Financial Modeling Education

Advanced Financial Models for FP&A and Private Equity Professionals -- taught in a relatable, simplified style.

Founder

Mission Capital Consulting

Leesa Sleep

Board Member

TitleCard Capital Group, LLC

Vice President

Lariat Partners, LP

Associate

Hilton

Senior Analyst

FTI Consulting

Consultant

Financial Modeling at the Highest Level.

If you build middle-market financial models, I know exactly how you feel.

I built my first financial model in 2009 and was every bit as overwhelmed, frustrated, and uncertain as you may be today.

But over the course of my 15-year career in corporate finance, consulting, private equity, and entrepreneurship, I went on to build models for FP&A and Private Equity teams around the world.

From the Lehman Brothers bankruptcy to middle-market private equity, I've seen some crazy financial models over the years, honed my skills, and developed my own unique system.

That system - and the financial modeling expertise I developed - have been recognized and featured by the Wharton Online Private Equity Certificate Program, Wall Street Prep, and LinkedIn Learning.

And now…

I’ve put everything I know - including my exact approach and Excel templates - into my Financial Modeling Education course to help you.

Check it out at financialmodelingeducation.com

Chris Reilly

I help middle-market finance pros build more accurate financial models in less time.

Overview of the Private Equity deal process...


EARLY STAGE:

✓ Usually investment bankers represent companies for sale.

✓ Bankers prepare a "teaser": one-pager that gives an overview of the business for sale.

✓ If the PE firm likes it, they'll sign an NDA.

✓ Then, the investment bank sends the PE firm the CIM ("deck," "book" or "memo"), which is 50-100 pages all about the business for sale.

✓ The PE firm will build a basic model (usually LBO) and perform some initial research.

✓ If all looks good, the PE firm will submit an IOI ("Indication of Interest") to say they're interested in learning more (usually has valuation range instead of one number).

✓ If investment bankers feel the IOI valuation is "within range," they'll continue the process with the PE firm.

✓ Note: This outlines an "auction process." In proprietary deals, PE firms negotiate directly without competitive bidding.


MID STAGE:

✓ The PE firm does more diligence and submits a document called an LOI ("Letter of Intent") — this says "we like the deal enough to buy the company assuming all our diligence checks out" (this has an actual valuation, but the document is non-binding).

✓ Then it's time to meet. The bankers set up a meeting with the PE firm and the company so everyone can get to know each other (usually an onsite meeting) — business tour, Q&A, followed by more casual dinner/drinks in the evening.

✓ Then, the PE firm moves forward with formal diligence (huge process: modeling, industry research, customer research, background checks, accounting checks, process checks, everything).

✓ A big part of this (for newer professionals) is building a model that shows lenders the deal is attractive enough to finance with debt (and the PE firm will bring equity).

✓ Critical in this stage is negotiating management's equity allocation and incentives, as PE firms often view management as key value drivers.

✓ PE firms also think about the "exit," like future buyers or IPO possibilities long before closing.


LATE STAGE:

✓ If all still looks good, it moves to the legal stage where lawyers trade drafts of the Purchase Agreement (either Asset or Stock Purchase).

✓ This agreement should mirror the terms in the LOI (or at least the latest understanding between everyone).

✓ Seller equity rollovers will be detailed in a Shareholders' Agreement in addition to the Purchase Agreement.

✓ PE firm keeps track of the business performance as the months go on (whole process takes ~3-9 months).


CLOSING:

✓ The deal "closes." This means the PE firm "calls capital" from its investors (equity), and lenders bring their "debt capital" as well.

✓ The money goes to the seller & pays the seller's expenses, and from there the PE firm now owns the company, or at least a majority portion.

