Financial Modeling in Retail, managing Insolvency & How Finance Can Master Cash Flow - Dave Hallwood
In this episode of Financial Modeler's Corner, host Paul Barnhurst is joined by Dave Hallwood, a finance director and certified financial modeler, for a practical and candid conversation about real-world modeling in the retail industry. From managing day-to-day operations in a fast-growing fashion retail group to navigating insolvency and restructuring, Dave shares the hard-earned lessons that have shaped his approach to modeling, decision-making, and leadership.
Dave Hallwood is the Finance Director of a group of independent fashion retailers in the UK. After spending years in retail and hospitality management, Dave transitioned into finance in his 30s, becoming a fellow of ACCA and earning his Certified Financial Modeler (CFM) designation from the Financial Modeling Institute. With a passion for practical financial modeling, Dave has built and managed models for nearly every scenario a small retailer can face, from budgeting and forecasting to store openings, closings, and insolvency planning.
Expect to Learn:
How to model retail cash flow when weather drives sales
The importance of simplicity and storytelling in financial models
What it’s like to manage an insolvency and restructure a business
Why Dave believes gut instinct still plays a big role in decision-making
How Dave uses modeling to support store openings, closures, and growth
Practical advice for switching into a finance career later in life
Here are a few quotes from the episode:
"Financial models help guide the business, but people and relationships still make it work."
"The best decision is often a balance between what the model says and what feels right."
"No matter how great the numbers look, if your gut says no, listen."
Dave Hallwood shares what it’s really like to model for a retail business. From managing cash flow swings to making tough calls during insolvency, he brings a grounded, real-world perspective. Dave reminds us that models should support decisions, not replace them. It’s a must-listen for anyone juggling numbers and navigating uncertainty.
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In today’s episode:
[01:31] - Welcome to the episode
[03:45] - Inheriting a messy Excel model
[06:17] - Why Dave switched careers in his 30s
[10:13] - Life as a finance lead in retail
[14:16] - Forecasting cash flow in a seasonal business
[18:54] - How to model each store differently
[26:58] - Lessons from an insolvency and business rescue
[32:59] - Why Dave supports the FMI community
[40:01] - Horizontal or Vertical Modeling Preferences
[42:23] - Gut vs. model: what really drives decisions
[44:36] - Closing Reflections with Dave
Full Show Transcript
[00:01:31] Host: Paul Barnhurst: Welcome to Financial Modeler's Corner. I am your host, Paul Barnhurst, aka The FP&A Guy. And this is a podcast where we talk all about the art and the science of financial modeling with distinguished financial Modeler's from around the globe. The Financial Modeler's Corner podcast is brought to you by the Financial Modeling Institute. FMI offers the most respected accreditations in financial modeling. Can't recommend them highly enough. And that's why I completed the Advanced Financial Modeler. And this week I'm thrilled to welcome on the show somebody who's not only completed the Advanced Financial Modeler, but level two, the CFM. Dave. Dave Hallwood, welcome to the show. Hi. Really excited to have you today. So let me give a little bit of Dave's background and then we'll jump into our episode here. So Dave is the finance director of a group of independent fashion retailers in the UK. It's why he has his fashion hat on. Right? Which he's grown with two other directors over the last eight years. Dave did a degree in business administration, then worked in a number of retail and hospitality management roles before self-studying and becoming an accountant in his 30s. He's a fellow of ACCA and holds the CFM designation from the Financial Modeling Institute. He's passionate about modeling. He's done in-house modeling for pretty much every scenario a small business could face, especially a retailer. Budgets, rolling forecasts, opening new sites, closing existing sites and the list goes on. Pitching for financing and more. He has also contributed material to the FMI CFM programs learning platform, and he is an exam master with FMI. Alrighty. So that's a little bit about Dave. First question Dave, tell me that horror story. Worst model you've ever had to deal with or that you've seen.
[00:03:45] Guest: Dave Hallwood: Okay. Yeah. So I think probably one of the worst ones I saw when I came into the business I'm in at the moment, kind of inherited a budget model, and it had been written by a consultant who clearly thought that the more complicated and whizzy they made it with, the more external links. And back in the day, before some ifs, they had all these key columns and references to multiple sheets. It was basically a budget buy store, but it was put together to pitch to a landlord for a new store and it was just incomprehensible. But I think the consultant ran up his hours charging for it, and it sounds like I'm really criticizing him. But I've got to be honest, at that point in my career, I'm not going to say that I managed to improve it. I just about managed to get my head around it. It's not something that I came in and magically fixed, because back then I knew it was really difficult, but I didn't actually know for myself, I suppose, how to rewrite it and make it better. But I'd like to say now you know, I've got the knack of that.
[00:04:38] Host: Paul Barnhurst: Yeah, often that there's some truth to that first one you inherit. You're looking at it and it's horrible, but you're like, okay, how do I fix it? Yeah. Can I do better? And over time, as you start building them and you realize, oh, there are simpler ways to do all of this. You look back and go, man, if I could just redo that now, it would be so much better.
[00:04:55] Guest: Dave Hallwood: Yeah, don't try to be flashy. Don't try and be flashy. You don't need to.
[00:04:59] Host: Paul Barnhurst: But it's kind of fun. No. I'll tell this story.
[00:05:02] Host: Paul Barnhurst: So, speaking of flashy, when Dynamic Arrays first came out, I decided to build this model for an exercise. We were doing all dynamic arrays that could automatically adjust it. Trying to impress my boss, I got into the meeting and, you know, started adjusting things and all the numbers were wrong. I'd messed it all up and just looked like an idiot. And I'm like, all right, just keep it simple. No need to be flashy. So that was kind of my reminder that flashy isn't what it's cracked up to be.
[00:05:27] Guest: Dave Hallwood: Yeah, absolutely.
[00:05:28] Host: Paul Barnhurst: So what was your key takeaway from that experience other than don't be a consultant.
[00:05:33] Host: Paul Barnhurst: I'm just kidding.
[00:05:34] Guest: Dave Hallwood: Oh, well, if you're going to be a consultant, I guess you charge by the hour. But I guess the key takeaway was that you can just go with some basic headlines. And the reason that we build models is one to make decisions. And we'll talk about that a bit more, but two to sell a story and to narrate something. And if you're creating a model that's incomprehensible to the end user, which in this case was probably an asset manager, you know, for a retail park, then you're not really hitting half the brief.
