A Finance Horror Story: The Currency Conversion Catastrophe with Lauren Pearl
In this special episode of Financial Modeler's Corner, host Paul Barnhurst is joined by CFO and startup finance educator Lauren Pearl for a storytelling session that’s equal parts funny and terrifying. They walk through “The Currency Catastrophe,” a true finance horror story about a global company, a junior analyst, and a massive mistake involving currency conversions. As the story unfolds, Paul and Lauren react, unpack what went wrong, and share their own war stories from years working in finance.
Lauren Pearl is a CFO, startup advisor, and finance educator who specializes in helping early-stage companies build strong financial foundations. With a career that spans startups, venture-backed firms, and a stint in top-tier management consulting, Lauren brings a unique blend of strategic thinking and practical execution. She's also known for her hands-on approach to teaching financial modeling and startup finance through courses, content, and mentorship.
Expect to Learn:
What happens when you skip currency conversion in a global revenue allocation.
Why getting the basics right is just as important as the big strategy.
How one mistake can ripple across budgets, teams, and trust.
The value of transparency and ownership is when something goes wrong.
Why it’s crucial to put checks in your models, especially when currencies are involved.
Here are a few quotes from the episode:
“The finance department was such a dumpster fire, it created cloud cover for the mistake.” - Lauren Pearl
“Modelers: always put currency checks in your spreadsheets. This stuff happens more than you think.” - Paul Barnhurst
“Apologize and overcorrect. That’s the CFO playbook when you make a mistake.” - Lauren Pearl
Lauren and Paul share a story every finance professional can relate to, a small mistake that snowballs into something much bigger. Whether you’re new to finance or have been around the block, this episode is a reminder of why fundamentals matter and how a little humor can help you get through even the most stressful moments. If you've ever cringed at your own spreadsheet or scrambled to fix a report before a meeting, you'll feel right at home.
Follow Lauren :
LinkedIn - https://www.linkedin.com/in/laurenepearl/
Follow Paul:
Website - https://www.thefpandaguy.com
LinkedIn - https://www.linkedin.com/in/thefpandaguy
YouTube - https://www.youtube.com/@thefpandaguy
Follow Financial Modeler's Corner
LinkedIn Page- https://www.linkedin.com/company/financial-modeler-s-corner/?viewAsMember=true
Newsletter - Subscribe on LinkedIn-https://www.linkedin.com/build-relation/newsletter-follow?entityUrn=7079020077076905984
Sign up for the Advanced Financial Modeler Accreditation Today and receive 15% off by using the special show code ‘Podcast’.
Visit https://bit.ly/3AK5dYo and use the code “Podcast” to save 15% when you register.
In today’s episode:
[00:00] - Trailer
[01:43] - Welcome & Intro to the Horror Story
[03:01] - Meet Lauren Pearl
[06:07] - The Story of the Currency Catastrophe
[09:54] - When Meetings Could Just Be Emails
[13:52] - Accounting Chaos and Rising Tension
[16:59] - The Currency Blunder Uncovered
[20:00] - Why the Mistake Mattered So Much
[24:33] - Quiet Fixes and Avoiding Fallout
[27:34] - Paul’s Own Finance Mishap
[30:13] - Lauren’s Pricing Error
[34:19] - Final Lessons for Modelers
[35:07] - Closing Thoughts
Full Show Transcript
[00:01:43] Host: Paul Barnhurst: Welcome to this special episode of Financial Modeler’s Corner. I am your host, Paul Barnhurst, aka the FP&A Guy. And this week we have a special guest with us where we're going to have a little bit of fun in this episode, so I'm going to take a minute and welcome Lauren Pearl to the show. Lauren, welcome.
[00:02:03] Guest: Lauren Pearl: Hey, Paul, it is so cool to be here with you. I'm so excited for us to do this episode. We've been chatting about this for a couple of months now.
[00:02:11] Host: Paul Barnhurst: Yeah, it's been in the works for a while.
[00:02:14] Guest: Lauren Pearl: Yeah, yeah, yeah. I like to come to you, Paul, with. Hey, I kind of want to do this crazy idea. What do you think? And I was elated that you said yes. So I am super excited today.
