Financial Modeling Education

Financial Modeling Courses for Investment Banking, Private Equity, and FP&A.

Founder

Mission Capital Consulting

Leesa Sleep

Board Member

TitleCard Capital Group, LLC

Vice President

Lariat Partners, LP

Associate

Hilton

Senior Analyst

FTI Consulting

Consultant

👇50% off all Financial Modeling Courses this week only.

Ever found yourself facing a last-minute request to build a financial model, feeling so overwhelmed you literally couldn’t think straight?  Then read this 👇

I've been there.  I remember EXACTLY how it feels, and it 𝘴𝘶𝘤𝘬𝘴.

After being up until 2am the previous night, I had my head in my hands at a Colorado Rockies’ game, so insanely overwhelmed because I felt unprepared building a financial model.

Today, I can build in 2 𝘩𝘰𝘶𝘳𝘴 what used to take me 𝘸𝘦𝘦𝘬𝘴, and it’s definitely 𝘯𝘰𝘵 because I’m smarter, it’s because... 𝗜 𝗞𝗻𝗼𝘄 𝗪𝗵𝗮𝘁 𝘁𝗼 𝗗𝗼.

What most people don’t realize is that Financial Modeling can be broken down in systematic steps you can repeat every time, so you’re not always recreating the wheel from scratch.

So that’s why I created the 𝗨𝗹𝘁𝗶𝗺𝗮𝘁𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝗠𝗮𝘀𝘁𝗲𝗿𝘆 𝗣𝗿𝗼𝗴𝗿𝗮𝗺: teach everything I 𝘸𝘪𝘴𝘩 I knew back then—𝙖 𝙥𝙡𝙖𝙮𝙗𝙤𝙤𝙠—to hopefully save just one Analyst from spending all weekend at the office.

Fast forward, here’s what things look like today:

🏆 Trusted by over 43,000 students with 4.9/5.0 Star average rating

🏆 Over 100,000 followers on LinkedIn & other social media platforms

🏆 Recognized by Business Insider and Financial Modeling World Cup

🏆 Featured by Wharton Online, Wall Street Prep, & LinkedIn Learning

In just 8 hours, you'll learn to build the 𝘦𝘹𝘢𝘤𝘵 Financial Models I use with real Investment Banks, FP&A Teams, and Private Equity Firms—models you can use immediately—no fluff or insufferable corporate jargon.

Enroll today, and make sure you never spend another night, weekend (or vacation) burned out at the office 👉 https://www.financialmodelingeducation.com/

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All my Private Equity posts in one massive list.

(save this post🔖) 👇



Private Equity is difficult to break into, but the underlying concepts are not as complicated as people think.

To that end, here's nearly everything I've learned on the job (mostly the hard way) grouped into one massive list for your reference.


1. All the steps of going through a deal:
https://bit.ly/3tub2Wd

2. How I learned FP&A in Private Equity:
https://bit.ly/3vlxTUx

3. How the grocery store teaches you Sources & Uses
https://bit.ly/3RGEUqs

4. Due Diligence roadmap:
https://bit.ly/3RGS7zp

5. Adjusted EBITDA cheat sheet:
https://bit.ly/3TKTzDv

6. Modeling pro forma EBITDA Adjustments:
https://bit.ly/3tIM31e

7. Visualizing a private equity waterfall:
https://bit.ly/3TFedoB

8. Waterfall video:
https://bit.ly/3RLRyUW

9. Modeling the pro forma Balance Sheet:
https://bit.ly/3S2173v

10. The 4 Phases of a Private Equity fund:
https://bit.ly/3RK24Mt

11. A sample Quality of Earnings (QofE) Report:
https://bit.ly/48xslFb

12. Visualizing a LBO:
https://bit.ly/3TMw8Kc

13. Presenting a consolidation:
https://bit.ly/3S1Pqtv

14. Gantt chart of due diligence:
https://bit.ly/3REZ8Rn

15. A detailed waterfall:
https://bit.ly/3S3fDYI

16. Best qualities of a PE Associate:
https://bit.ly/3TMw9he

17. Sample interview question:
https://bit.ly/3TMw9Og

18. How does someone in PE make money?
https://bit.ly/3S0LBF6

19. Reading a banking teaser:
https://bit.ly/3TL53XQ

20. The dark side of Private Equity:
https://bit.ly/3RMfmb8

💥𝗕𝗼𝗻𝘂𝘀: CFO checklist if you might be acquired:
https://bit.ly/3TM4a18



~~~

👋 Hey, I'm Chris Reilly.

🟢 I can help you become the go-to Financial Modeler in only 8 hours.

⏩ https://bit.ly/FMECourses

Chris Reilly

I can help you master Financial Modeling.

Even managing partners mess this up!

A private equity waterfall with all the details 👇


