E7: The 20/80 rule for modern FP&A teams - with Karsten Loose

So my hot take today is that traditional FP and A is a waste of time.

What's one piece of advice you would give finance leaders scaling their teams?

Keep it lean and finance leaders teams?

Starting to use AI a lot more to write Python code and then using that code to help me with repetitive data analytics tasks. So one that comes to mind specifically is like pulling reporting out of Shopify and then doing a bunch of analysis on that. But that can all be automated, writing a Python script and having it just do that work for you.

You're listening to the 10x Finance podcast. Quick, candid conversations with the people shaping modern finance. Hosted by Albert Ghazi.

Hello, everyone, and welcome to the 10x Finance Podcast, where we dive into the real challenges and opportunities shaping modern finance teams. I'm Albert Gozi, co founder and CEO at Aleph. And today, I'm joined by Carsten Loos, managing partner at Carsten Group. Carsten, great to have you here. Are you ready to jump in?

Yes, Albert. Thank you.

Alright. For for those of you that might not know the Carsten Group, can you maybe start by doing a brief introduction of what you all do?

Sure. So, we're a fractional finance and accounting firm, and we focus on two sectors, primarily SaaS, B to B and B to C, and e commerce, and our wheelhouse is companies in the fifteen million to fifty million dollar range, so think kind of your series, maybe A to B type of companies.

Perfect. So you've worked with a lot of companies as part of this effort before you were CFO of many companies. What's your finance hot take?

Yeah. So my hot take today is that traditional FP and A is a waste of time.

Alright. That's a very bold statement from someone that sells some more other things, FP and A services. Let's unpack a little bit what you mean by that. Are the parts of FP and A that you think are a waste of time?

Yeah, I know it's provocative. So what I mean by that is FP and A teams often allocate way too much time and effort to backward looking analyses. So this is your standard variance analysis and explanations, your bridges, your narrative commentary. My view is most of this does not influence outcomes, and finance needs to think about how can they influence outcomes and enable or encourage teams to act. I think every team member at a company should be thinking that way, but I think finance and accounting often get caught in this kind of postmortem reporting cycle and lose sight of that ultimate goal.

Maybe if I'm someone listening here and I'm like, oh, maybe I'm caught up in what Carson is doing and I'm spending too much time here. I know this is not mathematical, but like, what would be what's your gut on how finance teams spend time between some of these activities versus others? And like, how do you think that share should be in theory? Is it like because I imagine that there's some reporting that needs to happen and that actually like aids that forward looking, is it eightytwenty, fiftyfifty? Where do you think people are, and what do you think the holy grail should be?

Yeah. I think today, I'd say most finance teams probably split their time looking back and looking forward probably fifty fifty, and I think the ratio should be twenty eighty. So twenty percent of your time focused backward, eighty percent of your time focused forward, And then you ask, well, okay, there's probably What's the twenty percent? There's some use to that, and I totally agree.

I think that you need to do the standard reporting. You need some variance explanations. You need some commentary to tell the story of what happened, but the interesting is today and moving forward, AI is unlocking a lot of time, and AI can actually automate those things, where in the past they were a bit clunky and manual, AI can actually free up that other thirty percent of your time without, I guess, losing the quality or the volume of deliverables, and you can actually now reallocate that time towards more important things, again, like kind of influencing outcomes and informing decisions at the company.

So what you're saying, okay, so you're introducing another layer that is interesting here, that is maybe some of those things you still do them, you just find a way to do them faster. So going back to your ratios, I mean, I think like I'm an Ambers person. Everyone that listens, I think, will be as well. So if I take a quarter, right, I take, like, twelve weeks, what you're saying is teams are now doing, like, very six and six in terms of their main focus, And then it should be, hey, let's spend, I know, two, three weeks doing more of like looking backwards, understanding and more trying to influence outcomes, which I very much agree with. But then you're saying that part of that is, you know, you can do a lot of what we're doing six weeks in, like, a couple. And maybe you sacrifice maybe you need to do a little bit of, like, eightytwenty and need to sacrifice some of the deep dive of the deep dive. But is that roughly the way that you're thinking about it?

Yeah. And I don't think you necessarily would split your time, like, in big chunky weeks. Yeah. You know?

Honestly, I I I think the more natural cadence for finance folks is every month, the books get closed, and then you end up doing all this reporting in the first, let's just call it, two weeks of the of the subsequent month. So you can now take some of that time and cut it down instead of it might take, you know, let's just say two, three days to sorta get your story right and really understand what happened versus your budget. It should only maybe take a few hours now if you're using AI, which can automate, we can get into that, like a lot of that work. And again, then you're just freeing up your time to focus on the future.

So let's talk a little bit more about that reporting side. And again, I'm a finance person, I'm like, yeah, but there's so much that I need to analyze and so much that I need to do.