[00:02:23] Host: Paul Barnhurst: I'm all for crazy ideas. And, you know, before we get started in this fun episode and explain the details, I just want to take a minute and mention our sponsor of the podcast, Financial Modeling Institute. They offer the most respected accreditations in financial modeling. I did the Advanced Financial Modeler last year, and this year I just signed up to do the Chartered Financial Modeler, so I'll be busy studying for that. Feel free to join me on some of those courses. You could join Lauren and get your certification on that highly sounds great to do it. So there's my plug. Now we'll get back to our regularly scheduled episode. Lauren, before we jump into our episode, how about you tell our audience a little bit about yourself since you're going to be my co-host today?
[00:03:06] Guest: Lauren Pearl: Yeah, definitely. So I'm Lauren Pearl. I am a CFO who works with startups, and I also do a lot of courses and kind of education on startup finance, in particular the tools you use for it, financial modeling, the way to manage a startup, all that kind of universe of things. So that is sort of my world. As a person who's mostly worked in startups and smaller companies, had a brief stint outside of that world in like a more traditional management consulting perspective, but uses that experience to kind of talk about the difference. So for finance professionals looking to get into startups, I am really interested in helping them make that transition and transition and translate those skills into a startup context. So that's me.
[00:03:53] Host: Paul Barnhurst: Well, thank you. And I noticed when you said big companies you did a stint, was that kind of like being in prison? Is that why you used the word stint?
[00:04:00] Guest: Lauren Pearl: Mhm. Can you tell?
[00:04:03] Host: Paul Barnhurst: And how long did this stint last?
[00:04:05] Guest: Lauren Pearl: So my largest company that I worked for was Deloitte Consulting. I worked there for about two years. I did my internship during my MBA there and then continued after the MBA. Often there were a couple of professors at university that used to call management consulting the quote unquote, fellowship years of the MBA. And that is exactly the role that they played for me. Learned a ton, would not return.
[00:04:29] Host: Paul Barnhurst: Yeah, I think that's true. A lot of people, it's like audit for you to get your CPA. Yeah. Most people go to audit for 2 or 3 years, usually about three years. And they're like, all right, I'm done. I want to go do something else. Management consulting is another sometimes investment banking, right. We all see those areas where they're often viewed as a stepping stone. Yeah. Versus a career path. There are people that make a career path. The majority know for sure.
[00:04:54] Guest: Lauren Pearl: Yeah, it's just very high burn. Things move super fast. They're really, really crazy intense demands. I think it's a wonderful thing to do, a bit of a stint in one of those fields when you're especially early on in your career because you learn so fast. But to make a work life balance work in one of those areas is a little tougher. Kind of depends on the individual, I'd say.
[00:05:19] Host: Paul Barnhurst: No, I agree. All right. So I'm going to set the stage for what we're going to do today. This is a special episode where we're going to share what we call kind of a finance horror story, one of those situations exactly that we've all dealt with where everything that could go wrong has gone wrong, or you had a big catastrophe, whatever you want to call it, we have a narrator. We're going to let you listen to it. We're going to pause and discuss it throughout this episode. Like, hey, what do you think about that? What would we do here? So this is just kind of a fun way to mix it up. We'd love to get your feedback and see if you liked this episode. If it's something you think we should keep doing, or you're like, no, you're an idiot. Barnhurst what are you doing? I'm good with all that. I've been called worse.
[00:06:02] Guest: Lauren Pearl: Tell us if we're dumb.
[00:06:04] Host: Paul Barnhurst: All right. We're going to tell you the story of the currency catastrophe. So I'm going to roll the clip here. You're ready. Give me some more music. We're going to roll the clip here. And you tell me whenever you want me to stop and say, hey, let's stop and we'll discuss things and I'll do the same.
[00:06:38] Guest: Lauren Pearl: I will.
[00:06:38] Host: Paul Barnhurst: All right, here we go.
[00:06:40] Narrator: Our story for today. We're calling the currency catastrophe. Names and details have been changed to protect everyone involved except the spreadsheet. That thing knows what it did. Our story starts as many financial horror stories do, under flickering fluorescent lights in a cubicle farm, where the coffee is burnt and the stress is seasonal.
[00:07:08] Guest: Lauren Pearl: Here.
[00:07:09] Host: Paul Barnhurst: When's the last time you were in a cubicle farm?
[00:07:12] Guest: Lauren Pearl: Oh my gosh.
