Monthly Archives: April 2021

Operating Model Tips

Reading Time: 4 minutes

I am not sure any real people actually visit this site.  I am pretty convinced the only visitors are bots.  However, the bots seem to like the post on my views on the difference between operating models vs. financial models.

So, here are some more thoughts on operating models in the form of tips for building an operating model that I have refined over the last decade or so.  Also, for clarity, my operating model and forecasting process is all Excel based.  I realize there are some fancier tools out there, but this process gets the job done at much lower cost than any of those and is extremely versatile.

  1. Budget In the Same Form as Your General Ledger

The first two steps work together, but in many ways, you should start here if you can. Your budget inputs should be in the same form as your general ledger (GL) / enterprise resource planning (ERP) exports. If you did not do this for this year, plan to use this as a template for your budgeting process next year.

I send out budget template packages to all my business leaders to guide their budgeting effort that are based on our ledger exports.  The package presents historical data and asks for inputs, by month, for the upcoming year.  In many cases, a business unit leader only has a few major line items they need to worry about, outside of headcount driven ones like salary, wages, and benefits.  

You can utilize helper sheets to aggregate detailed assumptions:

Sample of Detailed Department Budgeting Assumptions

A little prep work can save everyone a bunch of time and make your life a lot easier going forward.  Having your budget and your actuals in the same detailed form will make Actual to Budget comparisons much, much easier.

  1. Utilize Inputs from Your General Ledger / ERP System

Again, step one and two are very much related. I highly recommend driving your historical inputs off of exports from your GL / ERP system. This will make importing data on a monthly basis systematic and mostly a copy and paste exercise. It will also let you know if your Controller added any accounts to the GL that you need to peek at.

The exports should be monthly.  And, you will likely need separate worksheets for each department, so that you can have that granularity in the model and related operational reporting.

Operating Model Ledger File with Department Tabs
  1. Summarize Accounts Into Categories for Analysis & Department Reporting

The ledger exports are generally fairly granular, and in my experience, too granular for most of your audience (business users). You can use some higher level categories to summarize these into easier to digest format.

Ledger File Export with Helper Categoriers

Examples of the operating expense categories I use are:

Expenses Using Higher Level Categories

So, for example, if you see that Software increased over prior month, you can dig in and go find where and which department.  For a really detailed review, you might need to go back to the ledger, but you have all the tools to easily get that done.

  1. Use a First Look Report

Once we have our accounting close done, my first step is to review what I call my First Look report.  This is a comparison of the month across revenue, cost of goods sold, operating expenses, and other items to:

  1. My Forecast (more on this later)
  2. Budget
  3. Prior Month
  4. Prior Year

This is a great way to spot things that need more review, before I actually issue financials out to my team and our investors.

  1. Keep The Census Separate

I use a modular approach in building my operating model. My operating model is actually several linked files:

  1. Financial Model – A working, monthly financial forecast model
  2. Ledger File – feeds the Financial Model for both historicals and forecasted expenses
  3. Census File – fees salary wage and benefits information into the Ledger file

As a banker, I abhorred linked files.  As an operator, they become a way of life.  

Keeping these separate allows me to share the Financial Model easier.  The model file is small.  And in the case of the census, there is no confidential or sensitive payroll data.

Generally, I turn off comments on my site.  Most comments are spam.  However, I am going to leave comments open here.  If you have some questions, please post them.  And if you would like some help setting up an operating model, drop me a note.

Packed for a Week. Stayed for Three Months.

Reading Time: 4 minutes

We went on a ski trip on March 14th, 2020.  It turns out, the timing of the trip left a little to be desired.  Or maybe, everything happens for a reason.  What do I know?

Despite the rapidly deteriorating situation related to the COVID global pandemic, we decided to go ahead and fly out to Utah to meet some friends for Spring Break in Park City.  We took precautions.  We wore masks and gloves, washed our hands, etc.  People looked at us like we were aliens.  N95 was not in the general lexicon yet.

Before masks were cool…

We skied half a day at Park City Mountain Resort.  Then the world shut down.  In response, the Vail Company closed all their ski resorts.

In hindsight, I commend the Vail Company for making that decision in order to protect the ski towns in which they operate.  At the time, I was pissed off.  So we did what any conscientious citizens would do.  We drove up to Snowbasin the next day – along with two thirds of Utah – and skied our last inbounds day of the year.

This is no longer a vacation. It is a quest.

We returned to Park City that evening.  Most folks – including our friends from Florida – fled back to their hometowns.  The entire town emptied.  

On the home front, work went remote.  School went remote.  Toilet paper became scarce.

Mrs. SFTE and I looked at each other.  And collectively said, why go back to Ohio?  We’re on vacation.  Besides what are we going to do in Ohio anyway?  The last question isn’t necessarily pandemic related.