~~~
📌 𝗥𝗲𝘀𝗼𝘂𝗿𝗰𝗲: help with an LBO Model 👉 https://lnkd.in/efD2wcJF 
~~~


𝗘𝗻𝘁𝗲𝗿𝗽𝗿𝗶𝘀𝗲 𝗩𝗮𝗹𝘂𝗲 (𝗘𝗩):

aka the value of the company for sale.

Typically calculated using TTM EBITDA multiplied by a "market multiple"

(in this example it was $5.5m x 6.5x (not shown) = ~$35.75m EV)


(+) 𝗖𝗮𝘀𝗵:

We 𝘢𝘥𝘥 the Cash to the EV b/c the Seller gets to keep any cash at closing.

Why? Cash reflects value the Seller has created in the 𝘱𝘢𝘴𝘵.

So, it's theirs to keep (not the new buyer's)


(-) 𝗦𝗲𝗻𝗶𝗼𝗿:

Now we start to pay down debt.

Just like the value of a house, your "equity" is what's 𝘭𝘦𝘧𝘵𝘰𝘷𝘦𝘳 after you pay the mortgage.

In this waterfall, the Senior Debt has "priority" so it's paid down 1st.


(-) 𝗠𝗲𝘇𝘇:

"Mezz" is short for "Mezzanine" -- another type of debt.

In this waterfall, the Mezz is "junior" to the Senior Debt, so it's paid down 2nd.


= 𝗘𝗾𝘂𝗶𝘁𝘆 𝗩𝗮𝗹𝘂𝗲:

All of our debt obligations have been paid.

So now, we have "Equity Value," or what's leftover to be distributed to equity holders.


(-) 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗥𝗼𝗖:

"RoC" = "Return of Capital"

Often times certain investors in the deal will hold "Preferred Equity"

All this means is these investors are paid out first 𝘣𝘦𝘧𝘰𝘳𝘦 any Common proceeds

(but after debt)


(-) 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗗𝗶𝘃:

This is a "dividend" that is associated with holding "Preferred Equity."

Not only do these investors get their capital out first (above),

they 𝘢𝘭𝘴𝘰 get something called a "Preferred Dividend" on top of their investment.

This is often called the "hurdle" b/c it must be "cleared" before proceeds go to Common.


(-) 𝗦𝗽𝗼𝗻𝘀𝗼𝗿 𝗖𝗮𝘁𝗰𝗵-𝘂𝗽

Now that investors have received all their capital + a preferred dividend, it's time for the PE firm to get their share, or "catch-up" to what has already been distributed.

In an 80/20 split, the investor dividend (up to this point) = 80% of the proceeds so far, and the "catch-up" is the other 20%.


= 𝗖𝗼𝗺𝗺𝗼𝗻 𝗩𝗮𝗹𝘂𝗲:

Finally, we've reached the Common Shareholders.

This is everything that is leftover after all other obligations have been paid.

Under this deal, the remaining proceeds get split 80/20 to Investors/PE firm.

⚠️ Double-check: investors should get 80% of gain, PE firm should get 20% of gain.


𝗧𝗿𝗮𝗱𝗲-𝗼𝗳𝗳𝘀:

Senior Debt paid out first = lowest risk, lowest return

Common equity paid out last = higher risk, highest return (in theory)

*Final Note: The "deal returns" shown here reflect the distribution from a specific transaction, whereas "investor returns" also account for management fees paid at the "fund level," which cover operational expenses and impact the overall net returns seen by the investors.



💡 𝗛𝗼𝘄 𝗜 𝗰𝗮𝗻 𝗵𝗲𝗹𝗽:

I’m Chris Reilly -- I simplify financial modeling.

⏩ https://bit.ly/FMECourses

In my first Private Equity deal I was so overwhelmed.

So I built this 𝗚𝗮𝗻𝘁𝘁 𝗖𝗵𝗮𝗿𝘁 if you're feeling the same way 👇


~~~
📌𝗧𝗟;𝗗𝗥: download the chart here 👉 https://lnkd.in/eDJqaFfR 
~~~


Still reading?

Here are the usual steps (adjust template as needed).


𝟭. 𝗥𝗲𝘃𝗶𝗲𝘄 𝘁𝗵𝗲 𝗜𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗧𝗲𝗮𝘀𝗲𝗿

Examine the initial pitch highlighting the company's value proposition.


𝟮. 𝗦𝗶𝗴𝗻 𝗡𝗗𝗔

Protect sensitive information with a Non-Disclosure Agreement.


𝟯. 𝗥𝗲𝘃𝗶𝗲𝘄 𝗖𝗜𝗠

Analyze the Confidential Information Memorandum for key business insights.


𝟰. 𝗕𝘂𝗶𝗹𝗱 & 𝗠𝗮𝗻𝗮𝗴𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹

Create and maintain a financial model to assess the deal's viability.


𝟱. 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗠𝗮𝗿𝗸𝗲𝘁 𝗢𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆

Determine the growth potential within the target industry.


𝟲. 𝗖𝘂𝗹𝘁𝘂𝗿𝗮𝗹 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲

Assess company culture compatibility for integration.


𝟳. 𝗦𝘂𝗯𝗺𝗶𝘁 𝗜𝗢𝗜 / 𝗟𝗢𝗜

Express acquisition interest with an Indication of Interest or Letter of Intent.


𝟴. 𝗖𝗼𝗻𝗱𝘂𝗰𝘁 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗠𝗲𝗲𝘁𝗶𝗻𝗴𝘀

Engage in discussions with the target company's leadership.


𝟵. 𝗖𝗼𝗻𝗱𝘂𝗰𝘁 𝗤𝘂𝗮𝗹𝗶𝘁𝘆 𝗼𝗳 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 (𝗤𝗼𝗳𝗘) 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀

Examine the consistency and quality of the company's earnings.


𝟭𝟬. 𝗖𝗼𝗻𝗱𝘂𝗰𝘁 𝗖𝗼𝗺𝗺𝗲𝗿𝗰𝗶𝗮𝗹 𝗗𝘂𝗲 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲

Validate the target's market position and competitive advantage.


𝟭𝟭. 𝗦𝗼𝘂𝗿𝗰𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴

Secure necessary funding to execute the acquisition.


𝟭𝟮. 𝗔𝘀𝘀𝗲𝘀𝘀 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝗮𝗻𝗱 𝗧𝗲𝗰𝗵𝗻𝗼𝗹𝗼𝗴𝘆 𝗥𝗶𝘀𝗸𝘀

Evaluate potential risks in operations and technology.


𝟭𝟯. 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗘𝗦𝗚 𝗙𝗮𝗰𝘁𝗼𝗿𝘀

Consider the company's environmental, social, and governance performance.


𝟭𝟰. 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗧𝗲𝗮𝗺 𝗮𝗻𝗱 𝗛𝗥

Assess the competence and fit of the company's leadership and employees.


𝟭𝟱. 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗟𝗲𝗴𝗮𝗹 𝗮𝗻𝗱 𝗥𝗲𝗴𝘂𝗹𝗮𝘁𝗼𝗿𝘆 𝗖𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲

Verify adherence to relevant laws and regulations.


𝟭𝟲. 𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝗮𝗻𝗱 𝗦𝘂𝗽𝗽𝗹𝗶𝗲𝗿 𝗗𝘂𝗲 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲

Examine key relationships for potential risks and synergies.


𝟭𝟳. 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗣𝗼𝘀𝘁-𝗠𝗲𝗿𝗴𝗲𝗿 𝗜𝗻𝘁𝗲𝗴𝗿𝗮𝘁𝗶𝗼𝗻

Plan for a smooth and efficient post-acquisition transition.


𝟭𝟴. 𝗙𝗶𝗻𝗮𝗹𝗶𝘇𝗲 𝘁𝗵𝗲 𝗗𝗲𝗮𝗹 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲 & 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴

Finalize terms, financing, and overall deal structure.


𝟭𝟵. 𝗖𝗹𝗼𝘀𝗲 𝘁𝗵𝗲 𝗗𝗲𝗮𝗹

Complete the acquisition and begin the integration process.


💡𝗡𝗢𝗧𝗘: I get this won't cover everything, so adjust the template as needed.