[00:07:13] Guest: Lauren Pearl: The last time I was in a cubicle farm was probably not since my job before business school. I feel like cubicles have kind of gone out of fashion recently. You don't see them really that much anymore. I was working in, like, a b to B, retail company that did kind of like, a lot of pop displays. Um, a lot of, like, plexiglass signage and like, sign stands and that sort of thing. And I had this crazy kind of old school job where I was, like, negotiating imports from China. And it was all based on this technique of the CEO who had this crazy sort of weed like, look up the bills of lading of like, other competitive products to figure out where they were manufactured, and then call the manufacturer and say, we're going to order a millions of dollars. And then they would do orders with us, and we'd like, use Google Shopping to do competitive pricing on them. It was this crazy, scrappy, weird thing. And we were in a cubicle. That was my last time. When was your last time in cubicles?
[00:08:18] Host: Paul Barnhurst: Last time in cubicles would have been 2016. I was still working for American Express at the time.
[00:08:24] Guest: Lauren Pearl: Oh, wow.
[00:08:25] Host: Paul Barnhurst: And I worked from home most of the time. I went into the office about once or twice a month, because I was in a department that was going through a lot of restructuring, and I was like, the last person left in Salt Lake. So I think I had three different bosses in a year, one in London, two in New York, nobody. So I'm like, why go into the office? But that was my last time where I was in a cubicle. After that, I actually got an office in my next job. And how.
[00:08:48] Guest: Lauren Pearl: Fancy.
[00:08:49] Host: Paul Barnhurst: Yeah, exactly. I was fancy for a while. They did remodeling, and I got the old executives office while they were remodeling the other floor. That was kind of fun.
[00:08:57] Guest: Lauren Pearl: Ooh.
[00:08:58] Guest: Lauren Pearl: I think the only time I've ever had a dedicated office, hilariously, was when I was an intern because I interned at this weird place. Or actually, it was brilliant. It was this organization's health organization that did materials to educate people who were sick on the sicknesses that they had so they could make better informed decisions. Lovely organization, fabulous first internship. And someone who was very important had just left. So they put me in their office. It gave me a terrible first expectation of what I would encounter in offices there.
[00:09:36] Host: Paul Barnhurst: I definitely was at a cubicle for my internship. There was no office. I'm not fancy like you there, Lauren.
[00:09:42] Guest: Lauren Pearl: Okay, well, I'm feeling already the stress of this story just from this cubicle, because cubicles to me mean stress, looming horror.
[00:09:53] Host: Paul Barnhurst: All right, let's see what our finance person did. We'll see what modeling tips or other things we can pick up. So let's keep rolling here.
[00:10:00] Narrator: Our traumatized narrator. Let's call him David. David was a manager in FP&A at a massive fortune 500 company, one of those behemoths with global reach and an endless supply of meetings that should have been emails. His job supports revenue forecasts.
[00:10:22] Host: Paul Barnhurst: Right. How many meetings do you have a week? They should be emails.
[00:10:26] Guest: Lauren Pearl: Oh my gosh. Maybe like half of them. You know, the kinds of meetings these days that I have that I wish were emails are in, when you work independently, you have a lot of just open ended networking meetings where you're trying to search for connections that could be helpful, and I wish there were a way to just do that quickly in writing, because that is hard. What about you?
[00:10:51] Host: Paul Barnhurst: Yeah. You know, today, I don't know that I have a lot of meetings that could be done with an email, but two kinds of funny things with that. First, one of my favorite quotes is that it takes a very good meeting to beat. No meeting at all.
[00:11:04] Guest: Lauren Pearl: Mhm. I love that quote. And that's a really good thing to live by.
[00:11:09] Host: Paul Barnhurst: And the second one. So I worked with this lady at a company and she told us previously at a job she had, she had a controller that he had a rule. Okay. If he walked into a meeting and there were more than I think it was 5 or 6 people, he walked out. He refused to attend. He goes, nothing gets done in big meetings. You can just email me the details of what I need to do. And he'd go back to his desk and work.
