Mission Capital Consulting

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LBO Models vs FP&A Operating Models... What's the difference? ?? ~~~ ?? ??????: all models need an income statement. Grab one here ?? https://lnkd.in/exez-uUT ~~~ ?????? ?????????? Short shelf life: the primary purpose is to figure out if buying a company is a good idea, mainly by assessing how much debt a company can handle and what the corresponding returns might be. The P&L and Balance Sheet projections are thoughtful but directional: year-over-year growth and other basic assumptions so it's easier to stress-test. It may be useful in the future when contemplating "add-ons" (smaller companies the "platform" company might buy), but by-and-large its primary use case comes to an end once the deal closes. ????&?? ?????????? An FP&A Model, on the other hand, is a planning tool companies use to manage their core operations. Often built with much more operating detail, the FP&A Model is used to create Budgets and Forecasts (which are different things), and also serves as a reporting tool comparing Actuals to Budget. So now we're talking Headcount Schedules, Vendor Schedules, Contractor Schedules, and any other sub-schedule you can think of. This model has a much longer shelf life and is updated on a recurring basis (usually monthly). ???????? ??????????????: Think of an LBO Model like the SparkNotes version, and an FP&A Model as the whole book. ?????? ?????? ???????????? ???????????? ????&?? ????????????? Sometimes, sure. But in my opinion it's a mistake to do so. Most often what happens is a "fresh rebuild" of the FP&A Model after the deal has closed. This is because the core functionality of the LBO Model (buying the company and adjusting the balance sheet) is no longer needed. So, you're keeping a lot of obsolete complexity in your file that will ultimately bog down the forthcoming FP&A detail (and there will be a lot). ?? ?????????? ???? (???? ?? ??????????????): ?? Hey, I'm Chris Reilly — I simplify Financial Modeling. ?? Tired of wasting nights and weekends on worthless spreadsheets? ?? ?????????? ???????? ???????????? ???????????????? ???????? ?????????? ?? https://bit.ly/FMECourses

Want to work in Private Equity? Gotta know how to model this schedule ?? ???????? ????'???? ????????????????: "Adjusted EBITDA" (like you'd find in a Quality of Earnings or "QofE") ?????????????? ???? ????????????: Normalize a company's profitability to make it comparable to others. We do this by adjusting certain items. Here's how it breaks down: ??????'?? ?????? ???? ?????? ???????? ???????? "EBITDA, as Defined" is our first step. Aka the "EBITDA we can all agree on" because it is literally the definition, in other words: Net Income, plus: ?? Interest (because a company could be purchased with all Equity) ?? Depreciation & Amortization (because companies may elect different accounting treatments) ?? Taxes (because companies may operate in different jurisdictions ?????? the adjustments above affect the taxable income) = EBITDA, As Defined ???? ???????? ???????????????????? Next, things start to get creative: Management will take the "EBITDA, as Defined" and propose ??????????????????????????, ??????-???????? adjustments that are designed to normalize the earnings further. In this example, they've proposed a handful of expenses that need to be normalized: - Owner Compensation - Owner Expenses - Professional Fees - Selling Expenses - Research (In other words, "yes, these expenses happened (and we paid cash for them), but we don't expect them in the future.") This gives us "Management-Adjusted EBITDA." ?????? ?????? ?????? ???????????? ????? Now we flip over to the diligence side of the schedule. In other words, this is a ?????????????????????? ?????????? analyzing and approving/disapproving the adjustments proposed by Management. These are called the "Diligence Adjustments." (and you can see the line items are the same, but the buyer has added a few extras that will kick-in once the deal closes) Once the buyer is comfortable with its Diligence Adjustments, the schedule settles out to "Diligence-Adjusted EBITDA." ?? ?????? ??????????????: Diligence-Adjusted EBITDA is used as the basis for valuation going forward. ?????? ???? ???????? ??????????? It appears complicated, but its intent is actually rooted in simplicity. If we start with Net Income and only have one adjustment per line (whether positive or negative), we can "follow the trail" all the way to Diligence-Adjusted EBITDA and make sense of how we got there. In other words, it makes the schedule ????????????????????. ???????????? ?????????????? (the hard way): Make sure your model matches the QofE ??????????????, line for line, and build a double-check to ensure it's accurate. (getting this wrong is a painful lesson I've learned the hard way, I assure you) ?? ?????????? ???? (???? ?? ??????????????): ?? Hey, I'm Chris Reilly — I simplify Financial Modeling. ?? Tired of wasting nights and weekends on worthless spreadsheets? ?? ?????????? ???????? ???????????? ???????????????? ???????? ?????????? ?? https://bit.ly/FMECourses