[00:06:01] Host: Paul Barnhurst: Yeah I know. Great point. Right. If it's something that can't be understood by our audience, then you're failing because the decision maker's supposed to use it to make better decisions. They have to understand it to make better decisions. Yeah, that's the reminder for keep it simple, as we like to say.
[00:06:16] Host: Paul Barnhurst: Yeah.
[00:06:17] Host: Paul Barnhurst: So, Dave, you switched your career to finance in your 30s. Tell me about that. What prompted that? That's not very often we see that.
[00:06:26] Guest: Dave Hallwood: No. So I guess I started out my career in kind of retail and management, having done basic business, and I ended up running a petrol station for about eight years. And it was one of those kind of I fell into it. It was nice. It was easy. It paid the bills. I didn't have to work enormously hard. And I just remember thinking, one day, this is fine for now. You know, I'm paying my mortgage, but I don't actually want to do this forever. You know, I can imagine I'm going to still be here in ten years if I'm not careful. So that made me think, well, what do I really want to do? And then, yeah, I thought I was at the time I was volunteering, doing a bit of kind of bookkeeping and finance work on the side for someone. And I just thought, you know what, I could make a career out of this. I think I'm quite good at it. And with a bit of business knowledge as well as a bit of finance knowledge with some technical training, I can maybe pull it off and it took some time to actually pull it off, but that's kind of where it came from and why I decided to do it. And I don't regret it at all.
[00:07:20] Host: Paul Barnhurst: So basically woke up one day and said, this isn't what I want to be doing for the rest of my career. What do I want to be doing? And decided finance was an area he thought would be interesting and.
[00:07:30] Guest: Dave Hallwood: Yeah, yeah, and hopefully everyone listening to this will agree.
[00:07:34] Host: Paul Barnhurst: I would hope so. You know, if they don't we just need to convert them. So by the end of this episode they'll say yes. Okay, so I'm curious, did you do all your kind of schooling at night? Like, was that a difficult kind of doing the education and something totally different than your work or kind of.
[00:07:53] Guest: Dave Hallwood: Yeah, yeah, it was, to be honest. So I started out with some really kind of basic technical stuff and built my way up, and it took me quite a few years, and I was in this sort of chicken and egg situation where you want to change career, and that involves starting again further down the ladder and taking a pay cut. And so I thought, well, I need to study as hard as I can so I can get in as well a paid as I can, but I'm still going to have to take an enormous pay cut. And kind of knowing when to do that wasn't easy at all. So that's kind of where it came from.
[00:08:24] Host: Paul Barnhurst: You mean nobody likes pay cuts?
[00:08:27] Guest: Dave Hallwood: Well, it's not so much, you know, likes like, you have to accept that you're going to take a bit of a cut, but I've still got to pay the mortgage. Right. So I couldn't just go and get a job as a really basic bookkeeper. I needed to get some study. And it's very chicken and egg. I didn't have any full time experience. I had some qualifications and they were building up and they had more and more qualifications, but still no experience. And it's kind of the longer you go before starting, the harder it is. So knowing when to jump was particularly difficult I think.
[00:08:54] Host: Paul Barnhurst: Makes a lot of sense, I get it. Well, any advice you'd offer to someone who may be listening that's thinking they might want to make a career switch? You know, any things that you would give them to kind of watch out for from your experience?
[00:09:08] Guest: Dave Hallwood: Yeah, I would say make make a plan. But also there comes a time when you just have to jump. And I remember I was putting it off and putting it off. I'll do one more exam. I'll do one more exam. You really do need to make that jump. And what I actually did was I one day I was coming home and I just thought, I really if I don't go now, I never will. So I handed in my three months notice before I had another role, which was, you know, absolutely terrifying. But if I hadn't done that, who knows how long it would have taken. And actually, I managed to land my first finance role within five weeks of handing in 12 weeks notice. So in the end, I was actually negotiating to try and get out of my retail job as early as I could. So make that jump. Definitely.
[00:09:48] Host: Paul Barnhurst: You know, as someone I know puts it, at some point you kind of have to burn the bridges or burn the boats, so you can't just retreat and you have to go forward. And giving your notice is one of those things that motivates you in a hurry. When you're like, okay, after this date, I have no income coming in. I have to figure this out.
[00:10:07] Guest: Dave Hallwood: Yeah, absolutely.
[00:10:09] Host: Paul Barnhurst: Yeah, it can be a great motivator for sure. So I'm curious, you've done a lot of modeling. You've worked a lot in the retail space. Why retail?
[00:10:17] Guest: Dave Hallwood: Uh, well, I think it was partly luck, but also partly prior experience. So I was really looking for a role in a small business. Having kind of run a small business for myself had always been involved. I've never been that much of a corporate guy. I really like being a small business where you just get stuck in and you do whatever needs doing on a given day. And so I was really looking for a small business that needed someone, you know, who was around about my level to kind of head up a small finance function. And the opportunity came along with this retail group. They were kind of running on a bookkeeper from a little office above one of the stores. And, you know, spending a lot of money on consultants and external accountants. And they got to the point where they needed to hire a qualified accountant because they were about to open more stores. And it came along at exactly the right time for me. You know, I met the founder, we bonded. I guess I managed to persuade him. Well, look, I've been a store manager. I've done it. I know what your store manager is going to be like. I know what retail is like as well as. Yes, I can add up all your numbers and make you a great PNL accounts. I do have commercial knowledge, and I think that's a really important thing to be able to contribute, especially in a small business. You know, finance business partnering is a bit of a bit of a buzzword, isn't it? But actually it is true. In a small business, I don't just do figures, I get involved in all kinds of things in terms of running our organizations.
[00:11:35] Host: Paul Barnhurst: So what some of those things you've got involved in that have nothing to do with finance, like where some days you're like, wait, I'm doing what?