[00:11:31] Guest: Lauren Pearl: That's wild. Wow. That's really interesting. It's. I actually had a really interesting story in favor of meetings, actually, of big person meetings we are interviewing, Charlie covers the CFO of Cada on a podcast that I co-host, um, the growth minded CFO. And he said that actually Cada has 1 or 2 full all hands meetings for the entire company per week. So that's like a huge time spent in meetings. But I think it also speaks to the value because they work in such a lockstep. There's so much cross-functionality at that company and so much need for context for every person that they've gone hard on those meetings and it seems to be working for them.
[00:12:17] Host: Paul Barnhurst: So I can't see a situation where I would do that. But hey, if it's working for them, more power to them. But I'll pass. So that reminds me, let's.
[00:12:25] Guest: Lauren Pearl: Check.
[00:12:25] Host: Paul Barnhurst: Back in my future. All right. Back to our.
[00:12:28] Guest: Lauren Pearl: Let's see what's going on with David.
[00:12:30] Host: Paul Barnhurst: Let's see what's happening to David.
[00:12:31] Narrator: Cross international markets Russia, the UK, Brazil, Japan, you name it. It had already been a brutal year. The company had outsourced billing and collections overseas and surprise chaos ensued. Payments lost. Invoices.
[00:12:50] Host: Paul Barnhurst: Have you ever seen that happen? You haven't worked with enough, big companies to have outsourced overseas, right?
[00:12:56] Guest: Lauren Pearl: We've definitely worked with outsourced overseas teams because I used to be a developer. Um, so we've worked with external resources.
[00:13:04] Host: Paul Barnhurst: Your previous life.
[00:13:05] Guest: Lauren Pearl: To build software? Yeah, to build software. And even at Deloitte, actually, I did a lot of digital transformation where we'd have developer teams out of India or other countries. So, yeah, and sometimes stuff gets lost in communication. You know.
[00:13:17] Host: Paul Barnhurst: I had one where it was so bad, I finally had we outsourced a billing and it was so bad, I finally had to tell our billing manager that no billing files could be processed till I reviewed them. And we had over thousands of customers. They were all doing it manually. So many bills were wrong and messed up. I mean, it never experienced anything that bad. I was like, I'm head of FEMA. Why am I reviewing every single billing file every month?
[00:13:47] Guest: Lauren Pearl: Yeesh! That is a horror story.
[00:13:49] Host: Paul Barnhurst: It was pretty awful. All right, back to our story.
[00:13:52] Narrator: Invoices misapplied journal entries done in what could only be described as creative interpretations of accounting, began Ron. The team was short staffed, and the tension between the CFO and the head of David's department, let's call him Matt, was so thick you could expense it as a capital asset. But nothing, nothing could prepare David for what happened next.
[00:14:21] Guest: Lauren Pearl: Dun dun.
[00:14:22] Guest: Lauren Pearl: Dun. So what do you think happened next?
[00:14:24] Host: Paul Barnhurst: What could be so terrible? Like, any ideas of what a currency catastrophe would be?
[00:14:29] Guest: Lauren Pearl: Okay, so let's summarize what's happened so far. We know that David works in a cubicle. Stress. We know he works under fluorescent lights. Horrible. We know that he's at a fortune 500 company, so the stakes are high that they're supporting revenues across a bunch of different countries. So I'm already thinking about currencies. So there's maybe some conversion issues. We've got some overseas resources. Maybe that's where things could go. There are a lot of things that could go wrong here. I am stressed.
[00:14:58] Host: Paul Barnhurst: I'm thinking maybe a hedging like one of the currencies collapsed and they didn't hedge against it, like, you know.
[00:15:04] Guest: Lauren Pearl: Hyper inflation or.
[00:15:05] Guest: Lauren Pearl: Something.
[00:15:06] Host: Paul Barnhurst: And he had to try to deal with that. The fallout.
[00:15:10] Guest: Lauren Pearl: Yeah that's a really good guess. That's a really good guess. Maybe. Yeah. It could be that one of them is just completely there's like a run on the market and they've got to deal with it. And money's moving everywhere. And maybe because there's also outsourced resources that's politically challenging to discuss and like to take action on I don't know. There's a lot of things that could go wrong here. I feel like I just need to listen. I can't be, I can't be in this space of unknowing.
[00:15:38] Guest: Lauren Pearl: For too long.
[00:15:38] Host: Paul Barnhurst: Let's go ahead and roll it and see what happens. You let me know when to pause it. Next. Here. Here we go.