Unlocking Private Equity Secrets: This 2-minute video will help you master the basics of the Waterfall Structure ?? ??The basic example is: Enterprise Value Less: Debt Less: Preferred = Proceeds to Common ??In a more complicated example, you might find: Enterprise Value Plus: Cash Less: Senior Debt Less: Subordinated Debt Less: Hurdle Rate Less: Preferred Less: Catch-up Provision = Proceeds to Common (split 80/20 to Investors/PE) ??In either case, the logic is the same: Start with Enterprise Value, then work our way down the "waterfall" until every investor group has been paid off and (hopefully) made a profit as well. ??How it fits in your model: You'll start with a schedule called "Returns." The first number will be Trailing-Twelve-Months (TTM) Adjusted EBITDA (pulled from your Income Statement). The Adjusted EBITDA will then be multiplied by a "market multiple." EBITDA x Multiple = Enterprise Value. Armed with the Enterprise Value, you can now work your way down the waterfall, modeling the proceeds to each investor group, and calculating the respective ROIs and IRRs. ?? ?????????? ???? (???? ?? ??????????????): ?? Hey, I'm Chris Reilly — I simplify Financial Modeling. ?? Tired of wasting nights and weekends on worthless spreadsheets? ?? ?????????? ???????? ???????????? ???????????????? ???????? ?????????? ?? https://bit.ly/FMECourses

Kind of know what you're doing, but... still feel uneasy about building a Financial Model "the right way"? ?? ???????? ???? ???? ???????? ???????????? ???????????????? ?? ? Balance Sheet won't balance ? The Three Statements aren't linking properly ? Boss is breathing down your neck (but you can't risk mistakes) ??'???? ???????? ?????????? My first model in 2009 was a sh*t show. Up all night, completely overwhelmed, zero confidence it was right. Even with training, nothing prepared me for building real models on the job. ????????'?? ?????? ?? ?????????????? ?????? ???????????????? ?????????????????? ???????????????? ?????????????? ?????????????? After years of balancing Private Equity demands while managing FP&A for multiple portfolio companies, I created the system I wish I'd had when starting out. ???? ???????? ?? ??????????, ??????'????: ?? Build models that actually work (and balance every time) ?? Complete models in a couple hours, not days ?? Make recommendations with confidence ?? Become your team's modeling expert ...?????? ??????'???? ????????????: ?? Exactly what data to request (and why) ?? Three Statements (built right, every time) ?? Cash Flow Forecasting that actually works ?? Pro-level Excel shortcuts and best practices ?? How to defend your recommendations with confidence No more late nights. No more uncertainty. Just models that work. ?? ?????????? ???? ?????????? ???????????? ????????????? Get the complete system here → https://bit.ly/FMECourses "???????? ???? ?? ???????????????? ?????????????????? ???????????????????????? (???? + ????????. ??????) ???????? ?? ?????????????? ???? ???????????????? ???????????????????? ?????? ?? ???????????????? ???????????? ???? ??????????????, ?? ?????????? ???????????? ?????????????????? ?????????????? ?????????? ?????? ???????????? "??-????" ?????????????? ???????? ???????? ???????? ???????? ???? ???????????????????? ???? ????????????." ?????

Hate to break it to you, but... You'll never be a strong Financial Modeler unless you understand this ?? ~~~ ?? ??????: template to help you get started ?? https://lnkd.in/exez-uUT ~~~ I'm talking about: ?????? ???????????????? ??????????????????. ???????? ???? ?????? ???????????????? ??????????????????? The matching principle dictates that revenue is recognized when earned, and expenses are recognized when incurred. The key thing to note here is "earned" and "incurred" do ?????? mean received or paid in cash. Basic example: if you do 1 hour of work, you've "earned it," but you probably won't be paid in cash until later. ?? ???????????? ???????????? ???????????????? ???????? ?????????????? (???????? ??????????) This is the easier of the two. The business ???????????? a rent expense in January. The rent expense is also paid in ???????? in January, so there's nothing to reflect on the Balance Sheet. ??????????: 1. The expense hits the P&L 2. The cash leaves the business in the same time period (January rent is paid in January) ?????????? ?????????????? (???????????? ??????????) This one is harder because the incurred expense doesn't match the cash outflow. The business ???????????? a bonus expense in January. But, the bonus isn't paid in ???????? until December. So we have to reflect that accrual on the Balance Sheet. ??????????: 1. Incur the expense in the appropriate period (January) 2. Accrue that same expense to our Balance Sheet in the Accrued Bonus account (in other words, "save it for later") 3. The Cash Flow Statement adjusts our Net Income to say, "yes, I see that you've ???????????????? an expense, but for ???????? purposes we're adding back the $1,000 in January because it actually won't be paid out until December." 3a. This is why it's called the "indirect method," because our Cash Flow Statement is ???????????????????? adjusting the Net Income to show us the cash. 4. In December (when the cash is actually due), the Accrued Bonus account is reduced to zero, and the cash leaves the company at the correct time. ?????????????? ?????? The company ???????????? $2,000 worth of expense in January, but... It is paid out in ???????? as follows: * $1,000 in January as Rent * $1,000 in December as Bonus That's the Matching Principle Visualized. ?? ?????????? ???? (???? ?? ??????????????): ?? Hey, I'm Chris Reilly — I simplify Financial Modeling. ?? Tired of wasting nights and weekends on worthless spreadsheets? ?? ?????????? ???????? ???????????? ???????????????? ???????? ?????????? ?? https://bit.ly/FMECourses