[00:11:43] Guest: Dave Hallwood: Oh, all kinds of things. So, you know, we're clothing retailer. We sell clothes online on Black Friday. Everybody. I mean, everybody is in the warehouse picking and packing orders. You know, we've dealt with enormous stock returns of 30 pallets worth of stock coming out of the warehouse. And everybody is there stacking boxes, wrapping boxes, helping, um, you know, the pallet trucks get trucks on a massive articulated lorry. And then also just things day to day where because we're a small business, we don't have a dedicated HR department, we don't have a dedicated IT department. Um, and although we have MSPs and we subcontract things out, a lot of things that need doing, they just fall on your head. And because my other two directors are very much on the coalface, and I am the department that kind of sits in the office, anything that doesn't fit neatly into selling clothes in a store, anything administratively or legal compliancy tends to come my way.
[00:12:38] Host: Paul Barnhurst: So you get to be a packer, a picker, a lawyer, a HR person and a finance person.
[00:12:44] Guest: Dave Hallwood: Yeah, and also the stockade IT guy. And sometimes, you know, I, I can't, I do what I can, but I'm not the person to phone if your tilt breaks.
[00:12:52] Host: Paul Barnhurst: I've had people think I'm their IT person and I'm like yeah not really. But I'll try like, well, you know a computer. Yes. I use a computer every day. That doesn't mean I know it.
[00:13:02] Guest: Dave Hallwood: Yeah. And, you know, they say a little bit of knowledge is a dangerous thing. And sometimes I feel like I might be doing that with it. And I should really leave it to our experts who we, you know, we subcontract out to.
[00:13:12] Host: Paul Barnhurst: Yep, I hear you. I can relate to that as well. So talk about modeling and retail. What are some of the things unique. You know, let's talk let's talk you know more retail versus e-commerce I know you've done some both. But let's start with retail okay.
[00:13:28] Guest: Dave Hallwood: So in terms of retail, um, I guess the hardest thing Is modeling your cash flow and your sales. We are 100% business to consumer. We are really at the whim of the weather, literally. And I know retailers love to blame the weather, but it's honestly true. You're always waiting at this time of year for it to get hot so people buy shorts and then by the time September comes around, we want it to get cold. So people buy coats and just that kind of not knowing your cash coming in, you don't have a debtors book that you can chase and forecast when it's going to come in. So day to day, knowing where your cash is coming from and actually what your sales level is going to be makes it a real challenge because you have to have such wide variation in what your sales might do in a given month, or even in a given year for a store.
[00:14:16] Host: Paul Barnhurst: How do you how do you go about kind of forecasting the cash flow? How do you think about that? Because, right. I mean, obviously you can't forecast the weather, but you can look at things historically. There are some trending. I mean, yes, there are forecast to the weather. You can't control it. But how do you, you know, how do you kind of manage that and think about forecasting cash flow with that, uh, lovely variable?
[00:14:39] Guest: Dave Hallwood: Well, essentially we we agree a budget with every store manager. We're just like their sales target. And it's usually based on the previous year. And then we just have a bit of a wide berth in there in terms of plus or -20%. And we try not to commit more than 80% of our forecast sales in cash flow in a given month. And the biggest challenge we have is when we can pay to get stock into the stores. And it really is the lifeblood of the business. And if you if your sales dip and you don't have spare cash to pay your suppliers for more stock, you can end up in a spiral.
[00:15:10] Host: Paul Barnhurst: Yeah. And so I'm assuming you're probably using some kind of revolver as well in case it's needed. It's not just 100% pay. Cash always has to come in and go out. There's some kind of managing in between there or how do you.
[00:15:24] Guest: Dave Hallwood: Yeah. We try and manage a reserve. We don't have any kind of bank facilities because retail is seen as so, so risky. It's kind of low, low reward. You know, it's not common at all for overdrafts to exist in retail. So we tried to work without any kind of actual formal revolver. We we try and do it on our own operating cash flow and reserves.
[00:15:44] Host: Paul Barnhurst: Yeah, I can see why. That's definitely the most important. What's the biggest lesson you've learned in modeling cash flow in retail? What's kind of your maybe biggest takeaway over the years? I'm sure you've had a few times where you're like, I wish I would have modeled that a little different.
[00:15:59] Guest: Dave Hallwood: Oh yeah, I think I think the most painful thing is that you sometimes you believe you're going to have more cash than you do, and you just have to try and be pessimistic. And sometimes you have to play hardball with your suppliers, and you have to stretch the terms. And you do actually have to be quite ruthless sometimes. Um, because if you don't, then you're just going to run out of buffer and you're going to run out of road really fast.
[00:16:23] Host: Paul Barnhurst: And so how often do you find yourself having to negotiate with suppliers. Is that a very common thing that you've done over your career?
[00:16:31] Guest: Dave Hallwood: Oh, yeah. Yeah. It's kind of never ending. And I think part of the reason for that is because fashion is very seasonal. Um, so for a lot of our product, we order it six months in advance. The, the brand's manufactured to order. And then at the beginning of the season, they want to dump all of the stock on you, that it's going to take you six months to sell. And they've got factories that aren't paying, so they'd really like you to pay for it, and you're going to need six months to sell it. So that negotiation of what terms there are when stock is delivered, what type of stock is delivered, when and how we can do some kind of payment plan to pay throughout the season. It's never ending. We don't stop negotiating with suppliers because if you didn't, then you would run out of cash really, really fast.
[00:17:16] Host: Paul Barnhurst: Yeah, because if if you give the ideal term they all want, they want you to take six months of inventory and pay on day one.
[00:17:23] Guest: Dave Hallwood: Absolutely. Yeah. And I can see why they do, but it's just not realistic for us.
[00:17:27] Host: Paul Barnhurst: Sure. Well, yeah. I mean, it's not realistic for most businesses. I get it, you know, and that's the thing that we always talk about. Nobody, uh, goes out of business having plenty of cash.
[00:17:38] Guest: Dave Hallwood: No.
[00:17:38] Host: Paul Barnhurst: Right. The reason people go out of business is they run out of cash. And when you have to buy everything up front and sell it after the fact, you're always going to be in a cash position. That's a challenge. That's why so many people love subscription businesses and SaaS, especially when they're annual. It's like, wait, you're going to pay me for the full year up front? I love this.
[00:18:02] Guest: Dave Hallwood: Yeah, that would be great if we could get every customer to just give us as much money as they're prepared to spend at the beginning of the year, and then come in and use it, that would be fantastic, but kind of doesn't work like that.