[00:15:43] Narrator: One gray Tuesday. Okay. David sat alone in a satellite office in the western US. The glow of his screen was the only light in the room when the call came in. Jessica, a junior analyst based in New York. Super nice. Bright midway through a master's in finance. Hey.
[00:16:04] Guest: Lauren Pearl: Okay. Okay.
[00:16:04] Narrator: Quick question for you for allocating revenue across global markets. Why can't I just add up the amounts in the local currencies column and split things based on that?
[00:16:15] Host: Paul Barnhurst: Bots. Did you hear what was said there? Let's go back and play that one one more time. I'm going to give you the last 10s here.
[00:16:21] Guest: Lauren Pearl: Let's do.
[00:16:21] Guest: Lauren Pearl: It. Let's do it once more.
[00:16:22] Narrator: For allocating revenue across global markets. Why can't I just add up the amounts in the local currencies column and split things based on that?
[00:16:31] Guest: Lauren Pearl: Okay. Okay. So what she's asking is basically the local currency, meaning the currency of the local market. So I'd imagine these are all kinds of different currencies, all different kinds of money. You got the right rubles and rands and pounds and. And why can't I just add all this up? Well, obviously they're, they're all different currencies of money. They're not equivalent. So it would be a weird currency swap. Oh, okay. I see the problem here.
[00:16:59] Host: Paul Barnhurst: You mentioned something about allocating. So let's keep listening and kind of hear a little bit more. But it's dawning on you right. This could be a nightmare. So let's listen a little bit more. See what the real problem is. Then we'll stop it.
[00:17:11] Narrator: Like add the rubles, euros, pounds, pesos and use that total to allocate. Yeah that's what each customer reported. Right. So can't we just use that total? There was a long silence. Was this a prank? Was he being filmed? Was this a trap? Surely someone with a master's in finance should know about currency conversion, right? But no. Jessica was being serious. And so slowly. Carefully. Like explaining electricity to someone holding a fork, he began.
[00:17:56] Host: Paul Barnhurst: What would be your response at this point? Would you be as calm as this person, or would you be like, come again?
[00:18:03] Paul Barnhurst: While my background is in FP&A. I am also passionate about financial modeling. Like many financial Modelers, I was self-taught. Then I discovered the Financial Modeling Institute, the organization that offers the advanced financial modeling program. I am a proud holder of the AFM. Preparing for the AFM exam made me a better modeler. If you want to improve your modeling skills, I recommend the AFM program. Podcast listeners. Save 15% on the AFM program. Just use Code Podcast.
[00:18:43] Guest: Lauren Pearl: So I.
[00:18:45] Guest: Lauren Pearl: Feel like.
[00:18:46] Guest: Lauren Pearl: Especially in the larger company experiences that I've had, there's a lot of sleep deprivation that goes on. And so I feel like when you bump into something boneheaded, you at least I in those situations, tend to try to have a little grace. Because are we all working at full capacity? Maybe. No. Are we all stretched thin? Probably, yes. This, though, it feels like. You know, I'm remembering the little of the data we got at the beginning of. There's a lot of markets that we're managing. This is a fortune 500 company. I feel like the mistake itself, I'm not flabbergasted by. I'm sort of like, well, that was boneheaded, but I am quite worried about the implications of this mistake.
[00:19:36] Guest: Lauren Pearl: I admit I'm a little flabbergasted. It's okay. Go on.
[00:19:40] Host: Paul Barnhurst: That seems pretty basic. This idea. Right. It's like if I'm running a race and someone says, well, how far did you run? Well, I ran 100ft and 200m for a total of 300, and they'd be looking at you like, are you an idiot?
[00:19:57] Guest: Lauren Pearl: You're actually giving like that?
[00:20:00] Host: Paul Barnhurst: I get sleep deprivation and we all make mistakes. I've done some dumb things. I still remember a couple months after I'd had my daughter looking at some of the work I did, and I'm like, wow, this work sucks. I should have fired me because I was so sleep deprived. So we've all done it. So, you know, I'm trying to have some sympathy there. So let's see if this is kind of a one time thing or what it is. But my initial is really nothing very basic. All right, let's see what happens next to poor David and Jessica.