✓ They work together to grow the business (and buy other ones) over the next 3-7 years and eventually start the whole process over again and sell to someone else.

~~~

Learn more about PE in the comments 👇

In my first Private Equity deal I was so overwhelmed. So I built this 𝗚𝗮𝗻𝘁𝘁 𝗖𝗵𝗮𝗿𝘁 for anyone who might be feeling the same way:

~~~
tl;dr: there's a link in the comments where you can download the template 📥
~~~


Still reading?

Here are the typical steps, but you can adjust the 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 seamless 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: Every deal will be different with certain elements added, edited, or removed, but this is a decent place to start (so adjust the template as needed).

~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

Check the comments below to download the template 👇

What's your favorite Excel trick that nobody knows? Add yours in the comments ⬇️

(I post this every few months because it's amazing how many new things you can learn in Excel, even as an experienced user)

♻️Please re-share with your network so we can get as many submissions as possible.

Thanks!
—Chris

Tired of always updating the Statement of Cash Flows? Try this alternate approach 👇


⫸ THE LAYOUT

The image is from a blank three statement model I use for training and concept illustration.

You can see at the bottom, my Statement of Cash Flows is very condensed, it only shows:

▷ Net Income
▷ Cash from Operations
▷ Cash from Investing
▷ Cash from Financing

I do this "condensed build" using the SUMIFS formula to calculate all the changes on the Balance Sheet.

I make sure to "tag" each line item appropriately as either:

▷ O (Operations)
▷ I (Investing)
▷ F (Financing)

Then, add a "+" or "-" to indicate the impact on cash (under the indirect method).

I need to make the "+" or "-" distinction because it's an all-encompassing formula, whereas if you were to hand-pick each line item, it would differ based on which side of the Balance Sheet the line item falls on.

For example, Assets is normally "previous period - current period," whereas Liabilities & Equity are normally "current period - previous period."


⫸ THE JUSTIFICATION

The "standard method" sets you up for risk because:

1. You have multiple formula types flowing through your Statement of Cash Flows

2. If you add a line item to the Balance Sheet, everything will be out of balance until you add that same line item to your Statement of Cash Flows (requiring 2 steps)

However, under this "SUMIFS method," all I have to do is add the new line item to the Balance Sheet, give it a tag (O-, I+, F+, etc.), and my Statement of Cash Flows updates automatically.

Here's the formula if you want to try it:

=-(SUMIFS(E$19:E$37,$B$19:$B$37,$B43&"-")-SUMIFS(D$19:D$37,$B$19:$B$37,$B43&"-"))+(SUMIFS(E$19:E$37,$B$19:$B$37,$B43&"+")-SUMIFS(D$19:D$37,$B$19:$B$37,$B43&"+"))

(you can see the corresponding ranges and references in the image)


⫸ THE DOWNSIDE

I only use this build sometimes, as other times I prefer to see the change in balance for each and every line item on the Balance Sheet, and this "SUMIFS view" takes that away.

It's a condensed and optimized approach for modeling, but isn't great for visibility.


⫸ IN SUMMARY

- more flexible for modeling purposes, but;
- less visibility

~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

If you want to learn more Excel tips & modeling best practices, I cover it in my weekly email series (link in comments 👇)

How to update the model with Actuals each month 👇

A common technique I use is a simple =IF trigger whereby the formula identifies if the current period has "Actual" results or is still looking at a "Forecast."

If Actual results are available, I ask the formula to pull that result directly from my Chart of Accounts.

If we're still in Forecast mode, I ask the formula to pull my forecast formula.

This is typically triggered by a LATEST_ACTUALS named range that is sitting on my control panel to make this update quick.

(in other words, I just change the date in one cell and the entire model updates).

~~~

You can see the formula I'm using in the image below:

If the model shows Actual, I want the formula to pull anything I've tagged as Accounts Revenue in my Chart of Accounts (hence the SUMIFS)