[00:18:11] Host: Paul Barnhurst: I don't know if you've seen it in the UK, they have it in the US, where they've done a few of these boxes, where you tell them some of the brands you like, the type of clothes you like. It's actually a subscription service. They'll send you like 1 or 2 outfits every month that you can order, and you just pay a certain amount.
[00:18:25] Guest: Dave Hallwood: Yeah, I have seen those businesses. Yeah.
[00:18:27] Host: Paul Barnhurst: You know, so they've tried to make everything into a subscription.
[00:18:30] Guest: Dave Hallwood: Gets wearing as the consumer doesn't it. So many subscriptions it does.
[00:18:34] Host: Paul Barnhurst: We have one you know here that's cropped up over the last year or two is there's a haircut place that does a membership subscription membership. I'm like yeah no I'm good. But you know, I'm sure there's people who do it. All right. So cash flow is huge. What are some of the other other things with, you know, modeling beyond the kind of cash flows you think about retail. Like how do you think about individual stores and modeling them? Like what kind of assumptions go into that?
[00:19:03] Guest: Dave Hallwood: Yeah, we have to model every store separately. And there's there's loads of things that go into it. So sometimes that where a store is in its life cycle, we've got some stores that have been trading for, you know, a hundred years. Um, and they're pretty solid. And, you know, if you get 2% growth out of them, they're fantastic. We've got other stores that have been open for about 18 months, and they're on an incredible growth trajectory. So even just forecasting where their sales might grow as their customer base goes up and or their customer base kind of ages, just the number of sales. But then the key variables that go into the store are what the property taxes are, what the occupation costs are, so what the rent deal is, and also the staffing model of the store. The stores are all kind of different shapes. So for an example, we've got one old store that's on several floors. So even if it's completely quiet on a Monday afternoon, you need four people in there. Um, and we've got other stores that are nice, their square boxes, and you can run them on two people all day long. So just the basic labor model that goes into the store and what days it gets busy, and when you need to flex up, when you need to flex down. That's probably where most of the work goes. But because it's different by store, if we didn't forecast by store, I don't I don't think we'd be able to tell, you know, which stores are doing well and we wouldn't be able to decide which ones to open and which ones to close.
[00:20:21] Host: Paul Barnhurst: Yeah. So you're really kind of building each store model with those, you know, reviewing them with those managers. And it sounds like labor assumptions are going to have to be different depending on the store layout, obviously how busy it is. Growth assumptions I'm assuming though you can do some grouping sometimes, like, hey, all these stores are similar in the sense they all have the same layout, you know, same type of retail. Maybe they're in a strip mall or whatever it might be. Are you able to do some kind of grouping with those in the assumptions, or are you really find it's almost a custom model for each one?
[00:20:53] Guest: Dave Hallwood: For the active stores, it's pretty custom. But what that actually means is when we're looking at a new store opportunity, we can usually say, right, use that store as a template. It's going to be about that level of sales. It's going to be about that size. You know, this is the working cap it's going to need. This is what labor is going to need. We know what rent deal is on the table with the landlord. We can look up what the property taxes are going to be. So we do have kind of a couple of different sort of size template stores we use, particularly when we're looking at new opportunities.
[00:21:25] Host: Paul Barnhurst: Sure. Yeah. So you're able to which makes sense. You're able to take a predetermined set of assumptions to start with going, all right. Well this store is similar to this group over here. We should see a similar ramp. Need this many employees this working capital and then tweak it, you know, based on whatever things you know, specifically to that store and then adjust it as it actually becomes active to what you're really seeing. Yeah. So I'm curious, you know, as you do this, I'm assuming just like anything every store is forecast is wrong.
[00:22:00] Guest: Dave Hallwood: Who is. Yeah.
[00:22:01] Host: Paul Barnhurst: So this feels a little bit in some ways almost like a portfolio in that, hey, bringing it all together, you're trying to get it right and you can be relatively close with most of the stores, I'm assuming, especially older ones established, you know, new hypergrowth those that have a big change. I'm guessing all bets are off, but I would imagine a lot of them pretty similar. You can get pretty, you know, pretty close. I'm not saying spot on, but.
[00:22:26] Guest: Dave Hallwood: Yeah, I think you certainly can. On the cost front. The thing that can just send you out wildly is, is what the sales are going to be. You know, sometimes the store will just keep growing, even though we haven't forecast it to and other stores, their growth just falls off a cliff. And you don't always know why.
[00:22:42] Host: Paul Barnhurst: And what's the analysis like? I mean, how often are you able to figure out or do you occasionally have some where we're like, we just don't know what's going on here?
[00:22:49] Guest: Dave Hallwood: Well, I don't think there's any.
[00:22:50] Guest: Dave Hallwood: Way we don't know what's going on, but sometimes we feel like we don't. We can't necessarily do anything about it. So I would say at least every quarter we look at the forward review and the last one we did at the beginning of this year, we actually decided to close three stores because they were formerly profitable stores. But there are headwinds coming. Property taxes are more than doubling for retailers in the UK in April. They minimum wage is going up and employer taxes on employment are also going up. So we've had a couple of stores that used to be profitable and they were going to become loss making. So we have proactively closed them, which is a real shame. It's genuinely a shame. We've just had to make some people redundant. But we can't have loss making stores. We just you can't carry them in this economic environment. It just isn't possible. So yeah, sometimes you have to make a really difficult decision.
[00:23:41] Host: Paul Barnhurst: That makes sense and it's never fun anytime people have to be redundant, nobody enjoys that. But you want a few people to be redundant or the entire business to go under, right? You have to you have to think of the bigger picture. And that's how we have to manage it sometimes.
[00:23:56] Guest: Dave Hallwood: Yeah, absolutely. Yeah.
[00:23:58] Host: Paul Barnhurst: And this is definitely a tough inflationary environment. You know, if your wages are going up, your property tax is going up and other taxes are going up. Plus costs are going up for everything you buy. You you got to figure out how much can you pass on to the customer? What are others doing? Because right. We as a consumer, the more and more we see this price increases, at some point we start pushing back. And retail has a component of discretionary for sure. You know especially fashion. It's not like you have to buy a new coat every year.