[00:20:31] Narrator: Imagine two countries, Russia and the UK. Russia reports 100,000. The UK reports 10,000 pounds. If you add those together, you get 110,000 pounds. Units of what exactly? It's like saying three feet plus three meters equals six. You can't compare numbers in different units. You have to convert them to a base currency like USD before allocating. There was a long silence on the other end. Then the words that chilled David to the bone. Jessica said in a small voice. Oh no. I've been doing it this way all year.
[00:21:19] Guest: Lauren Pearl: No.
[00:21:19] Narrator: David's soul briefly left his body.
[00:21:25] Host: Paul Barnhurst: So it looks like all the different countries were getting allocated locally. So in other words, countries like Japan, Russia. Yeah, we're getting a disproportionate amount of the revenue.
[00:21:38] Guest: Lauren Pearl: Because their currency is oh my gosh, how would you describe this? Basically, there's more rules than that it would take to make a single US dollar. And so they're over.
[00:21:51] Host: Paul Barnhurst: Correct. They've chosen to make it really low value for each of their units. You know some of that's economy. Some of it's the way they've designed it. It can be both. Whereas you know, others like the British pound is generally seen as a very strong currency against other markets and a low, you know, low conversion or high conversion rate versus those markets. So you could have a very low dollar amount like, you know, that 10,000 GBP could be worth as much or more than the 100,000 rubles, quite a bit more potentially.
[00:22:24] Guest: Lauren Pearl: So Jessica basically just counted all the units of currency that each country represents and has allocated based on the number of units. Unfortunately, the value of each of those units is vastly different. So it's completely bonkers.
[00:22:41] Guest: Lauren Pearl: Yeah.
[00:22:41] Host: Paul Barnhurst: So right.
[00:22:42] Guest: Lauren Pearl: I mean, let's take an example.
[00:22:44] Host: Paul Barnhurst: You give 30% of the revenue to Russia or Japan, you know, some of those currencies when they should have been 3 or 2.
[00:22:50] Guest: Lauren Pearl: Yeah. Yeah.
[00:22:52] Host: Paul Barnhurst: And you give 10% to the UK when maybe it should have been 50 or, you know, whatever. So you could see how big this number would be. And especially if she's doing that for the whole year.
[00:23:03] Guest: Lauren Pearl: Yeah.
[00:23:03] Host: Paul Barnhurst: A big global 500. Someone came to you, you know, and you're the CFO and told you we have a problem. Everything's been misallocated for the entire year and told you this was the reason, and nobody caught it for the year. What would be your response?
[00:23:20] Guest: Lauren Pearl: You're right. Jessica would be gone. And I'd have some explaining to you. You know, the place that my brain goes is how important was that allocation metric to the overall business and to the external shareholders? That's immediately, as a CFO, my brain goes to prioritization and implications for the other, the parties, the different stakeholders. So if this allocation is how I've been deciding my budgets for each of these countries this entire year, that's huge. Folks may have gotten fired on a country that really needed support because they were the main driver of revenue, because they were getting under allocated resources because of this mistake. So that's a huge effect of an error or if I now have to correct it. And external sources are using this allocation to track the performance of my business. When that changes there, I'm losing huge amounts of trust with those stakeholders.
[00:24:20] Guest: Lauren Pearl: So that's.
[00:24:21] Guest: Lauren Pearl: Not good. Depending. Right? It's not clear exactly to me how they're really using this allocation in this company.
[00:24:27] Guest: Lauren Pearl: So let's keep listening.
[00:24:29] Host: Paul Barnhurst: And see what else we can learn here. We got just a little bit longer left okay.
[00:24:33] Narrator: Millions of dollars across 3040 countries allocated using completely nonsense math. David ended the call and sat in stunned silence. He stared at the wall for a second, willing it to become a door to another dimension, then immediately phoned his boss. Matt. We have a problem, he explained. What happened? Matt was floored. I knew she was having a rough year, Matt said, but I had no idea. She didn't know how to convert currencies. Thankfully, as formerly mentioned, the entire finance function was already essentially on fire. Thankfully, she was already knee deep in a financial systems overhaul. So they were able to quietly roll this correction into the broader remediation efforts. No headlines, no firings, just a deep sigh and a stronger internal review process. David still talks about it to this day because in all his years in finance, through recessions, restructurings and restatements, nothing chilled him quite like the curse of the currency conversion.