~~~

👋 Hey! I'm Chris Reilly.

🟢 I can help you become the go-to Financial Modeler in only 8 hours.

⏩ https://bit.ly/FMECourses

2 ways to model AP without making your model insanely complex...👇


~~~
📌𝗧𝗼𝗱𝗮𝘆'𝘀 𝗔𝗻𝗻𝗼𝘂𝗻𝗰𝗲𝗺𝗲𝗻𝘁: Balance Sheet won't balance? Use this guide 👉 https://lnkd.in/ew4nwaVx 
~~~


"𝗖𝗹𝗮𝘀𝘀𝗶𝗰 𝗠𝗲𝘁𝗵𝗼𝗱" 𝘂𝘀𝗶𝗻𝗴 𝗗𝗣𝗢

Btw, "DPO" stands for "Days Payable Outstanding."

1. Refer to historical COGS and AP balance to calculate the DPO

2. Carry the DPO forward as your assumption

3. Calculate the new AP balance based on Cost of Goods and DPO

This approach is "most traditionally" taught in educational circles and the one I use most often since P&L information is typically limited, and you're just solving for something directionally correct for cash purposes.

(You can also use Operating Expenses instead of Cost of Goods if you'd like, just make sure you're using OpEx in the forecast as well)


"𝗣𝗮𝘆𝗺𝗲𝗻𝘁 𝗧𝗲𝗿𝗺𝘀" 𝗠𝗲𝘁𝗵𝗼𝗱

1. Direct link to inventory purchases (from inventory schedule)

2. Model a "payment terms" assumption (i.e., 2 months)

3. Calculate Accounts Payable based on:

Beginning Balance
+ Purchases
- Cash Payments
Ending Balance

I prefer to use this method when possible because it's much easier to audit, but often times may not have access to the level of detail I need to build the schedule effectively because you also need an inventory schedule.

Important to note: this method is great for forecasting, but you won't get much when it comes to actuals, so just keep that in mind.

Btw, this layout is often called "BASE" (Beginning, Addition, Subtraction, End) or "Corkscrew," because it rolls forward each month like a corkscrew.



~~~

👋 Hey, I'm Chris Reilly.

🟢 I can help you master Financial Modeling in just 8 hours.

⏩ https://bit.ly/FMECourses

If you want to avoid updating your budget at 11pm the night before it's due, don't forget this 👇