Else,

I want it to pull my Revenue forecast.

~~~

This logic flows through my entire model: The LATEST_ACTUALS named range serves as a trigger to update the Income Statement, Balance Sheet, and any other support schedules that require ongoing actual information.

The Statement of Cash flows updates automatically because its calculation is always the difference between the two periods (using the indirect method), so there's nothing to update.

Lastly, I will always have "double-checks" or "validations" linking to my Control Panel to make sure everything worked out as it should.

~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

Want a few templates to get started? I offer 11 templates, all for free, just check the comments below 👇

Everyone can tell you what EBITDA is, but no one can tell you WHY (let's change that) 👇


𝗘𝗕𝗜𝗧𝗗𝗔 𝟭𝟬𝟭

It's not GAAP. It's not Cash.

It calculates a company's 𝘯𝘰𝘳𝘮𝘢𝘭𝘪𝘻𝘦𝘥 profitability by removing the effects of financing and accounting decisions.

There are two main reasons for this:

1. Comparison to other companies
2. Establishing a basis for valuation


𝗦𝘁𝗮𝗿𝘁 𝘄𝗶𝘁𝗵 𝗡𝗲𝘁 𝗜𝗻𝗰𝗼𝗺𝗲

Net Income is the "GAAP Profit" or "Earnings" of the company.

(we have to start somewhere)


𝗡𝗲𝘂𝘁𝗿𝗮𝗹𝗶𝘇𝗲 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴 𝗗𝗲𝗰𝗶𝘀𝗶𝗼𝗻𝘀

Companies can make different estimates related to:

▷ Depreciation methods
▷ Useful life estimates
▷ Salvage value estimates
▷ Amortization of intangible assets
▷ Impairment charges

So by "adding back" Depreciation and Amortization, it helps mitigate the impact of these varying accounting policies, providing a more uniform measure of operational performance.


𝗡𝗲𝘂𝘁𝗿𝗮𝗹𝗶𝘇𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴 𝗗𝗲𝗰𝗶𝘀𝗶𝗼𝗻𝘀

"Interest" is the cost of using borrowed money.

But what if a company didn't borrow at all?

It wouldn't have this expense.

So by "adding back" the interest, this shows us what the company's earnings would look like without any debt.


𝗡𝗲𝘂𝘁𝗿𝗮𝗹𝗶𝘇𝗲 𝗧𝗮𝘅 𝗜𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗼𝗻𝘀

Taxes are tricky. We all pay them, but how businesses handle them varies.

Some businesses, like S Corps and LLCs, don't pay corporate income tax.

Instead, taxes pass through to owners' personal returns.

C Corporations, on the other hand, do pay corporate income tax. This type of business would show an income tax expense on its income statement (whereas the other types would not).

Lastly, since the other adjustments (like depreciation and interest) affect taxable income, we add back taxes to ensure we're seeing the full picture.

This gives us a "tax-neutral" view, making it easier to compare businesses regardless of their structure or how the other adjustments impact their taxes.


𝗪𝗵𝗮𝘁 𝗘𝗕𝗜𝗧𝗗𝗔 𝗶𝘀 𝗠𝗶𝘀𝘀𝗶𝗻𝗴

Changes in Working Capital: EBITDA doesn't factor in any cash timing related receivables or payables.

CapEx: Cash used to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.

Debt Principal: Interest expense is accounted for in EBITDA, but the principal repayment of debt is not.

Capital Lease Payments: Capital lease obligations are visible on the balance sheet. However, similar to debt principal, the principal portion of these lease payments is a cash outflow not reflected in EBITDA.


𝗦𝘂𝗺𝗺𝗮𝗿𝘆

EBITDA helps us compare companies by neutralizing the effects of financing, accounting, and tax decisions.

It's useful, but remember, it's not the whole picture.


~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

If you want to learn more about EBITDA, I cover it in my weekly email series (link in comments 👇)

How to use SUMPRODUCT to find errors on your spreadsheet.

Here's the formula: =SUMPRODUCT(--iserror([range]))

In the video I incorrectly say "double negative 🙃," but Matthew Herbert of BizTrix pointed out that "the double minus is an operator, not negation. The double minus is the unary operator and it explicitly converts logical values into numbers (true converts to 1 and false converts to 0). ISERROR returns a logical value. This is why SUM(ISERROR(range)) or SUMPRODUCT(ISERROR(range)) returns 0 but placing the unary operator in front of ISERROR returns >0 when there is an error."

Even as an experienced user and instructor there's always something new to learn!

~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

If you want to learn more about Financial Modeling best practices, I cover it in my weekly email series (link in comments 👇)

Steal my playbook (+download): How I build "Roll-up Models" for complicated Private Equity deals 👇


𝗪𝗵𝗮𝘁'𝘀 𝗮 "𝗥𝗼𝗹𝗹-𝘂𝗽" 𝗠𝗼𝗱𝗲𝗹?

A "Roll-up" is when a private equity firm acquires several similar companies and combines them into one.

It normally starts with the "platform" company, and then smaller "add-ons" are acquired thereafter.

The "platform" and the "add-ons" are combined into a single company. That's the "roll-up."


𝗛𝗼𝘄 𝗗𝗼 𝗬𝗼𝘂 𝗠𝗼𝗱𝗲𝗹 𝗮 𝗥𝗼𝗹𝗹-𝘂𝗽?

Using date-based triggers, each company is brought into a consolidated Three Statement Model after the respective deal closes.

This enables us to calculate two primary things:

1) Pro forma EBITDA
2) Estimated Cash going forward


𝗖𝗼𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗲𝗱, 𝗯𝘂𝘁 𝗥𝗼𝗼𝘁𝗲𝗱 𝗶𝗻 𝗦𝗶𝗺𝗽𝗹𝗶𝗰𝗶𝘁𝘆

Roll-up models are some of the most complicated models I've built.

However, they are rooted in a simple core concept: Three Statement Modeling.

We're just adding more support schedules to the Income Statement and Balance Sheet, but the fundamental logic is unchanged.

~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

Check the comments below to download the guide 👇

Rollup Model Layout.pdf

Wait, use the Balance Sheet to forecast the Income Statement? Here's an approach to modeling you probably haven't seen before...


𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗔𝗽𝗽𝗿𝗼𝗮𝗰𝗵

Model Revenue & COGS first, then calculate implied working capital using DSO, DPO, or DOH.


𝗔𝗹𝘁𝗲𝗿𝗻𝗮𝘁𝗲 𝗔𝗽𝗽𝗿𝗼𝗮𝗰𝗵

Model Inventory purchases first, and watch as it flows through AP, then your Income Statement, and ultimately through AR, where the cash is finally received.

This is a less-common approach, and not typically taught in academic circles, but it's a great way to help understand accounting through financial modeling.


𝗪𝗵𝗮𝘁 𝗱𝗼 𝘆𝗼𝘂 𝗧𝗵𝗶𝗻𝗸?

Income Statement first, or Balance Sheet?

Add your perspective in the comments ↯