[00:25:47] Host: Paul Barnhurst: Bad financial models can lead to bad decisions or worse. So, how do you minimize the risk of a bad model? You make sure the models you build are great. The Financial Modeling Institute developed the Advanced Financial Modeler accreditation program to help modelers like you. The AFM program offers a step-by-step approach to building world-class financial models. The program ensures that you know the best practices in model design and structure, and will help you brush up on your Excel and accounting skills to be the one on your team to build great models. If you want to impress your boss and your clients, get AFM accredited. Podcast listeners. Save 15% on the AFM program. Just use Code Podcast at www.fminstitute.com/podcast.
[00:26:52] Host: Paul Barnhurst: All right, that's the end of the story.
[00:26:55] Guest: Lauren Pearl: Yeah.
[00:26:56] Guest: Lauren Pearl: So it sounds hilariously, finance department was so.
[00:27:02] Guest: Lauren Pearl: Messed.
[00:27:02] Guest: Lauren Pearl: Up that that just dumpster fire created cloud cover for this egregious mistake, and it wasn't really a big deal at the end of the day. So lesson learned if you're terrible at finance, go work for a terrible finance department who will make all of your mistakes. Just fade into the background of general chaos.
[00:27:26] Host: Paul Barnhurst: So 11I saw one time, as I remember I had a a company where it came up in an audit.
[00:27:33] Guest: Lauren Pearl: Okay.
[00:27:34] Host: Paul Barnhurst: There was this money every month that was being sent to FCS currency conversion. And the interest said, you're not doing this right. We dug into it and what had been happening was we had Canadian customers. So, you know, foreign currency and their, uh, the contracts they had signed didn't mention what currency the idea was. It would be the US dollar that was mentioned later on that was mentioned. But they were paying us in Canadian. So they were writing off the differences in currency conversion instead of a discount to the cell. And the reason it was not fixed was that they didn't go out and redo all the contracts. Is it was in an environment where there had been a lot of competitive pressure and pricing had come down substantially. So you might have actually earned less if you went out and opened up all the contracts for negotiation.
[00:28:27] Guest: Lauren Pearl: Oh, they were just.
[00:28:28] Host: Paul Barnhurst: Writing out the discount. And the auditor said, no, no, no, that's not currency conversion. You're giving your customers a discount.
[00:28:34] Guest: Lauren Pearl: Yeah yeah yeah yeah yeah. I mean, stuff like this happens all the time. That's even like, I find that the most confusing is when the currencies are literally called the same. And you have to remember, especially with Canadian currency, I often will struggle with this one because it's literally called Canadian dollars, just like US dollars.
[00:28:52] Host: Paul Barnhurst: Australian dollars, Singapore dollars. There's a number of currencies like that.
[00:28:56] Guest: Lauren Pearl: And often the conversion is not too, too far off. It's actually pretty similar, not 1 to 1, but it's more similar than other currencies where the difference is really obvious. So that one's on us. It's funny because as I'm listening to this story, I'm realizing I have also kind of made this mistake. Not this bad and not with these kinds of consequences. But early on in my independent consulting career as a CFO, I was speaking with a company that was introduced to me through a stern classmate, this amazing AI startup out of South Africa that was doing something in the healthcare space. Really, really cool stuff. And they'd already had a bunch of locations. It was a location based startup that had like a facilities, and they already had quite a few of those. And, um, typically when I onboard a client, as a CFO, you have this advantage of sometimes you get to see the numbers beforehand. And so you can help the client know what they can afford. Right? The client tells you they want the moon off of your services. But you can help scope kind of reverse engineering to what, you know, the budget that would make sense would be, uh, so that you don't run them out of business in trying to help them.
[00:30:13] Guest: Lauren Pearl: So I did that with this client. And I look at the books and I'm like, great, this is millions of dollars. They're really prominent. I knew the CEO was also very prominent. And so I figured, wow, this is great. You know, early in my journey and already, you know, the big guys are coming to work with me. And I go ahead and I put together a proposal and I hear nothing. And then when they do come back, they say, you know, it's a little out of our way, we love to work with you, but it's definitely a bit out of our price point. We're not sure we can do it. I'm sort of thinking, like, I press this pretty affordably considering what I know their budget to be like. Maybe I didn't sell my services enough. And then of course, it hit me. All of those books I looked at were in South African rand, not in.