[00:24:29] Guest: Dave Hallwood: No.
[00:24:30] Host: Paul Barnhurst: You know, or you need those pair of shorts that you want for the new summer or whatever it might be.
[00:24:36] Guest: Dave Hallwood: Yeah.
[00:24:37] Host: Paul Barnhurst: How much do you find? I'm curious. You've been in retail a long time. Is there a pretty big drop you see during recessions, or do you find it pretty stable or what's kind of your in general, you see with the stores and just the business.
[00:24:51] Guest: Dave Hallwood: So for our spot in the market where we occupy now, most of our stores, I would say that we're fairly premium. And so as a rule, our customers tend to do better in recessions than, you know, some of the people who are lower down in the market. So we're a little bit more recession proof, but we have had some brands where prices have just gone, you know, way up. The cost of importing in the UK has gone up, the cost of cotton and raw materials has gone up. And what we have seen is consumers who they'll keep shopping with us, but they've maybe shifted down in terms of price point. The brands that they're prepared to buy and that's affected the brand mix that we have, I'd say we are probably have a, um, a much wider variety of brands now so that we can capture, um, kind of more, more customers depending on where they sit in the market.
[00:25:42] Host: Paul Barnhurst: FP&A Guy here, and as you know, I am very passionate about financial modeling and the Financial Modeling Institute's mission. I have been a huge fan of the FMI for years, and I was super excited when they decided to sponsor the Financial Modeler's Corner. I recently completed the Advanced Financial Modeler certification and love the entire experience. It was top notch from start to finish. I am a better modeler today for having completed the certification. I strongly believe every modeler needs to demonstrate they are a qualified financial modeler, and one of the best ways to do that is through the FMS program. Earning the accreditation will demonstrate to your current and future employers that you are serious about financial modeling. What are you waiting for? Visit www.fminstitute.com/podcast and use Code Podcast to save 15% when you enroll in an accreditation today.
[00:26:49] Host: Paul Barnhurst: Everybody wants to cover the entire range. Kind of protect yourself against different segments having big changes. So one other thing I want to ask you about, I know you've been involved in insolvency situations. Anything different there in the modeling, any kind of unique things you found as you're in that kind of environment and modeling those type of situations.
[00:27:11] Guest: Dave Hallwood: Yeah, yeah. So first let me explain a little bit about what we kind of went through a few years ago. So we um, we entered into a deal that went bad. Basically we entered into a franchise deal to open some stores, um, for a brand that's well known in the UK and the cost of fitting those stores just spiraled, and it ended up being four times what it was forecast to be when we were looking at it. And then the sales in those stores were 50% of what they were forecast to be. And we looked at it and we thought, this is just this is actually not viable. We've only opened two stores. We've got a third one on the way. This really we've backed the wrong horse, unfortunately. And you know, when you're in business you have to take a risk. And we didn't have any choice basically, but to wrap up that subsidiary really quite rapidly. So we had to put it into liquidation. Um, and what that actually meant was, as we set that subsidiary up, the other companies in the group had geared up, had given cross guarantees on the leases for those properties. And so if we liquidated that subsidiary, we ended up in the position where the lease guarantees were going to get called on, and that would have sunk some of the other companies in the group. So what you actually have to do there, where you're in a situation where you're potentially going to become insolvent, but you want to keep trading, is you have to model all the scenarios that you might go through.
[00:28:36] Guest: Dave Hallwood: So the first one is to do absolutely nothing, and you're probably going to end up where everybody loses their jobs and all of the creditors lose their money. The next thing that you try and do is an informal negotiation. So that's private. It's just between your creditors and you, and you can come to an arrangement. And if that model doesn't work out and in our case it doesn't, we then had to model what's called a voluntary arrangement, which is where you go into an arrangement with your creditors. Everybody takes a haircut. Some suppliers don't get paid, some suppliers do. And it becomes legally binding on everybody. When you're doing that and you're modeling. Right. What are we going to propose to people. And you have to treat some creditors differently. And basically what you're trying to do is come up with a scenario where the business can keep trading. Everybody gets the best return that they can, and then you have to sell that to everybody. And the story is, well, the alternative to this is everybody goes out of business and you lose the whole lot. And actually, in the case of many of our suppliers, we had to say, you're going to have to take a haircut on some of the debt we owe you because we need to extract ourselves from these company guarantees.
[00:29:44] Guest: Dave Hallwood: We've got some tax arrears we need to write off. And if you don't vote for this and you don't pass it, then we'll go out of business and you will lose a future trading partner. You won't have any business from us at all in the future. So the best thing for all concerned is to kind of accept this, and then we can move on with the much healthier business. And that's what we did. We managed to get our voluntary arrangement passed with a really high proportion of people. And the reason that worked one is because we did some really great modeling, and I'm not going to take all the credit for that. We have some specialist advisers who did some really fantastic modeling on all the different scenarios that you could show your people, and then secondly, the relationship, the telling a story, the getting out there and communicating with everybody about, right, this is the situation we're in. We're not the only retailer who's got this. This is our proposed way forward. Please join us. Um, and yeah, I have to say it was really successful and I learned so much going through that whole process. And I heard it said from our advisers that you haven't really cut your teeth in businesses, you haven't dealt with some kind of bankruptcy or insolvency situation where you've got to do some restructuring and you need to do it pretty quickly.
[00:30:50] Host: Paul Barnhurst: I guess I haven't cut my teeth yet and I'm okay.
[00:30:53] Guest: Dave Hallwood: Well, I guess you're lucky. Uh, now you're on your own business. You don't want to be getting through that.
[00:30:58] Host: Paul Barnhurst: I did deal with. We wound down a few businesses when I was at American Express, but there was no risk of insolvency or bankruptcy or anything like that. It was just, we're getting out of this product. We're going to wind down in these countries. I remember running the models, but definitely nothing like what you're talking about.
[00:31:15] Guest: Dave Hallwood: Yeah. Now we're much more careful before we give any kind of cross company guarantee. And there's a reason all subsidiaries are separated. Um, and you know that we managed to survive, but other retailers, it hadn't been so proactive and they'd just blindly believed and carried on investing in these super expensive stores that didn't have any sales backing them up. Um, who knows where we might be?