~~~

👋Hey, I'm Chris Reilly, and if you've ever found yourself staring down a last-minute request to build a complex financial model, feeling so overwhelmed you literally couldn’t think straight, then you're in the right place...

I help Finance Professionals build more accurate Financial Models in less time.

If you want to learn more about Financial Modeling for FP&A and Private Equity, I cover it in my weekly email series (link in comments 👇)

People love to hate EBITDA. That's fine. We still use it all the time in the middle-market. Here's why...


The purpose of Adjusted EBITDA is to show the 𝙣𝙤𝙧𝙢𝙖𝙡𝙞𝙯𝙚𝙙 profitability of the company.

That means we need to reflect any "adjustments" back into our P&L so our forecast is based on the 𝙣𝙤𝙧𝙢𝙖𝙡𝙞𝙯𝙚𝙙 numbers.

(often called "pro forma")


I've laid out the steps for 5 hypothetical adjustments below:

𝗢𝘄𝗻𝗲𝗿 𝗖𝗼𝗺𝗽𝗲𝗻𝘀𝗮𝘁𝗶𝗼𝗻

Adjustments A1 and A2

Management is saying that on a "pro forma basis" the Management Salaries will be $500,000, so in their adjustments they've "added back" $458,589

We take that same $458,589 and subtract it from the "As Reported" column to show the "Pro Forma" number of $500,000


𝗢𝗳𝗳𝗶𝗰𝗲 𝗘𝘅𝗽𝗲𝗻𝘀𝗲𝘀

Adjustments B1 and B2

Same idea as above, reflect the $70,329 adjustment in "Office and General" so that "Pro Forma" it is $155,046 (instead of the $225,376 As Reported)


𝗣𝗿𝗼𝗳𝗲𝘀𝘀𝗶𝗼𝗻𝗮𝗹 𝗙𝗲𝗲𝘀

Adjustments C1 and C2

Reflect the $25,000 adjustment in "Professional Fees" so that "Pro Forma" it is $49,932 (instead of the $74,932 As Reported)