Automating is clearly one. We can talk about that. If you have thoughts on how to automate with AI, of course, Aleph can help there. But on top of that, are there things that you would just cut out of scope and eliminate and say, Hey, this is something that people do that's typically I would just not care? Do you cut by, you know, how material variances are? Do you cut by, you know, company focus? How will you choose, you know, which things to automate and then which things to outright not do?

Yeah.

I think there's diminishing returns to a lot of the really detailed variance analysis that can get done. We are trying to explain small movements in dollars versus plan, so I think you have to set a natural cutoff in terms of dollars and percent variance, and every company's a little different, and then sort of ignore the rest, which, look, honestly can be hard to do if you have, I don't know, a board or CEO that is always asking questions, and you just feel the need to always be addressing those really detailed questions, but I also think what should you care about historically? I think

what's really important is understanding how, basically, like, think about the variance analysis. You're looking at your actuals versus some sort of financial plan. It could be your budget or a reforecast, and what's really important is understanding how far you are from your financial targets. That's the standard variance analysis, but then importantly, it's how do you get back on track, and I think that part is often lost.

And so if I were a finance team, I would say, when you do the variance analysis, you set these cutoffs on dollars and percent variance, and then really force yourself to think about how do we actually, if we're missing plan in some way, like, what what are the things that we need to do to get back on track? And, that's gonna come back to your operational KPIs, which we haven't really talked about yet, but, like, you've gotta take your financial plan, and you've gotta distill it down into operational KPIs that the rest of the departments understand, and then really look at those KPIs and understand, well, which KPIs are behind plan, and how do we get those back on track?

Saying some of that back to you and what you think I agree with, it's a little bit of thinking about various analysis in the end. It's a means to an end. It's not the end itself. And you do various analysis because you want to influence the actions that you take to get back on track, not just as a mere analytical exercise.

Does that framing resonate?

Absolutely. Absolutely resonates, and I think that's, by forcing yourself to look more at the future, you're forcing yourself to you know, sort of move past that analytical exercise, as you described it, towards more of, like, the actionable sort of outcomes that you're trying to make an impact on.

My my my past life of analysts, only thing that jumps out is things like, hey, maybe there is a variance, but it's because there's multiple factors that are offsetting one another. And what you're saying is, yeah, okay, maybe you can ignore those for now. And maybe there's even just ways of, with AI, flagging those without that being a huge time consuming task, and maybe there's a little bit of both of those in the solution.

Absolutely, and I think sometimes it honestly takes some training. It takes the the CFO or the finance team to kind of train the CEO and even train the board on how they should think about financials. I think the worst board meetings are the ones where you're just spending an hour walking through historical financials and talking about, you know, why revenue was up four percent above plan and why margin was off twenty bps. I've been in board meetings with CEOs that I admire where they actually put the financials in the appendix.

And when they're sending out the materials, they basically tell their board, come with any questions that you have on the financials. Otherwise, we're not gonna walk through the historical financials. And they don't spend a minute on it unless the board has digested it and has specific questions on it.

We actually have an episode that I think might come out after this one, Karsten, with one of our investors talking about that exact problem. So we'll post a link in the notes for those of you that wanna go deeper into board meetings and what to include there or not. But as we're okay, I think we talked a lot about the reporting side and what not to do.

Can you give us some examples of what's the outlook? What are the things that you can start doing? Maybe an example from one of your customers or prior experiences where you actually use that time to influence the business and have a good impact?

Yeah, so a few thoughts on that. I guess one really important tool that's forward looking is like a return on investment analysis. So before any decision is made to commit to spend, the finance team should be owning an analysis of ROI on that spend, and of course, this isn't applicable to all facets of a business, but any time there is a commitment to spend, you can try to run a return on investment analysis, and that can inform that future decision, so that's a really obvious example of how finance can influence actual outcomes. Another would be taking your financial plan or your budget and breaking it down into operational KPIs, and then helping departments set actual targets for those KPIs that ladder up into your financial plan.

If you spend the time to do that extra step, and it's frankly really time consuming and difficult, then all of a sudden, now you have this set of KPIs that your department leads are bought into, and you can use that to sort of drive the business and influence outcomes, and you can spend a lot more of your time measuring actual performance on those KPIs versus targets. The last thing I'll mention is a little bit more about, like, ownership and accountability. So I I think for this to be for a financial plan to to to be effective, you've gotta make sure your department leads are accountable to that.

I see a lot of times, you know, finances developing a budget, maybe with the CEO, kind of in a in a vacuum. Right? And they're not getting a lot of buy in from department leadership.

The the assumptions aren't, you know, well informed.

And then once you start once you start operating the business and comparing against plan, there's there's very little accountability from those departments. You know, they didn't feel like they were really a part of it. Maybe some of the assumptions are completely unreasonable, and it's really difficult to influence outcomes in that situation. But, like, ultimately, accountability comes to make sure your department leads' performance, like, assessments are somehow based on them hitting their plan.

You know. And in order to do that, you really need to have buy in from your executive leadership and your CEO.