~~~
📌𝗧𝗟;𝗗𝗥: template here 👉 https://lnkd.in/e75jhi3d 
~~~


My favorite part about the budgeting process:

It's late October... Revenue and EBITDA look good,

you're about to hit submit, and then from the shadows someone yells,

"𝙬𝙖𝙞𝙩, 𝙬𝙝𝙖𝙩 𝙖𝙗𝙤𝙪𝙩 𝙘𝙖𝙥𝙚𝙭?"

Everyone looks around and then the "ohhh whoops" feeling sets in.

We forgot capex. Completely.

Why? It's not part of the P&L so it often gets overlooked until the end.

The truth is --

Capital Expenditures or "𝗖𝗮𝗽𝗲𝘅" 𝗶𝘀 𝗶𝘁𝘀 𝗼𝘄𝗻 𝘀𝗲𝗽𝗮𝗿𝗮𝘁𝗲 𝗯𝘂𝗱𝗴𝗲𝘁.

It just happens to hit the Balance Sheet instead of the P&L.



There's good news, however -- it's actually a fairly easy process.

But first, what is "capex"?

Capex is cash we 𝘀𝗽𝗲𝗻𝗱 𝘁𝗼𝗱𝗮𝘆 (to acquire an asset) that benefits us 𝗶𝗻 𝘁𝗵𝗲 𝗳𝘂𝘁𝘂𝗿𝗲.

We depreciate the 𝗰𝗼𝘀𝘁 in the future to satisfy the "Matching Principle."

Why depreciate?

If I buy a delivery truck, that truck will help me generate Revenue over the next ~8 years or so (by making deliveries).

So, I need to "match" its cost against the Revenue it helps generate.



With that in mind, here's how we can build it:

Look at the image below...

I've got two identical sections that do slightly different things.

The first is the "capex" section, and this is where I list the project and its cost.

So for the first entry, I'm saying, "I'd like to buy a $75,000 truck in Feb. of 2027 and I think it will last me 8 years (the "useful life")."

And you can see over to the right the 𝗰𝗮𝘀𝗵 𝗶𝗺𝗽𝗮𝗰𝘁 -- $75,000 goes out in Feb. of 2027.



Now, the second section:

You can see that same new truck is listed at the top, but over to the right it's different...

In Feb. 2027 you see $781 that continues monthly.

That is the 𝗱𝗲𝗽𝗿𝗲𝗰𝗶𝗮𝘁𝗶𝗼𝗻 = $75,000 / 8 years / 12 months = $781 per month.

Effectively, the depreciation makes an accounting adjustment to my cash cost so that the expense of the asset 𝙢𝙖𝙩𝙘𝙝𝙚𝙨 the Revenue it helps create.



From there, it's a link-up to my Three Statement Model:

✓ (1) Capex links to the Fixed Asset account like this: Prior Period balance 𝘱𝘭𝘶𝘴 the new Capex

(if done correctly, I should see the $75,000 in the Cash Flow Statement)


✓ (2) Depreciation links to my Income Statement, and;


✓ (3) it gets captured on my Balance Sheet in Accumulated Depreciation: Prior Period balance 𝘱𝘭𝘶𝘴 the new Depreciation

(if done correctly, this will zero out any "cash impact" of Depreciation in my Cash Flow Statement)



The net impact of it all?

Cash out the door today, but with the correct accounting treatment depreciating the cost in the future 👍



~~~

👋 Hey! I'm Chris Reilly.

🟢 I can help you master Financial Modeling in just 8 hours.

⏩ https://bit.ly/FMECourses

One of my favorite things about Excel...

(hint: it's 𝙣𝙤𝙩 LET, LAMBDA, VBA, or XLOOKUP) 👇

Excel enables you to create accounting concepts that are hard to visualize in the classroom, but make sense on paper.

For example, here's the relationship between Revenue and Accounts Receivable

(and it's not as complicated as you might think...)


~~~
📌 𝗕𝘁𝘄: Balance Sheet busted? Try this 👉 https://lnkd.in/ew4nwaVx
~~~


𝟭. 𝗥𝗲𝗰𝗼𝗴𝗻𝗶𝘇𝗲 𝗥𝗲𝘃𝗲𝗻𝘂𝗲

The Revenue is recognized on the Income Statement when it is 𝘦𝘢𝘳𝘯𝘦𝘥.

Remember, "earned" and "cash" are different things.

(I can 𝙚𝙖𝙧𝙣 1 hour of Consulting work, but I won't be 𝙥𝙖𝙞𝙙 𝙞𝙣 𝙘𝙖𝙨𝙝 until later)



𝟮. 𝗥𝗲𝗰𝗼𝗿𝗱 𝗥𝗲𝗰𝗲𝗶𝘃𝗮𝗯𝗹𝗲

The Revenue I just earned needs to be recorded as a receivable in AR.

The AR account helps me keep track of what I've earned but haven't been paid yet.



𝟯. 𝗖𝗼𝗹𝗹𝗲𝗰𝘁 𝗥𝗲𝗰𝗲𝗶𝘃𝗮𝗯𝗹𝗲

Once I've actually received the cash for the work I've earned, I'll reduce my AR.

(because I'm not waiting on it anymore)

Modeling-wise, I used the OFFSET function here and asked my model to "delay" payment for one month after it was earned.

Using OFFSET like this allows me to change the collection delay as needed.

(also, note my DSO at the very bottom -- it's equal to 30 days because I'm using a one month delay)

~~~
💡 𝗣𝗿𝗼 𝗧𝗶𝗽: Make sure someone at the company is 𝙖𝙘𝙩𝙞𝙫𝙚𝙡𝙮 monitoring the AR Aging Schedule and calling customers who are overdue.  It's amazing how much this simple tip can improve cash flow (and how few companies actually do it).
~~~



𝟰. 𝗦𝗲𝗲 𝘁𝗵𝗲 𝗖𝗮𝘀𝗵

Once I've reduced AR, you can see the cash actually coming into the business through the Statement of Cash Flows.

This ultimately translates my accrual based business into a cash flow forecast I can use for planning purposes.



𝗧𝗟;𝗗𝗥:

1) Earn.

2) Record.