[00:31:36] Host: Paul Barnhurst: So you mean spending a lot when you're not getting revenue? Doesn't. Can't last very long. But I thought that's what everybody did in SAS.
[00:31:45] Guest: Dave Hallwood: No, no. It can't. No. And you know, the funny thing you find is that when you're dealing with a franchise partner, they specify, you know, the brand guidelines, what they want the shop to look like. And actually what they're doing is spending someone else's capital. So we're putting up the money. They're specifying these super expensive, super luxurious shops, and then we open them and they take a few thousand pounds a week and you've spent 1 million pounds fitting them out. It just doesn't add up. It really doesn't.
[00:32:11] Host: Paul Barnhurst: Yeah. It sounds like you definitely learned your lesson there. There's times when you can model something and you're like, yeah, math doesn't make sense. Trust me. And they're like, no, no, we want to do this.
[00:32:21] Guest: Dave Hallwood: Yeah, yeah. But you see, the trouble is, you know, in the models we did before we entered into this lovely franchise agreement, the sales were going to be three times what they were in the shop. Fits were going to be a quarter of what they were. And when both of those slides at the very outset, you know, actually the best thing to do is kill it now, which is it sounds ruthless, but if we hadn't done that, we would have been endangering 15 stores worth of business now.
[00:32:46] Host: Paul Barnhurst: Yeah, I know sometimes you definitely have to do that. Okay, so I want to shift gears a little bit. You've completed both the AFM and the CFM. You've done a work with FMI. You're an exam grader there. Why are you so passionate about what the Financial Modeling Institute is doing?
[00:33:03] Guest: Dave Hallwood: Well, there's two reasons. First of all, I think they're really filling a niche and they're growing fast. And particularly when I was kind of learning my trade in terms of business school and also as an accountant, it was all quite focused on looking inside and looking back. And the older you get, the more you need to look outside your own business, and the more you need to look forward. And the only kind of looking forward I ever did in an education setting was that scenario where you're setting up a business and you write a business plan and you take it to your bank manager and they agree to finance you, and after that, it's all wonderful and you never need to plan again. But actually, what I found is that startup is relatively easy. The bit that gets difficult is scale up, and that's where I joined the current business. You know, he'd been going for a little while. He got up to 6 or 7 stores. He wanted to scale up to 20 plus that bit of the business. That growth is really, really difficult and I didn't have the knowledge and skills to do that. As I said, I came into this terrible model. I didn't know how to fix it so that knowledge is required. And Ian's doing such a great job of making that better and building it into, you know, it's part of now for basic education. So that's really important. I learned an awful lot from doing both of those.
[00:34:15] Guest: Dave Hallwood: And then the other reason I'm really passionate about the FMI is that they're just really nice people. They're great guys. They know exactly what they're doing. I remember when I signed up for CFM, there weren't all that many tutorial videos. Um, and I found it a little bit of a steep learning curve from AFM, and I just sent them an email with some feedback about this is what my candidate journey has been like. You know, I feel like I thought they were going to be more videos. I thought it was going to be a bit more help. This is what it felt like. Um, and Ian got back to me and he asked me to have a zoom call, and we had a zoom chat, and we ended up talking and he was like, well, we need some videos. Do you want to make one? And I was like, yeah, sure, why not? So they've now got this really great platform and it's growing all the time. And instead of just Ian from FMI making tutorials, we've now got tutorials from I think 6 or 7 people, possibly more experts from all over the world approaching real questions that have been posed in the past. And they're all doing it differently. So it's kind of like the more lectures you have, the more potential scenarios you might see, the more approaches you might learn about. And I feel like being part of that is actually really, really special.
[00:35:21] Host: Paul Barnhurst: Yeah, I think it's a great program. I know they have the community. I don't get to be as active as I'd like in the community, but I've presented there and I've been in there and I've even considered I haven't brought myself to do it yet. I've considered doing the CFM, I've done the AFM. Yeah. But I'm like, do I really want to spend the time? I haven't been able to quite convince myself yet.
[00:35:40] Guest: Dave Hallwood: Yeah, it is an investment of time. It really is. It's not easy. Yeah, that's.
[00:35:43] Host: Paul Barnhurst: What.
[00:35:43] Guest: Dave Hallwood: Everybody.
[00:35:44] Host: Paul Barnhurst: Tells me. You really need to put in the time. Yeah. So any advice to somebody who may be listening that's thinking of doing the CFM, you know, outside of me, of course.
[00:35:53] Guest: Dave Hallwood: Yeah. So, um, first of all, I would say I really, really enjoyed doing it, although it was very, very difficult. I really enjoyed it. So if you like kind of solving puzzles and anyone who's even vaguely interested in competing in the World Cup, you will really like doing CFM. So my advice is one sign up for it if you think you'd enjoy it. And two, try and develop your problem solving skills. That's all it is about is solving problems. So my key thing I would say is there's loads of past questions. Try every single one of them on your own first before you watch any tutorials. Before you look at any stock answers, try and solve them for yourself because that is actually the skill that you need to develop. It's not like AFM where you know what you're going to get and you just need to learn kind of what the rules are. With CFM, you don't know what you're going to get. It's going to be a complex question, and you're going to have to sit there and you're going to have to think, how am I going to answer this. What am I going to do? Both. From what Excel formulas am I going to use? But also just how am I going to structure this? What calculations do I need to carry out? So try it by yourself and really develop your problem solving. That is what will stop you panicking in the exam.
[00:37:01] Host: Paul Barnhurst: Got it. So basically being prepared, actually studying, practicing, learning the formulas, doing your homework. Yeah, it's funny how that works in exam if you're prepared, but no, that totally makes sense. I think he gave a lot of great advice there. So I want to ask a kind of a fun question. This is what's the most unique or fun or creative thing you've created in your personal life using a spreadsheet?
[00:37:27] Guest: Dave Hallwood: Wow, I don't know. I don't know if it's creative, but the thing that I found the most exciting for a long, long time, probably the longest running spreadsheet that I had, was tracking my mortgage and the overpayments I was making, and how much money I was able to save by overpaying my mortgage even slightly added up to tens of thousands of pounds and several years. And a lot of people think that's people I know in real life think that's terribly geeky. And why? Why are you excited about that? But actually, I saved a fortune and I was able to work out to the penny how much I was saving, and I really, really liked that. So that probably sums me up quite well.
