Go Back

What’s New CFI: Contractor Forecasting & Analysis for FP&A Professionals

June 3, 2024 / 13:39 / E11

In this episode of FinPod, hosts Asim Khan and Duncan McKeen discuss integrating contractors into financial models.

Their conversation covers forecasting and analyzing contractor expenses, from calculating workdays to understanding cash flow timing. Duncan also shares Excel formulas designed for contractor analysis.

Gain insights into the necessity of contractor analysis in financial planning as companies adapt to shifting employment dynamics. Learn how to incorporate contractor functionality into financial models. Whether you’re a seasoned financial analyst or a novice in the field, this episode provides valuable insights and practical tips.


Asim (00:12)
What’s New at CFI podcast. My name is Asim Khan. I’m a subject matter expert and instructor at CFI. I’m joined by my colleague Duncan McKeen, who is also subject matter expert and instructor. Welcome Duncan.

Duncan McKeen, CFA, FMVA (00:25)
Thank you, delighted to be here.

Asim (00:26)
Continuing our series on financial planning and analysis, we’re now talking about Duncan year work and expanding the model to include contractors. We’ve previously discussed model design and then formatting and revenue forecasting. We’ve discussed headcount, forecasting and analysis. And now we’re at contractors. I took the course recently. It’s short, it’s only an hour long. So kudos for you on that.

What can you tell us that’s new in this course and why it was a necessary bolt on to what came before it?

Duncan McKeen, CFA, FMVA (01:00)
Yeah, definitely. There’s definitely quite a few similarities to the previous course on headcount, forecasting, and analysis. Some of the differences here, part of the reason this one is shorter and simpler is with, of course, with contractors, there’s no need to be forecasting or analyzing benefits or bonuses for them. So it definitely simplifies things a little bit. But there’s some small differences that are a little bit nuanced. For example, with the contractor,

especially a contractor where they’re using like a per diem charge to the company, you want to be calculating how many available work days there are in a given period. And it’s not as straightforward as it sounds like in a month with 31 days, for example, you may only have 21 work days because you’re wanting to exclude weekends and public holidays from that count. So.

But thankfully there’s some really interesting formulas in Excel that are designed exactly for that purpose that we introduce in the course.

Asim (01:58)
Can you name a couple while we’re on the subject?

Duncan McKeen, CFA, FMVA (02:02)
I can, but I actually don’t want to, because that’s gonna be one of the challenges in the course and I would literally spoil it for everyone, if I named them. Exactly, that’s right, yeah.

Asim (02:08)
I see, okay. So there’s intrigue in addition to education on this one. Okay, good. Good, excellent. And so the need for this, I presume, is because at least in the States, there’s quite a preponderance of jobs that are basically just kind of contractor jobs where you get the 1099 form and…

There are no benefits, right? No health insurance, no benefits at all. You know, there might be a bonus, who knows, but. So since so much of employment is going in that direction, or is in that place at the moment, is that what kind of propelled the need for a contractor analysis?

Duncan McKeen, CFA, FMVA (02:47)
Yeah, and it’s certainly a trend that we’re seeing, and it’s a very valid point. We definitely wanted to put in the functionality for forecasting employees and contractors as well, from a learning perspective, so that the people taking the courses could learn the different nuances of the two courses. And also, they can be different from a cashflow timing perspective as well.

With company employees, you would have accrued benefits charges that would generally be going out at the same time as the costs associated with those employees. But then, of course, the bonus payouts can be very, very different timing from a cash flow perspective. And then with contractors, you might see something like just net 30-day payments. So generally, getting paid the month after the work was completed

be fairly standard for contractors. So we wanted to just introduce those two and have them both in the course, but we definitely are seeing more companies using contractors more.

Asim (03:48)
And so for instance, kind of a live case, we had a large corporate client and they said, we don’t need the contractor bit, right? This was before we had rolled the course out and I hadn’t known it was envisioned to have all of this in one Excel file, one model. And a company that doesn’t need that functionality,

Duncan McKeen, CFA, FMVA (04:00)

Asim (04:10)
doesn’t really have to use it, you can just leave that whole bit of the model blank, right, and just use the

Duncan McKeen, CFA, FMVA (04:15)
Exactly. I mean, yeah, if you, if you thought you may use it at some point in the future, you’d want to just zero it out, but leave all of the functionality and the formulas in place. If you knew with certainty, you wouldn’t be using it, then you could literally just delete those rows out of the appropriate tabs in the model pretty easily.

Asim (04:31)
Okay, great. Well, it was a good course. It was short. It was to the point. And it enhances what went before. So thanks for joining us today. And we’ll see you next time when we discuss debt and capex modeling. Thank you, Duncan.

Duncan McKeen, CFA, FMVA (04:48)
You’re welcome. Thanks, Asim.

0 search results for ‘