3) Collect.



~~~

👋 Hey, I'm Chris Reilly.

🟢 I can help you become the go-to Financial Modeler in only 8 hours.

⏩ https://bit.ly/FMECourses

Do you use the mouse?  You'll never succeed in financial modeling.



Actually.  NO.

Agree to disagree.

This is one refrain I hear in the modeling world all the time.

You're not "good" unless you can zip around a spreadsheet using only shortcut keys.

"𝘔𝘺 𝘮𝘢𝘯𝘢𝘨𝘦𝘳 𝘶𝘴𝘦𝘥 𝘵𝘰 𝘥𝘪𝘴𝘤𝘰𝘯𝘯𝘦𝘤𝘵 𝘵𝘩𝘦 𝘮𝘰𝘶𝘴𝘦 𝘧𝘳𝘰𝘮 𝘮𝘺 𝘤𝘰𝘮𝘱𝘶𝘵𝘦𝘳."

(You get the idea)

~~~
📌 𝗯𝘁𝘄: building a model?  This checklist can help 👉 https://lnkd.in/eVTU67fY 
~~~



Now, don't get me wrong, shortcut keys are huge time savers.

I probably use them 85-90% of the time.

But, 𝗜 𝘂𝘀𝗲 𝘁𝗵𝗲 𝗺𝗼𝘂𝘀𝗲 all the time too.

Yes, there, I said it.



In fact, sometimes I find the mouse 𝘧𝘢𝘴𝘵𝘦𝘳 than shortcut keys.

One example: selecting multiple/non-adjacent criteria in a formula.

Scrolling the screen with your mouse while holding the Ctrl key is much faster than flying all over the place with Ctrl ↑ ↓ → ←.



Now, I'm not going to list all the examples because 𝘁𝗵𝗮𝘁'𝘀 𝗻𝗼𝘁 𝘁𝗵𝗲 𝗽𝗼𝗶𝗻𝘁.

Everyone's got their own style and preferences.

My point is: "using the mouse" (or not) is a 𝗺𝗶𝘀𝗹𝗲𝗮𝗱𝗶𝗻𝗴 𝗯𝗲𝗻𝗰𝗵𝗺𝗮𝗿𝗸 𝗼𝗳 𝘆𝗼𝘂𝗿 𝘀𝗸𝗶𝗹𝗹𝘀.

💡𝗛𝗲𝗿𝗲'𝘀 𝘁𝗵𝗲 𝗼𝗻𝗹𝘆 𝘁𝗵𝗶𝗻𝗴 𝘁𝗵𝗮𝘁 𝗿𝗲𝗮𝗹𝗹𝘆 𝗺𝗮𝘁𝘁𝗲𝗿𝘀: Is the model accurate enough to help me decide what to do next to grow the business?



We often let the tool obstruct the result.

In truth, it doesn't matter how you got there.

Shortcut keys or the mouse.

You just need to know what to do next.

(and that happens 𝙤𝙪𝙩𝙨𝙞𝙙𝙚 your spreadsheet).

So go ahead:

↳ Use VLOOKUP
↳ Hardcode some things
↳ And most importantly, click away 🖱️.



~~~

👋 Hey, I'm Chris Reilly.

🟢 I can help you become the go-to Financial Modeler in only 8 hours.

⏩ https://bit.ly/FMECourses

See how the COGS and Inventory Relationship impacts your Financial Model 👇


~~~
📌𝗕𝘁𝘄: the Balance Sheet can be tricky -- grab a guide here 👉 https://lnkd.in/ew4nwaVx 
~~~


✔️ 𝟭. 𝗥𝗲𝗰𝗼𝗿𝗱 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 (𝗶𝗻 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆)

The company records a purchase of inventory when the goods are received.

𝗡𝗼𝘁𝗲: a company usually records an inventory purchase when the inventory is received and a legal obligation to pay is established, which follows the accrual basis of accounting, which records transactions when earned or incurred, not when cash changes hands.



✔️ 𝟮. 𝗥𝗲𝗰𝗼𝗿𝗱 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 (𝗶𝗻 𝗔𝗣)

The company records that same inventory purchase as a liability in Accounts Payable.

This is because the company still owes payment to its supplier.



✔️ 𝟯. 𝗣𝗮𝘆 𝗦𝘂𝗽𝗽𝗹𝗶𝗲𝗿

When the bill for the inventory is due, the company pays the supplier in cash.

This reduces the Accounts Payable balance and $1,000 of cash leaves the business (in this example).



✔️ 𝟰. 𝗥𝗲𝗱𝘂𝗰𝗲 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆

Once the product is sold to a customer, then the company removes the purchase from the Inventory account and records it as COGS.

They are removing the 𝗖𝗼𝘀𝘁 of something they have now 𝗦𝗼𝗹𝗱 (COGS).

Revenue does not impact either of these schedules, rather, it is reflected in Accounts Receivable.



❌ 𝗖𝗼𝗺𝗺𝗼𝗻 𝗠𝗶𝘀𝘁𝗮𝗸𝗲𝘀 𝘁𝗼 𝗔𝘃𝗼𝗶𝗱

𝗢𝘃𝗲𝗿𝗹𝗼𝗼𝗸𝗶𝗻𝗴 𝗖𝗼𝘀𝘁𝘀: Don’t forget to include all costs (like shipping) in your Inventory.

𝗠𝗶𝘀𝗮𝗹𝗶𝗴𝗻𝗶𝗻𝗴 𝗣𝗮𝘆𝗺𝗲𝗻𝘁𝘀: Make sure you manage your cash based on when payments are due.

𝗜𝗴𝗻𝗼𝗿𝗶𝗻𝗴 𝗧𝘂𝗿𝗻𝗼𝘃𝗲𝗿: Keep an eye on how quickly your inventory is sold and replaced.