𝗦𝗲𝗹𝗹𝗶𝗻𝗴 𝗘𝘅𝗽𝗲𝗻𝘀𝗲𝘀

Adjustments D1 and D2

Reflect the $20,000 adjustment in "Selling" so that "Pro Forma" it is $1,056,855 (instead of the $1,076,855 As Reported)


𝗥𝗲𝘀𝗲𝗮𝗿𝗰𝗵

Adjustments E1 and E2

Reflect the $49,840 adjustment in "R&D" so that "Pro Forma" it is $449,861 (instead of the $499,701 As Reported)


𝗘𝗻𝗱 𝗥𝗲𝘀𝘂𝗹𝘁

In the "Pro Forma" column, my "EBTIDA, as defined" is now equal to "Management-Adjusted EBITDA" from the "As Reported" column.

So now, I have clean, 𝙣𝙤𝙧𝙢𝙖𝙡𝙞𝙯𝙚𝙙 numbers from which to base my next forecast.


💡𝗞𝗲𝘆 𝗖𝗼𝗻𝗰𝗲𝗽𝘁 1

In the past year, we still spent real cash on these items. It's gone.

(and that's often the frustration with EBITDA: it definitely does NOT equal cash)

The purpose here 𝘪𝘴𝘯'𝘵 to disguise cash or fluff earnings, it's to create a normalized view of what we think will happen in the future.


💡𝗞𝗲𝘆 𝗖𝗼𝗻𝗰𝗲𝗽𝘁 2

I'm not just taking these adjustments as law.

I would only reflect these adjustments after a thorough discussion with the management team and only to the extent they provided an extremely defensible position for including them.

"Just because" or "whoopsie" are not good enough reasons.

It's our job as the PE / FP&A Professional to push back on these adjustments and make sure they're reasonable, because if we don't think they are, the next buyer won't either.

If we're comfortable, this schedule is the starting point for putting these adjustments into action and building our pro forma forecast.


~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time without spending a fortune on traditional education.

If you want to learn more about correctly building EBITDA Adjustments, I cover it in my weekly email series (link in comments 👇)

If you've ever been asked to build a "SaaS Model" but don't know how, this video breaks down the basics 👇

We use the Unearned Revenue account to model a twelve-month software contract through the Income Statement and Balance Sheet.

This is why I'm always harping on the value of "the three statements." If you know these, you can model anything.

💡𝗞𝗲𝘆 𝗖𝗼𝗻𝗰𝗲𝗽𝘁: There's no such thing as "SaaS Model," all you're doing is modeling parts of the Income Statement and Balance Sheet, and then calculating all those fancy SaaS KPIs as an output (ARR, MRR, CAC, CLTV, ACV, etc.).

~~~

Lastly, please excuse the slightly grainy video, I forgot to change the resolution on my monitor when I recorded it (🙃), but you can still see the model just fine.