[00:38:00] Host: Paul Barnhurst: There you go. We know we have a numbers nerd when you do that. You're not the only one who's done stuff like that. It's always rewarding to see all those extra payments. They really make a difference.
[00:38:10] Guest: Dave Hallwood: Yeah they do. They really do.
[00:38:12] Host: Paul Barnhurst: All right. What's your favorite Excel shortcut?
[00:38:15] Guest: Dave Hallwood: Uh, okay. Well, I don't know about favorites. I want to say, like, I'm really passionate. I think it's really clever, but the ones that I use the most, I mean, several times a day are alt w n, which opens a new window. So often I'll get an Excel sheet and I want it open in more than one place. You know, if I'm marking a paper or someone sent me something, I'm going to split it out into three windows so that I can look at three tabs at once, and then alt W, F or alt w, fr to freeze the rows in those new panes so that I can move around in a sheet really, really quickly. It's not exciting, it's not that clever, but it's so useful and it's so quick.
[00:38:52] Host: Paul Barnhurst: Yeah. So when you said all w f I can think of many times I've done that also.
[00:38:56] Guest: Dave Hallwood: Yeah, yeah. And it's been really frustrating that Excel doesn't store the view on more than one window. So every time you open up a new window you have to reset your frame. Freezing.
[00:39:08] Host: Paul Barnhurst: You never know. One day they might fix it. Go ahead and put it in that.
[00:39:11] Guest: Dave Hallwood: I really wish they would store that so you can close it down before you send it to someone else. But next time when you open it up and you hit alt w n all those freeze panes on pane number two and three were the same. But hey ho.
[00:39:21] Host: Paul Barnhurst: You can always create a macro I guess. Yeah, but I know what you mean. All right. We're going to move into one of my favorite sections, our rapid fire section. So I'm pretty sure you know how this works. But I'm going to tell you the ground rules. No, it depends quick answers. You pick one side or the other and then at the end you can elaborate on 1 or 2 because we realized real world it does. It depends sometimes. But that doesn't make for fun radio, so to speak, or listening. So you ready? Yeah. Circular references. Yes or no? No VBA yes or no?
[00:39:56] Guest: Dave Hallwood: Yes, but only for formatting, never for calculating.
[00:39:59] Host: Paul Barnhurst: All right. You're not the first to give that answer. Do you prefer horizontal? Lots of seats or vertical? Put it all in one vertical. All righty. Dynamic arrays. Yes or no?
[00:40:10] Guest: Dave Hallwood: Yes. But don't overdo it in modeling.
[00:40:13] Host: Paul Barnhurst: What about a fully dynamic model?
[00:40:15] Guest: Dave Hallwood: No. Far too volatile. Once you get up to any kind of size. Far too volatile.
[00:40:21] Host: Paul Barnhurst: External workbook links.
[00:40:23] Guest: Dave Hallwood: Are still a necessary evil. Same answer I gave last time, but less so. Someone said to me, Learn Power Query if you think they're necessary. And I've got better at Power Query, but there are some things it's still just the best thing to do is just have a link. I'm sorry. Uh, well, I hate it, but it's true.
[00:40:40] Host: Paul Barnhurst: Now. I'm sorry. Named ranges. Yes or no?
[00:40:44] Guest: Dave Hallwood: No. Takes too much time to create people. Just don't do it.
[00:40:47] Host: Paul Barnhurst: Alright. Do you follow a formal standard like fast or smart or any of those that are out there? Modeling. All right. Here's a few other new ones here. We're going to get to some of those. Should financial Modelers learn Python in Excel?
[00:40:59] Guest: Dave Hallwood: I wouldn't say should, but it doesn't do any harm to learn a programing language.
[00:41:03] Host: Paul Barnhurst: What about Power Query?
[00:41:05] Guest: Dave Hallwood: Absolutely. You definitely should. I promise you it will save you time. Uh, I was listening to the episode from Sean Mooney, who I met in London a few weeks ago, and he was talking about saving 75%. He's not exaggerating.
[00:41:16] Host: Paul Barnhurst: No. It's amazing how much time you can save when you really learn Power Query. It's a fabulous tool. I love it. I learned SQL first and then I was in environments where I really, really didn't have access to do SQL, and I learned Power Query and I was like, oh, this is great. What about power BI?
[00:41:31] Guest: Dave Hallwood: Super useful, but perhaps not for modeling more than Python, but a lot less than Power Query.
[00:41:38] Host: Paul Barnhurst: All right. What about Excel? Will it ever die?
[00:41:41] Guest: Dave Hallwood: I don't think so. I think Google Sheets and the competition now keeps them both on their toes. And they'll probably both be around.
[00:41:47] Host: Paul Barnhurst: There's a lot more competition, which is always good. We win when there's competition.
[00:41:51] Guest: Dave Hallwood: Yeah, yeah. How much has it changed? How much have things got better? How many new things have come out? No human can keep up with it anymore.
[00:41:57] Host: Paul Barnhurst: Oh I know. I was just like, I do it, you know, training for a living on Excel, and I'm like, I can't keep up. I haven't had time to learn, like, rage, expressions and other things or like, have you played with this? I'm like for a couple of minutes, you know, and I'm like.
[00:42:10] Guest: Dave Hallwood: That's me in Python.
[00:42:12] Host: Paul Barnhurst: I but I do prefer sleeping. I'm not going to lie. All right. Do you think I will build the models for us in the future?
[00:42:21] Guest: Dave Hallwood: Yes. And that scares me a little bit.
[00:42:23] Host: Paul Barnhurst: You're not alone on that. So our our financial models, the number one corporate decision making tool.
[00:42:31] Guest: Dave Hallwood: I'm going to say no. And I'm going to come back to that one.
[00:42:34] Host: Paul Barnhurst: All right, well, I'm gonna ask you now if you said no, what is. We'll go there now.
[00:42:38] Guest: Dave Hallwood: Gut.
[00:42:39] Host: Paul Barnhurst: Why?