🔁 𝗜𝗻 𝗦𝘂𝗺𝗺𝗮𝗿𝘆

The relationship between Accounts Payable and Inventory is established through the purchase and payment process.

As the company acquires Inventory, it records the corresponding liability in Accounts Payable.

The balance is settled when the company pays its supplier, demonstrating the interconnected nature of these two accounts.



💡 𝗡𝗼𝘁𝗲 𝗮𝗯𝗼𝘂𝘁 𝗖𝗢𝗚𝗠

While the above steps outline the basic process for non-manufacturing businesses, in a manufacturing business, there's an additional step: the Cost of Goods Manufactured (COGM).

COGM includes not only the cost of raw materials but also direct labor and manufacturing overhead costs.

These costs are added to the inventory value as they contribute to the process of bringing the inventory to a sellable state, even though they are not part of the physical inventory itself.



~~~

👋 Hey! I'm Chris Reilly.

🟢 I can help you master Financial Modeling in only 8 hours.

⏩ https://bit.ly/FMECourses

Tfw you figure out the Balance Sheet...




One of the best moments in sports history!

(I'm biased)

I'm alluding to the "indirect method" in this video, which is the process used to build the cash flow statement in a three statement model.

If you're 𝗻𝗼𝘁 familiar with that, I can help you ⏩ https://bit.ly/FMECourses

EBITDA is the worst thing that exists in Finance.



Actually, wait.  Let's hold up for a minute...

Love it or hate it, Adjusted EBITDA is a common metric used in the FP&A and Private Equity world to calculate the normalized profitability of a company, so that (1) it can be compared to others and (2) serves as a basis for valuation.

It's 𝗻𝗼𝘁 𝗰𝗮𝘀𝗵.

But, it's also 𝙣𝙤𝙩 𝙬𝙤𝙧𝙩𝙝𝙡𝙚𝙨𝙨.

So, what adjustments are fair?

Unreasonable?

Totally absurd?

Here's an answer you'll love: "It depends."



Because EBITDA is 𝙣𝙤𝙩 part of GAAP, every single adjustment is 𝗱𝗶𝘀𝗰𝗿𝗲𝘁𝗶𝗼𝗻𝗮𝗿𝘆 and 𝘀𝘂𝗯𝗷𝗲𝗰𝘁𝗶𝘃𝗲, and therefore must be scrutinized by both buyer and seller to determine whether or not it is "reasonable."

So rather than saying EBITDA is the worst thing on earth...

In the article below, I've put together a detailed walkthrough of how a company might propose and defend its EBITDA adjustments, and what a potential buyer might have to say in return.

(similar to how things might go in the early days of a M&A transaction)

It's too long for a social media post so I've linked to it below.



~~~

👋 Hey! I'm Chris Reilly.

🟢 I can help you become the go-to Financial Modeler in just 8 hours.

⏩ https://bit.ly/FMECourses

Open article: What's With These EBITDA Adjustments? by bit.ly

So simple: this personal finance hack will make you a better modeler 👇



🎯 𝗠𝗼𝗱𝗲𝗹 𝘆𝗼𝘂𝗿 𝗼𝘄𝗻 𝗹𝗶𝗳𝗲.


In "business modeling" there's always a learning curve...

▪️ Manufacturing? gotta learn it

▪️ SaaS? gotta learn that too

▪️ Insurance? you get the idea

With your life, there's no learning curve (theoretically).



So open a spreadsheet...

Put some months along the top.

And some line items down the left side like:

   ▪️ Paycheck

   ▪️ Rent

   ▪️ Utilities

   ▪️ Groceries

   ▪️ Travel

   ▪️ Discretionary (having fun)


Can you fill out something for each month?

✔️ Nice work! You've built a 𝗕𝘂𝗱𝗴𝗲𝘁.



Now, check it again next month (or next week)...

Are the numbers different than what you estimated?

If so, update them -- how did things change?

✔️ Congrats! You've built a 𝗥𝗼𝗹𝗹𝗶𝗻𝗴 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁.



Now what about cash?

When is Rent due?  When is your Paycheck coming in?

Open another tab, but this time put weeks (or days) on the top.

Put the same line items down the left side.

Put "Beginning Cash" at the top and "Ending Cash" at the bottom.

Punch in 𝘦𝘹𝘢𝘤𝘵𝘭𝘺 when your Paycheck comes in and your bills go out.

Do you have enough cash to cover your costs (in the short term)?

✔️ Congrats! You've built a 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁.

(p.s., here's a free template to help you start 👉 https://lnkd.in/edmwgYCv)



Last thing, if you could only open your file for 2 minutes...

What key things would you NEED to see?

▪️ Estimated savings this month?

▪️ Estimated savings this year?

▪️ Maybe a graph of your estimated cash balance?

✔️ Congrats! You've just built a 𝗗𝗮𝘀𝗵𝗯𝗼𝗮𝗿𝗱.



🟢 𝗕𝗲𝘀𝘁 𝗖𝗮𝘀𝗲?

▪️ Better understanding of your personal finances

▪️ Improved Financial Modeling skills



🔴 𝗪𝗼𝗿𝘀𝘁 𝗖𝗮𝘀𝗲?

▪️ Great modeling practice

▪️ Exposure to business concepts but at a personal level



In fact, I learned most of my Excel skills building a model this way.

Because I didn't need to spend time on the "learning curve."