~~~

𝗛𝗼𝘄 𝗜 𝗖𝗮𝗻 𝗛𝗲𝗹𝗽 𝗬𝗼𝘂

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate financial models in less time.

~~~

𝗡𝗲𝘅𝘁 𝗦𝘁𝗲𝗽𝘀 ⏬

I'm trying to grow my YouTube channel so I can create more free content.

Please consider subscribing, I'll put a link in the comments ↓

A giant 𝗹𝗶𝘀𝘁 𝗼𝗳 𝗙𝗣&𝗔 𝗮𝗯𝗯𝗿𝗲𝘃𝗶𝗮𝘁𝗶𝗼𝗻𝘀 (from LinkedIn community, not AI) 👇


✓ FINANCIAL PERFORMANCE METRICS:

• ARPU: Average Revenue Per User
• CAGR: Compound Annual Growth Rate
• Cash EBITDA: Earnings Before Interest, Taxes, Depreciation, Amortization, and Change in • Deferred Revenue
• EBIT: Earnings Before Interest & Taxes
• EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization
• EBITDAR: Earnings Before Interest, Taxes, Depreciation, Amortization & Restructuring or Rent Costs
• EBITDAX: Earnings Before Interest, Taxes, Depreciation, Amortization & Exploration Expenses
• EPS: Earnings per Share
• FCF: Free Cash Flow
• GP: Gross Profit
• GM: Gross Margin
• NOI: Net Operating Income
• NOPAT: Net Operating Profit After Tax
• NPV: Net Present Value
• ROCE: Return On Capital Employed


✓ FINANCIAL STATEMENTS & COMPONENTS:

• BS: Balance Sheet
• COGS: Cost Of Goods Sold
• COR: Cost Of Revenue
• D&A: Depreciation & Amortization
• IS: Income Statement
• P&L: Profit & Loss
• SCF: Statement of Cash Flows


✓ FINANCIAL RATIOS & ANALYSIS:

• ABC: Activity-Based Costing
• bps: Basis Points
• DCF: Discounted Cash Flow
• FR: Financial Ratios
• IRR: Internal Rate of Return
• QoE: Quality of Earnings
• WACC: Weighted-average Cost of Capital


✓ FORECASTING & PLANNING:

• BVA: Budget vs. Actuals
• Budget: Estimated future income & expenses
• FCST: Forecast
• Forecast: Updated estimate of future financial results
• FP&A: Financial Planning & Analysis
• LE: Latest Estimate
• MYR: Mid Year Review
• Rolling Forecast: Continual update of future performance projection
• S&OP: Sales & Operations Planning
• xP&A: Extended Planning & Analysis


✓ TIME PERIODS:

• 6+6, 3+9, etc.: Actuals (6 or 3 months) + Forecast (6 or 9 months)
• BOY: Balance of Year
• EOD: End of Day
• FY: Fiscal Year or Full Year
• MTD: Month To Date
• MoM: Month Over Month
• PTD: Period To Date
• QoQ: Quarter Over Quarter
• TTM/LTM: Trailing Twelve Months / Last Twelve Months
• YTD: Year To Date
• YoY: Year Over Year
• YTG: Year To Go


✓ OPERATIONAL METRICS:

• Actuals: Actual financial results
• CapEx: Capital Expenditures
• FTE: Full Time Equivalent
• G&A: General & Administrative Expenses
• KPI: Key Performance Indicator
• OpEx: Operating Expenses
• R&D: Research & Development
• S&M: Sales & Marketing
• WCR: Working Capital Requirement


✓ RISK & OPPORTUNITY:

• DD: Due Diligence
• R&O: Risks & Opportunities


✓ VALUATION & CAPITAL STRUCTURE:

• EqV: Equity Value
• EV: Enterprise Value
• ND: Net Debt
• NWC: Net Working Capital


✓ REPORTING & TOOLS:

• Dashboard: Visual display of key metrics
• Flash Report: Quick financial overview
• IRL: Investor Request List
• VDR: Virtual Data Room


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👋Hey, I'm Chris Reilly, and I help finance pros build accurate Financial Models in less time without the high cost of traditional education.

If you want to learn more about FP&A, I cover it in my weekly email series (link in comments 👇)

Get Better at Capex and Depreciation modeling in 3 Simple Steps (+ download 🔽):


Typically one of many "support schedules" for a Three Statement Model, Capex and Depreciation are best built together to keep things manageable.


𝗦𝘁𝗲𝗽 𝟭: 𝗖𝗮𝗽𝗲𝘅 𝗦𝗰𝗵𝗲𝗱𝘂𝗹𝗲

Start by mapping your capex at the top (cash leaving the business today that we depreciate over time in the future).

To make a long story short, we "capitalize" expenses to satisfy the Matching Principle, which basically states that expenses should be recognized in the same period as the revenues they help generate.