Where, I mean, everything you're saying, I'm like mentally saying, yes, check, check, check. This all makes sense. This is all like very reasonable. And where do you think finance teams get this from?

Is it that just doing the traditional motion and going line by line in expenses and controlling that it's easier? So there's a little bit of, you know, it's the path of least resistance. Therefore it's easy to spend time there, I don't need to like, you know, spend too much time or think too much. Do you think that there's a, like, just not knowing better or not knowing what like an actually world class process looks like.

Where do you think when you go into a company that you start helping that maybe, you know, before you it was doing some stuff in house or they were working with someone else that wasn't up to your standards. Where do people get it wrong?

What can what's a good way of resetting some of that?

Yeah, that's a good question. I think there's, I mean, two challenges. One is just time, and we talked about how, you know, a finance and accounting team can be very busy, and maybe they just don't think feel they have the time to do these extra things. So that's why part of the focus focus of this hot take is, well, a lot of what you're doing is a waste of time.

Refocus that time. And then I think the other thing that you touched on is friction. I mean, I think some of this stuff is hard. You have to kinda build it, create it.

Now you have to spend more time with department leads. They may push back. The sausage making gets a lot more complicated. And so I think that friction tends to just make people just naturally kind of avoid it and stick to what they accustomed to doing.

It's a lot easier for a finance team to just sit and excel, build a budget, you know, in a silo. Everything looks amazing and pretty and wonderful, but it doesn't really tie back to the operations of the company.

So, I think those are the two issues. It's really time and friction.

Maybe all people need is an external set of eyes to help and be able to come in and take a look and help with that, if you wanna plug a little bit what you do with your firm.

Yeah, no, absolutely. I mean, so I think what Carling Group does and how we can be helpful for existing finance teams is we can help redesign their budgeting process. In part, this comes down to creating something new and designing that process from scratch. Oftentimes, it's helpful to have just like an outsider come in and sort of say, this is our new process. This is what we're gonna do from here on out. So I think that we work with a lot of clients where we just kinda come in, we design the process, maybe we help them with their initial, their kinda first draft of the budget, we work with their departments, we kinda set things up, and then we just sort of let them take it from there.

Makes sense. Carson, if you've listened to the episode, to the podcast, you know that we end with a rapid fire wrap up. Are you ready to go in there?

Sure. Makes sense.

Alright. What's I mean, this is one that you need to give a different take, but what's one mistake you see finance teams make over and over again?

Hiring the wrong people.

Right. And maybe, like, it will let you do a a brief double click. Is it hiring the right the wrong roles or actually, like, not vetting the people the, like, you know, as well as they should?

I think there's two backgrounds. People in finance tend to come from two backgrounds. It's kinda like the accounting background or maybe the more like the sort of the banking background, and I think you have to be very clear about what role you're hiring into. A lot people use the role of CFO, and they're like, okay, I want a CFO. I think sometimes people say CFO, and they really mean controller, and they're going out and hiring a banker or vice versa. So you kinda have to make sure you define the role and then find the right fit for that role.

Nice. That makes a lot of sense. What's one piece of advice you would give finance leaders scaling their teams?

I would say keep it lean and scale slowly. I don't think you need a lot of finance professionals to be effective, especially in the age of AI. So I think you can kind of lead by example and be very lean as a finance leader.

You might have touched on this already in this prior answer, but what's one trend in finance and accounting you believe will shape the next five years?

I mean, I'll give the answer I'm sure everyone gives at this point, which is AI is already having major impacts on finance and accounting, really across every segment, whether it's just operational accounting and finance, audit, tax, everything.

And maybe a follow-up of that, it's what's your favorite AI application for finance today?

Yeah. I'm starting to use AI a lot more to write code. So, like, to write Python code and then using that code to help me with, like, repetitive data analytics tasks.

So one that comes to mind specifically is, like, pulling reporting out of Shopify and then doing a bunch of analysis on that. It's it's even if you've done it a hundred times, it's still time consuming, but that can all be automated now with, like, writing a Python script and then having it just do that work for you.

We we have an upcoming webinar in January around AI prompts for finance, so we'll we'll make sure to reach out and and get some of your takes there and share some of the prompts with the community.

Yeah. One other thought on that.

When you're in finance and accounting, you're looking for a precise answer a lot of the time, and so the LLMs can be kind of frustrating because it's a black box, and you just get different answers every time, and you start to not trust it as much, and I think that's why I encourage finance and accounting professionals to think about AI as a way to write code, because when you write code, it's algorithmic, it's rules based, and you get the same output every time if it's written properly, and AI can help you do that. So I think it's a really powerful tool, and most finance and accounting people don't know coding, so it's like, it's a real game changer.

Carson, this has been great. Thanks so much for enjoying the show and taking the time.

Awesome. Thank you so much.

That's it for this episode of the 10x Finance Podcast, bringing you sharp, real world finance conversations powered by Aleph. Learn more at get aleph dot com. That's g e t a l e p h dot com.

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