I just said, how can I easily present this to myself?

(And I still use that budget every week)



So -- give it a try!

It's some of the best free education you can give yourself.



~~~

👋 Hey! I'm Chris Reilly.

🟢 I can help you become the go-to Financial Modeler in just 8 hours.

⏩ https://bit.ly/FMECourses

Everyone forgets this piece of Retained Earnings (even seasoned modelers) 👇


~~~
📌 𝗕𝘁𝘄: the balance sheet can be a massive pain.  Here's a guide 👉 https://lnkd.in/ew4nwaVx 
~~~


"Traditional Modeling" states you should build Retained Earnings as follows:

Ending Retained Earnings Balance from 𝘓𝘢𝘴𝘵 Period

+ Net Income from 𝘛𝘩𝘪𝘴 Period

= Ending Retained Earnings Balance for 𝘛𝘩𝘪𝘴 Period.

Most of the time that approach works fine (and I've used it in a bunch of models).



But, it ignores 𝗘𝗾𝘂𝗶𝘁𝘆 𝗗𝗶𝘀𝘁𝗿𝗶𝗯𝘂𝘁𝗶𝗼𝗻𝘀, which also come out of Retained Earnings.

So, building the complete schedule allows you to model in projected Distributions as well.

The video explains it with an example ⤵️



~~~

👋 Hey! I'm Chris Reilly.

🟢 I can help you master Financial Modeling in just 8 hours.

⏩ https://bit.ly/FMECourses

Fundraise vs Operating Models - What's the difference?

A quick breakdown 👇


~~~
📌 𝗕𝘁𝘄: Nearly every model starts with an Income Statement. Grab one here 👉 https://lnkd.in/exez-uUT 
~~~


𝗙𝘂𝗻𝗱𝗿𝗮𝗶𝘀𝗲 𝗠𝗼𝗱𝗲𝗹𝘀:
• Focus on funding needs & investor returns
• Emphasis on valuation & ROI
• Short-term view (1-5 years)
• Simplified financials
• External audience

Often-times I'll build a model like this, see how much the cash goes negative, and that becomes the target funding amount (plus a cushion).



𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗠𝗼𝗱𝗲𝗹𝘀:
• Detailed financials
• Internal audience
• Emphasis on operations
• Longer-term view (3-10 years)
• Focus on business performance

This is the super-detailed model used during "Budget Season."



🎯 𝗦𝗰𝗲𝗻𝗮𝗿𝗶𝗼 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴

𝗙𝘂𝗻𝗱𝗿𝗮𝗶𝘀𝗲 𝗠𝗼𝗱𝗲𝗹𝘀: funding levels and exit strategies.  So usually you're toggling bigger drivers like Revenue, Gross Margin, OpEx (as a whole), and maybe some capex assumptions.

𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗠𝗼𝗱𝗲𝗹𝘀: growth rates, cost structures, and market conditions.  Most often, there's a lot of headcount toggling.  Especially if you have a name-based headcount schedule, you might new hires with an ON/OFF switch.



🔍 𝗭𝗼𝗼𝗺𝗶𝗻𝗴 𝗢𝘂𝘁

Fundraise Models are higher-level and investor-focused, while Operating Models are very detailed and internally focused.

However, I've seen Operating Models "morph" into Fundraise Models and vice versa.

I generally 𝗽𝗿𝗲𝗳𝗲𝗿 𝘁𝗼 𝗯𝘂𝗶𝗹𝗱 𝗮𝗻 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗠𝗼𝗱𝗲𝗹 𝘁𝗵𝗮𝘁 𝗵𝗮𝘀 𝗳𝘂𝗻𝗱𝗿𝗮𝗶𝘀𝗶𝗻𝗴 𝗳𝘂𝗻𝗰𝘁𝗶𝗼𝗻𝗮𝗹𝗶𝘁𝘆 (because someone always asks for more detail on the operations).

Also, when it comes to returns, I've found most investors prefer to calculate that figure independently of what is shown in the model, and as such, the "Returns Section" doesn't hold as much weight as you might think.

Rather, I've found investors want to gain comfort around the core Operations.



~~~

👋 Hey! I'm Chris Reilly.

🟢 I can help you master Financial Modeling in only 8 hours.

⏩ https://bit.ly/FMECourses

Thinks profit means cash in hand?

Here's how one pair of shoes clears up the confusion 👇


