

When an accountant gets creative, they go to jail.

It starts with a proper three statement model. Income statement, balance sheet, statement of cash flows.

On the simple end, I use a drivers tab with a dropdown.

Toggle between a 3 month average, a 6 month average, or a manual assumption. One SWITCH function handles all of it.

But the two areas that need real depth are revenue and headcount.

For revenue, I follow a framework called EPN. Existing customers, pipeline customers, new customers. Segregate those three cohorts and your forecast gets dramatically sharper.

Headcount is your biggest expense and the hardest to control. I build a table with every current employee, every planned hire, start dates, and gross salary with pro rating for mid month starts.

Lock those two in and you've already got a solid forecast. But there's one more piece that trips people up.

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This might be the most challenging area of a financial model. But it has a direct impact on your cash flows.

Here's why it's different from everything else. The income statement gets a clean slate every month. January has nothing to do with February.

The balance sheet carries everything forward. It's cumulative.

So you can't just guess an ending balance. You need a framework. And the one I use is called BASE.

Beginning balance, plus additions, minus subtractions, equals ending. That's the whole game.

The real question is just knowing what makes each account move.

Deferred revenue goes up when you invoice, down when you recognize revenue.

Accounts payable is that same idea flipped. You build it by putting expenses on credit, bring it down when you pay the bill.

Now here's where people get stuck. The subtractions.

Say you collected $90,000 up front on a 12 month contract. You can't recognize all of it at once.

You spread it out, one twelfth at a time. To handle that inside a model, you build what's called a waterfall table.

It sounds complicated. Once it clicks, you'll start seeing waterfalls everywhere.

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Here's the mistake I see people make once they've built the forecast.

They think they're done. They fire off an email with a detailed income statement, a detailed balance sheet, and a detailed statement of cash flows.

Does it contain great information? Absolutely. Is it in a format that someone outside finance can easily digest? Definitely not.

That's why the third layer is dashboards. I start with a KPI dashboard showcasing just eight of the most important metrics.

But here's the vital ingredient most people miss. Comparisons.

A number on its own tells you nothing. Compare it against prior period and prior year and now you've got context.

And the dashboard where people consistently pay the most attention? Budget versus actuals.

What you thought was going to happen, what actually happened, and how close you were.

I always include both dollar and percentage variances. A million dollar gap might be significant for one company and meaningless for another.

Now, building all of this from scratch, the three statement model, the revenue forecast, the headcount table, the balance sheet waterfalls, the dashboards, that's weeks of manual work for every new engagement.

That's a big part of why I built Model Wiz. It connects to your accounting software and gets you from raw data to finished reporting with one click.

Which of these three layers do you find the hardest to get right?

Hit reply and let me know.

Josh

Your CFO Guy

Quick note: While I love sharing my finance & accounting knowledge, remember I'm Your CFO Guy, not Your Personal CFO. Everything I share comes from my experience, but each business is unique. My content is educational, not professional advice - always consult with your own qualified advisors for decisions about your specific situation.