At the end of the week, we called Delta and pushed our return flight back to Columbus out a bit.  We called the vacation rental place.  Yes, we could stay in our space.  In fact, we could pick any place in the whole complex we wanted.  We upsized.  

Another week went by.  I found a bigger place in lower Deer Valley with an office loft, hot tub, and refrigerator that cost more than my car.  Yes, the owner would be glad to do a long term rental.  She would send me an invoice through PayPal (sorry AirBnb, I still think you are beautiful unicorn).  

We had Deer Valley to ourselves.  We walked up Solamere Drive every night.  Through neighborhoods of multi-million dollar houses – totally empty.  We bought snowshoes.  We demoed touring gear.  The ski patrol shack at the top of PCMR was an eerie reminder – like an archaeological site where the inhabitants just disappeared without a trace – tools and belongings left perfectly undisturbed.

The snow started melting.  We walked more.  I broke down and ordered some running shoes.  The trails dried.  We became best friends with the folks at Park City Bike Demos.  Turns out that board shorts over base layers is a perfectly good riding option.  

Board shorts and base layers.

We did laundry frequently.  In May, I doubled my clothing options by ordering a pair of pants and a shirt from Stio.

Finally in June, we headed back to Ohio.  We had to.  Our lease was ending.   And we thought it was a good idea to get my wife’s car out of airport parking.  It actually started.

We had to get our stuff. Stuff that we had done without for three months.  Stuff we had nearly forgotten about.  It was sort of like a bizarre Christmas morning when we got home.  We stepped back into the life we had left almost four months earlier, and sort of no longer existed.  

Dress shirts sitting in a dry cleaning bag (they’re still in that bag – but moved to a new house).  Dress shirts worn to an office that was no longer open for business.  In a dry cleaning bag for a dry cleaner that I hope had long ago stopped coming by the house looking for a pickup.

We were almost overwhelmed by our own stuff.  After three months of just a few pieces of clothing, we had closets full of stuff.  I only had two t-shirts on my trip.  Generally, one was clean, one was dirty.  Easy choice.  Now I had to choose between twenty.  Socks.  Oh my god.  On my trip, I had three pairs of non ski socks.  At home, three drawers full.  Shoes.  On my trip, one pair of snow boots and my newly acquired running shoes.  At home, I could wear a different pair every day for weeks without repeating.  Why?  Why do we have all this stuff?

Packing for a week long ski trip, but staying for three months, really opened our eyes to how little of our stuff we really need or actually miss.

Influential Reads – March 2021

Reading Time: 2 minutes

Whoa.  Where did the first quarter go?

There looks to be a light at the end of the COVID tunnel.  One vaccine down; one to go.  Apparently, there are some benefits of living in a state where a majority of people don’t believe in science.

It will be curious to see how people react to the potential end of the COVID pandemic.  I do fear a bit of a false reality though until further progress is made on the vaccine administration front.

And, don’t forget there are kids too.

Updated stats through March:

ArticlesBooks
January654
February491
March643
April532
May
June
July
August
September
October
November
December
Total23110

Here are my most influential reads – in no particular order:

  1. POWDER, GROOMERS, AND BUMPS – “Truly, there are two kinds of powder skiing: resort powder and wild powder.” Stephen here: And wild powder kicks my ass.
  2. Ski Tulsa – “I’m not aware of any city that does the reverse, but if Summit County floated a bond issue to pay people to leave, I would vote for it.”
  3. Your Thinking Rate Is Fixed – “If you’re a knowledge worker, as an ever-growing proportion of people are, the product of your job is decisions.”
  4. Beware of the Bubble – “A bunch of kids on Reddit have formed a gang called “Wall Street Bets” to manipulate stock prices in an ongoing series of pump-and-dump schemes.”
  5. How Many ‘Shortage’ Anecdotes Equal Data? – “There is an old saying that the plural of anecdote isn’t data.”
  6. The Employment Situation is Far Worse than the Unemployment Rate Indicates – “Employment in January of this year was nearly 10 million below its February 2020 level, a greater shortfall than the worst of the Great Recession’s aftermath.”
  7. Not a Housing Bubble – “In a normal market, it does not take much of a shift to create an imbalance. Housing here is both too little supply and too much demand; these look like temporary issues, not a longer lasting condition.”
  8. Speaking, the Family Business – “Over the last five years I’ve given about 400 talks, and around 2% of the time, it all comes off the rails.” Stephen here: Been there.
  9. Question #9 for 2021: Will inventory increase as the pandemic subsides, or will inventory decrease further in 2021? – “In 2020, inventory really declined due to a combination of potential sellers keeping their properties off the market during a pandemic, and a pickup in buying due to record low mortgage rates, a move away from multi-family rentals and strong second home buying (to escape the high-density cities).”
  10. The Opposite of 2008 | Epsilon Theory – “In 2021, the US housing market – together with a Fed that thinks inflationary pressures are “transitory” – risks delivering the mother of all inflationary shocks.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.