~~~
📌𝗙𝗿𝗲𝗲 𝗥𝗲𝘀𝗼𝘂𝗿𝗰𝗲: Ultimate Guide 👉 https://lnkd.in/eUN-E-Qc 
~~~


👞 Imagine one pair of shoes moving through a company's financials:

1. The company records a $100 Purchase of shoes in Inventory.

"Purchase" 𝘥𝘰𝘦𝘴𝘯'𝘵 mean "paid in cash" -- under accrual accounting, this is when shoes arrive, not when they're paid for.



2. The company records that SAME $100 Purchase in its Accounts Payable account as a liability.

In simple terms, "We've received the shoes in the store, but we still have to pay our supplier for them in cash eventually."



Two months later, the company must pay CASH to the supplier for the shoes.

So the steps are:

3.1 The company gets rid of its Accounts Payable by paying off the $100 liability, and;

3.2 The company records a $100 cash outflow in its Statement of Cash Flows

💡𝗞𝗘𝗬 𝗣𝗢𝗜𝗡𝗧: Even though this company will eventually sell the shoes and make a profit (in a future step), RIGHT NOW they don't have any cash from the sale, so they have to come out-of-pocket to cover the $100 liability (you can see ending cash is negative).



A month later, the company finally sells the pair of shoes for $250.

4.1 The $250 Revenue is recorded on the Income Statement and simultaneously in Accounts Receivable, and;

4.2 The Inventory account is reduced by $100, because that was the COST of the shoes they SOLD. So this $100 appears on the Income Statement as well in COGS.

HOWEVER, just because the company SOLD the shoes, doesn't mean they've been paid in CASH (yet). You can see "Change in Cash" in April is actually $0. It's just when the transaction took place, but has nothing to do with cash (this is the essence of accrual vs. cash basis accounting).



5. A month later, the company finally receives $250 CASH for the shoes they sold, so the Accounts Receivable is reduced by the $250.



6. The Cash account has $250 of actual dollars sitting in it (b/c in reality $100 would have needed to go into the business in March to pay off the purchase liability).



At the end of the day the company made a profit:

$250 price - $100 cost = $150 profit

HOWEVER, it had to go through the cash flow cycle of its working capital to get there, which in this example took 5 months end-to-end.



The "business lesson" here is to make sure you are collecting Receivables before you're making Payables, so that your sales are self-funding and you don't have to come out-of-pocket to pay bills.

It's a long and intricate process, but if you understand it, you can help a company bridge the difference between its accrual-based books and tactical day-to-day cash management.



~~~

👋 Hey, I'm Chris Reilly.

🟢 I can help you become the go-to Financial Modeler in only 8 hours.

⏩ https://bit.ly/FMECourses

5 𝗣𝗿𝗲𝘃𝗲𝗻𝘁𝗮𝗯𝗹𝗲 beginner mistakes in Financial Modeling...

(and how to avoid them) 👇


~~~
📌 𝗥𝗲𝘀𝗼𝘂𝗿𝗰𝗲: grab my ultimate guide here 👉 https://lnkd.in/eUN-E-Qc 
~~~


❌ 𝟭. 𝗢𝘃𝗲𝗿𝗰𝗼𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝗠𝗼𝗱𝗲𝗹

Many beginners think "more complicated = better."

In reality, the opposite is true.

Focus on creating a model that is easy to understand and modify.

Use clear labels, consistent formatting, and basic formulas.

✅ 𝙃𝙤𝙬 𝙩𝙤 𝙖𝙫𝙤𝙞𝙙 𝙞𝙩: Stick to the 80/20 essentials (Revenue, Gross Profit, EBITDA, and Cash).  Everything else can start with an average.  Add more details when needed.



❌ 𝟮. 𝗜𝗴𝗻𝗼𝗿𝗶𝗻𝗴 𝘁𝗵𝗲 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀

Beginners usually focus on the Income Statement, neglecting the Balance Sheet and Cash Flow Statement.

Profit ≠ Cash, so the model will be misleading.

✅ 𝙃𝙤𝙬 𝙩𝙤 𝙖𝙫𝙤𝙞𝙙 𝙞𝙩: Ensure your model has all three statements and understand the difference between accrual and cash accounting.



❌ 𝟯. 𝗨𝘀𝗶𝗻𝗴 𝗛𝗮𝗿𝗱𝗰𝗼𝗱𝗲𝗱 𝗡𝘂𝗺𝗯𝗲𝗿𝘀

So many beginners do this but it's a major "no no."

Entering numbers directly into formulas makes it difficult to update and audit.

✅ 𝙃𝙤𝙬 𝙩𝙤 𝙖𝙫𝙤𝙞𝙙 𝙞𝙩: Use simple color-coding to start: Blue = input. Black = formula. All formulas should reference an input of some kind vs. embedding it inside the formula itself.



❌ 𝟰. 𝗢𝘃𝗲𝗿𝗹𝗼𝗼𝗸𝗶𝗻𝗴 𝗦𝗲𝗻𝘀𝗶𝘁𝗶𝘃𝗶𝘁𝘆 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀

Boss: "What happens if we lose two points on margin?"

Me: "...🤔"

Many beginners fail to incorporate scenario analysis, which at its core is the true purpose of Financial Modeling.

You need to understand how changes in assumptions impact the business.

✅ 𝙃𝙤𝙬 𝙩𝙤 𝙖𝙫𝙤𝙞𝙙 𝙞𝙩: Build sensitivity analysis in your model to test different scenarios.  The CHOOSE function is great to get this done.  The goal is to help the Ops team: 𝘪𝘧 𝘟 𝘩𝘢𝘱𝘱𝘦𝘯𝘴, 𝘸𝘦 𝘯𝘦𝘦𝘥 𝘵𝘰 𝘥𝘰 𝘠.



❌ 𝟱. 𝗟𝗮𝗰𝗸 𝗼𝗳 𝗗𝗼𝗰𝘂𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻

Without proper documentation, it’s hard to understand the logic and assumptions behind your model, especially after some time has passed or when sharing with others.

Everything else in life comes with an instruction manual, 𝘣𝘶𝘵 𝘯𝘰𝘵 𝘺𝘰𝘶𝘳 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘮𝘰𝘥𝘦𝘭??

✅ 𝙃𝙤𝙬 𝙩𝙤 𝙖𝙫𝙤𝙞𝙙 𝙞𝙩: Write down your assumptions, include a formatting guide and user manual.  You can consolidate everything on a separate sheet (like a table of contents).  Pretend you're sending it to your dad.  Makes everything easier to follow.



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