[00:30:57] Guest: Lauren Pearl: Us dollars.
[00:31:00] Guest: Lauren Pearl: And that's like an 18 X difference.
[00:31:03] Guest: Lauren Pearl: So.
[00:31:07] Guest: Lauren Pearl: No fortune 500 Hundred companies were hurt in this,. Mistake. But my own client relationship might have been a little damaged. So I have a couple things. Like currencies. They matter. I think that's like number one, right? Our shining headlines are like currencies. They matter.
[00:31:28] Host: Paul Barnhurst: Currency matters.
[00:31:29] Guest: Lauren Pearl: Number one.
[00:31:31] Guest: Lauren Pearl: There's two others in my mind that I think really stick out. And one is about disclosure, which didn't really come up in here. But it's something that kind of my brain goes to in the CFO seat. And the second would be reviews and checks. So maybe starting on disclosure in this story, it sounded like this person kind of had the cover of an already exploding finance organization that needed a refresh. And so this could kind of go into the pile of a number of mistakes that had been made, in that org and that were being corrected. That said, let's go back to the implications of a mistake like this. Right? There could be impacts on the external stakeholders, impacts on internal folks. People could be watching this number and are going to notice when it suddenly changes. And I think we need to recognize that mistakes happen in financial modeling and in organizations. And when they do, there is a best practice of how to deal with that. And I had a professor, um, at stern, who would talk about the way to react. When you make a big mistake that's public in the market, you apologize and you overcorrect. That's the playbook, right? You come out, you disclose what has happened. You are transparent about that. There was a mistake and it is being corrected. And you apologize, apologize, apologize. And then when you correct, you don't just kind of correct it. Oh, we're fixing it. You really go overboard in expressing how much you are taking this problem seriously and correcting. There's this great.
[00:33:09] Host: Paul Barnhurst: So you don't do what peloton did and blame the parent for the child. The accident with the treadmill.
[00:33:16] Guest: Lauren Pearl: You do.
[00:33:17] Guest: Lauren Pearl: Not. That would be a bad case study.
[00:33:19] Guest: Lauren Pearl: A good case study. What happened?
[00:33:20] Host: Paul Barnhurst: To them? Prime example of how Not to do it.
[00:33:24] Guest: Lauren Pearl: The classic example of how to do it would be a case study of I think it was Tylenol.
[00:33:30] Guest: Lauren Pearl: Tylenol. Yeah, I know the case.
[00:33:32] Guest: Lauren Pearl: Where somebody had tampered with some of the bottles and had injected like a poison into some of the Tylenol capsules, and it had made some people really, really sick. And obviously this wasn't really Tylenol's fault. It was some bad actor tampering with their medicine, but they still took responsibility. They apologized profusely for it happening and they overcorrected. They created safety caps and things to prevent tampering and really took responsibility for this terrible incident, and doing so really deepened the trust in their brand. So these can also be opportunities to build a reputation as a company that accepts that mistakes happen and takes responsibility for them.
[00:34:19] Host: Paul Barnhurst: You know, the thing I would add here, especially for the financial modelers, is you're building a model. Make sure you have your checks for your currency. If you have a process in, hey, is there a check? Is it getting converted to all standards? Does it all make sense? Because we've all made currency mistakes. They happen. If you're dealing with a lot of currencies, I once forecasted the entire country in a wrong currency. Fortunately, it is our smallest market. So nobody cared about that country, but they weren't happy with me. But nonetheless, you know, I used, I think, the euro instead of the Polish kroner or whatever their currency is. So we hope you enjoyed it. If you have a story you think we should feature in the future, let us know. If you think we should do more episodes like this, let us know. No, but thanks for joining us. And Lauren, thanks for being my co-host.
[00:35:06] Guest: Lauren Pearl: Oh yeah.
[00:35:07] Guest: Lauren Pearl: Thanks for doing this. Hopefully folks enjoy it. And please, if you have a horror story, send it to us so we can tell your terrible tales.
[00:35:16] Host: Paul Barnhurst: All righty. And on that note, we'll have some spooky music to take you out. Thank you everybody.
[00:35:22] Guest: Lauren Pearl: Bye, everyone.
[00:35:30] 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.