[00:42:40] Guest: Dave Hallwood: Gut feeling? Oh, because decision makers, sometimes they just go by their gut. And I find that a model is usually a go or a no go. But it's not the actual decision making tool.
[00:42:54] Host: Paul Barnhurst: And do you think the gut is a good thing or a bad thing?
[00:42:57] Guest: Dave Hallwood: I think if the person is the right person making the decision, it can be absolutely the right thing.
[00:43:05] Host: Paul Barnhurst: Yeah, it's a tough one right there. There is a balance. I think even as Modeler's, we recognize just because a model says yes, and just because the math makes sense doesn't mean it's always the right decision.
[00:43:18] Guest: Dave Hallwood: No. And there's way more to it than just what the numbers say for sure. I'm probably going to get fired now from being an accountant for saying that, but it is true.
[00:43:25] Host: Paul Barnhurst: I won't fire you. I actually agree with you, but I'm sure there could be a few, so don't put it on your resume. Don't put this episode on.
[00:43:32] Guest: Dave Hallwood: Absolutely. Yeah.
[00:43:33] Host: Paul Barnhurst: All right. What's your lookup function of choice? You got to look something up. What formula are you using?
[00:43:38] Guest: Dave Hallwood: Index and x match. I think that probably ages.
[00:43:41] Host: Paul Barnhurst: You says X match when they say index.
[00:43:44] Guest: Dave Hallwood: Oh, no. I've learned to use the X match because it's brilliant. But I've never got to grips with xlookup because I've never needed to because I learned to use index match. And I'm old now, so that won't change. If I was 20 years younger, I'd have said xlookup, I'm sure.
[00:43:56] Host: Paul Barnhurst: Well, you know, when someone tells me Vlookup, it's usually somebody that learned Excel 2030 years ago and just doesn't want to change. Yeah. And so I get it.
[00:44:06] Guest: Dave Hallwood: You know, or I learn vlookup. Then I saw index and thought, wow, Vlookup is terrible. I'm never touching that again.
[00:44:12] Host: Paul Barnhurst: You know, you could do a lot of things with Vlookup and X match. And even if you use Choose columns now, you can get through nearly every one of the weaknesses of Vlookup, with a few exceptions, but I still wouldn't prefer it. Much easier to use index match or Xlookup.
[00:44:27] Guest: Dave Hallwood: It's so natural, and now you can use it to return a two dimensional array with a single formula. It's brilliant. And I just don't need to do anything else. I know how to do it that well.
[00:44:36] Host: Paul Barnhurst: That's what matters. All right. We're going to wrap up here. So were there any more of those on the rapid fire questions you wanted to elaborate on?
[00:44:47] Guest: Dave Hallwood: Yeah. So just talking about, uh, decision making and why, in our case, specifically, models are usually used as the go or the no go. There are a number of things that we'll put into deciding whether to open or close a store or whether to, you know, bid for an acquisition or whatever it is. And often they're things that can't be modeled. So what brands are going to supply us in that town? What is the staffing like? Do we feel like it's going to be easy to hire the right people? What is the deal on the table from the landlord? And sometimes that not just about numbers, that's about are they investing in the town? Is it owned by the council? Are they letting it get run down? Is it just been bought by someone who's got tens of millions of pounds to invest? So there's lots of things that go into making that decision, and the model will usually tell us the payback and the forecast EBITDA, and that will be a go or a no go. And sometimes the model doesn't look great, but we decide to risk it. And other times I've had the situation where the model looks terrible and I've got my other two creative people saying, yeah, but my gut just says it should work. It should work. I don't know why it doesn't. And you're like, well, look at the numbers. I don't think we should do it. And sometimes we still do it despite what the model says, which is why I don't think it's the actual decision making tool. It's like the sense check, and sometimes it can persuade the person making a gut decision not to do something, and sometimes it can persuade someone who thinks, my gut says it's a bit dodgy, and you go, well, the model says, you can't lose. And you've tried all these scenarios and it looks really, really good. Let's go for it. And we've definitely done that before where we've looked at a deal and gone, do you know what? Yeah, this will be brilliant. This is worth it.
[00:46:21] Host: Paul Barnhurst: I like the way you describe that. And it's just a reminder. There's the human factor and there's the model. You know, I kind of think it is the number one corporate decision making tool, but not in isolation, which kind of gets back to the gut and so many other things. If you're doing it strictly just off the model and always just taking whatever it says, I think you have a problem.
[00:46:39] Guest: Dave Hallwood: Absolutely. Because the world just doesn't run on numbers. I really wish it did, but it doesn't. There's too much more complexity.
[00:46:46] Host: Paul Barnhurst: It's wrong to start with.
[00:46:47] Guest: Dave Hallwood: Yeah, absolutely.
[00:46:49] Host: Paul Barnhurst: You know, and it doesn't include every variable. So it's wrong. It's biased. It's just like a human in certain ways, regardless of how brilliant you build your model.
[00:46:59] Guest: Dave Hallwood: Yes. But if either of my business partners are listening, my numbers are never wrong. Okay?
[00:47:03] Host: Paul Barnhurst: I was waiting for you to say something like that. All right, well, thank you so much for joining me. As we wrap up, if our audience wants to learn more about you or potentially get in touch with you, what would be the best way for them to do that?
[00:47:16] Guest: Dave Hallwood: So you can catch me on LinkedIn or sign up for the FMI and I'll definitely be on their platform.
[00:47:21] Host: Paul Barnhurst: All right. Great. So I know they have their financial modeling community. You can check them out there. Linkedin. I'm sure you can get some advice if you're looking to take the test, but thank you for carving out some time today, Dave. It was a pleasure having you back on the show. I know you joined me for one of the early ones where we talked about your experience with AFM and CFM, but it was fun just having you on the show. So thanks for joining me.
[00:47:44] Guest: Dave Hallwood: Okay, great. Thanks very much.
[00:47:46] Host: Paul Barnhurst: Financial Modeler's Corner was brought to you by the Financial Modeling Institute. This year I completed the Advanced Financial Modeler certification and it made me a better financial modeler. What are you waiting for? Visit FMI at www.fminstitute.com/podcast and use Code Podcast to save 15% when you enroll in one of the accreditations today.