Simple example: a truck helps me generate revenue over the next 7 years (by making deliveries), so that cost should be recorded over those same 7 years (instead of all at once).


𝗦𝘁𝗲𝗽 𝟮: 𝗗𝗲𝗽𝗿𝗲𝗰𝗶𝗮𝘁𝗶𝗼𝗻 𝗦𝗰𝗵𝗲𝗱𝘂𝗹𝗲

Leveraging the =TRANSPOSE function, we can quickly "convert" the dates and total capex to a vertical column (as opposed to horizontal row).

Then we add assumptions for Useful Life (an average in this example) and Salvage Value (how much the asset is worth when the Useful Life runs out).

The "Depreciation Formula" I like to use is this:

=IF([date at top]=MEDIAN([date in column],[date at top],[date at end of Useful Life]),then calculate depreciation using the SLN function,else give me 0)

In the sheet it looks like this:

=IF(G$2=MEDIAN($B12,G$2,EOMONTH($B12,($D12*12))),SLN($C12,$E12,$D12*12),0)

(and using the MEDIAN function is just a shortcut to make sure the date at the top falls between the start date and end date, you don't have to do it that way).

Under this method, you can see the depreciation expense begin to "waterfall" it's way down each month, ultimately building to a total.

Lastly, include an assumption for the Existing Depreciation (I'm using $4k/month in this example).

If you can get your hands on a schedule of Fixed Assets, you can build this up exactly, but if not, a high-level assumption is fine.


𝗦𝘁𝗲𝗽 𝟯: 𝗟𝗶𝗻𝗸 𝗬𝗼𝘂𝗿 𝗧𝗼𝘁𝗮𝗹𝘀

The Total Capex links to the Fixed Assets on the Balance Sheet (= Previous Period + Capex)

The Total Depreciation links to Depreciation Expense on the Income Statement

(and your Accumulated Depreciation will now be = Previous Period - Depreciation Expense)

This keeps your Balance Sheet in balance, and is also why I prefer vertical modeling -- you can see everything in one place.


𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗲𝗽𝘀, 𝗦𝘂𝗺𝗺𝗮𝗿𝗶𝘇𝗲𝗱

1. Capex Forecast
2. Depreciation Waterfall
3. Link totals to Income Statement & Balance Sheet


~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

Check the comments below to download the template 👇

Still learning Excel shortcuts the slow way using a PDF? Then you need to watch this video 👇


It's called ​​𝗞𝗲𝘆𝗳𝗶𝗰𝗶𝗲𝗻𝘁​​.

𝗛𝗼𝘄 𝗶𝘁 𝗪𝗼𝗿𝗸𝘀:

Every time you click something with the mouse, Keyficient automatically shows you the shortcut key instead (so you can remember it next time).

Non-intrusive, it appears like a windows notification on your screen.

I was blown away when I saw this, and thought how helpful this would have been when I learned to build models.


𝗖𝗼𝗼𝗹 𝗦𝘁𝗮𝘁𝘀

✓ 1,400+ shortcuts

✓ Shortcuts can make you 40% faster with Excel (I'd argue it's higher)

✓ 90% of users begin learning shortcuts within 1st week

✓ ​On average users learn ~10 shortcuts within 1st week

✓ ​Bonus: it works in Word and PowerPoint as well.

✓ NOTE*: Windows users only for now


𝗣𝗿𝗼𝗺𝗼 𝗜𝗻𝗳𝗼

I was not paid for this post, but I am an affiliate.

You can use code "FME" for 10% off at checkout.

Ditch the PDF, and start automating your learning.

Website in the comments below ↯

I get a ton of DMs about building Headcount Schedules. Here's a template you can download for free 📥


Three Vertical Sections:

1️⃣Existing Hires
2️⃣Projected Hires
3️⃣Ratio-based Hires


Nine Horizontal Sections:

1️⃣FTE Cou️nt
2️⃣Base Salary
3️⃣Burden
4️⃣Bonus
5️⃣Bonus Burden
6️⃣Base Salary + Burden
7️⃣Bonus + Burden
8️⃣Grand Total
9️⃣Double-checks

Ultimately this tab will feed its way back into the Three Statement Model I'm working on.


~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time without the high cost of traditional education.

📥Check the comments below to download the template 👇

Your favorite Excel trick nobody knows? Here are all the amazing responses (save this post!) 👇

Like I mentioned a few days ago, I love to find out everyone's Excel tricks because I always learn something new, even as an instructor.

What's something in here that you didn't know?

♻️Please share this with your network if you found it helpful.

~~~

👋Hey, I'm Chris Reilly, and I help middle-market finance pros build more accurate Financial Models in less time.

If you want to learn more about Financial Modeling best practices, I cover it in my weekly email series (link in comments 👇)

Favorite Excel Tricks.pdf

Most Financial Models are 𝗚𝗔𝗥𝗕𝗔𝗚𝗘.

✕ 40 million tabs
✕ poorly designed
✕ tons of unknown errors
✕ balance sheet doesn't balance
✕ hardcoded numbers inside formulas
✕ statement of cash flows is a hot mess

Garbage in ⇨ garbage out.

We learn on-the-job under a tight deadline and produce mediocre results.

~~~

However, there's another option...

Investing in your Financial Modeling Education.

✓ Master excel skills
✓ Master best practices
✓ Build & interpret the Three Statements
✓ Make confident recommendations to your team
✓ Be confident that the model is structurally accurate
✓ And be seen as the go-to person within your company

No errors.
No broken links.
No hardcoded formulas.
No busted balance sheet.

Just a reliable framework you can use again and again.

(and confidence that it's actually right)

Hello Financial Modeling Education.

Goodbye garbage.

~~~

If you have basic-to-intermediate excel skills but have felt overwhelmed or frustrated by financial modeling, then this is for you.

Featured by the Wharton Online Private Equity Certificate Program, Wall Street Prep, and LinkedIn Learning...

In just one week, I can help you master Financial Modeling without the high cost of traditional education.

𝗖𝗵𝗲𝗰𝗸 𝘁𝗵𝗲 𝗰𝗼𝗺𝗺𝗲𝗻𝘁𝘀 𝘁𝗼 𝗹𝗲𝗮𝗿𝗻 𝗺𝗼𝗿𝗲 👇

"𝘌𝘷𝘦𝘯 𝘢𝘴 𝘢 𝘴𝘦𝘢𝘴𝘰𝘯𝘦𝘥 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘱𝘳𝘰𝘧𝘦𝘴𝘴𝘪𝘰𝘯𝘢𝘭 (𝘐𝘉 + 𝘊𝘰𝘳𝘱. 𝘋𝘦𝘷) 𝘸𝘪𝘵𝘩 𝘢 𝘷𝘢𝘳𝘪𝘦𝘵𝘺 𝘰𝘧 𝘮𝘰𝘥𝘦𝘭𝘪𝘯𝘨 𝘦𝘹𝘱𝘦𝘳𝘪𝘦𝘯𝘤𝘦 𝘢𝘯𝘥 𝘢 𝘨𝘳𝘢𝘥𝘶𝘢𝘵𝘦 𝘥𝘦𝘨𝘳𝘦𝘦 𝘪𝘯 𝘧𝘪𝘯𝘢𝘯𝘤𝘦, 𝘐 𝘧𝘰𝘶𝘯𝘥 𝘮𝘺𝘴𝘦𝘭𝘧 𝘧𝘶𝘳𝘪𝘰𝘶𝘴𝘭𝘺 𝘫𝘰𝘵𝘵𝘪𝘯𝘨 𝘯𝘰𝘵𝘦𝘴 𝘢𝘯𝘥 𝘩𝘢𝘷𝘪𝘯𝘨 "𝘢-𝘩𝘢" 𝘮𝘰𝘮𝘦𝘯𝘵𝘴 𝘵𝘩𝘢𝘵 𝘸𝘪𝘭𝘭 𝘴𝘵𝘢𝘺 𝘸𝘪𝘵𝘩 𝘮𝘦 𝘵𝘩𝘳𝘰𝘶𝘨𝘩𝘰𝘶𝘵 𝘮𝘺 𝘤𝘢𝘳𝘦𝘦𝘳." ⭐⭐⭐⭐⭐

If you create middle-market financial models… do any of these sound familiar?

“I’m worried my calculations are inaccurate.”

"My balance sheet doesn't balance."

"I can't figure out the statement of cash flows."

“I’m not sure I understand the three statements as well as I should.”

“I’m overwhelmed by the available data and don’t know how best to organize it.”

“I’ve got decent Excel skills, but can’t get it to do what I want.”

“I’m under a lot of pressure to get the model done quickly.” 

“There has to be an easier way to build models than my current approach - what am I missing?”

Then you might want to check this out 👉

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