SaaS Modeling... How I think about GRR and NRR ?? A bit too long for LinkedIn, So I've LinkedOUT to it here: https://bit.ly/3R231ja

The surprisingly simple method I use to build Seasonality Forecasts (+ a template for you to practice with) ?? ~~~ *????;????: grab the template here ?? https://lnkd.in/eKDEu5Rt ~~~ ?? 1. ???????? ???? ?????? ?????????????? In the "Historical Revenue" section I pull together several years of history (if available). Then, I stack them together by month. At the bottom I calculate "Total of All Years" which gives me a grand total by month. (In this case, I have data for the last 6 years). ?? 2. ?????????????????????? ???????????????? I take the monthly totals and divide them by the grand total Revenue over that time period. This gives me my "Seasonality Curve, As Calculated," which serves as a reference point for the forecast. (a weighted-average of the history). Then, right below that, I have "Seasonality Curve, for Model," which allows the user to make any changes to the expected seasonality curve for this year. (Default is just to leave the curve alone). ?? 3. ??&?? ???????????????? Now that I have my curve, I simply punch in the expected Revenue and Gross Margin (the two light-yellow input cells), and extrapolate those figures for each month based on the seasonality curve. The Revenue and Margin forecasts come from the Management Team. My job as the FP&A Professional is ?????????????????? their assumptions: - Will our seasonality be different this year? - Why $2.7mm? - Why 20% Margin? ?? 4. ???????? ???? ?????????? The Revenue and COGS get linked back to my Three Statement Model. If I need to make changes, I come back to my seasonality tab, make the change, and trust that my Three Statement Model will update accordingly. (meaning my Working Capital will also change correctly). ? 5. ?????????? ???? ???????? Lastly, I will always have double-checks confirming: - My seasonality curve equals 100% - The Revenue and COGS in the Schedule match the Three Statement Model - The Gross Profit in the Schedule matches the Three Statement Model All of these double-checks will feed into a Control Panel I have as the first page in my model. ?? 6. ?????????????????? ???? ???????????? For a new product line I just type "Alt + e + m," create a copy of the tab, and rename accordingly. I'll build as many small, simple schedules as I need to create a comprehensive model that is easy to follow. (I just find it easier this way than stacking multiple seasonality curves on a single tab, but you can do that too if you'd prefer) ?? ???? ???????????????? ??????????: ?? Hey! I'm Chris Reilly -- I simplify Financial Modeling. ?? When you're ready, my courses cover IB, FP&A, SaaS, and PE. ? https://bit.ly/FMECourses

Here's how I use SUMPRODUCT to find errors in my spreadsheet ?? ~~~ *Want the dashboard from the video? ?? https://lnkd.in/efdpVuxX ~~~ Here's the formula: =SUMPRODUCT(--iserror([range])) Note: 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." I have no idea what that means, but sounds good to me. (Even as an experienced user and instructor there's always something new to learn!) ?? Hey, I'm Chris Reilly, and I can help you become the go-to Financial Modeler in just 8 hours. ? ??.??., ???????? ???? ???????? ?????? ?? https://bit.ly/46xfrp5

A cheat sheet you can actually read. Learn the indirect method of cash flow modeling, all on one page ?? ~~~ *Btw, you'll need a balance sheet too. Here's a guide ?? https://lnkd.in/ew4nwaVx ~~~ ? ?????????????? ???????? First things first, you'll need some data. You need the Income Statement and the Balance Sheet. ? ?????????? — ???????????? ?????????????????? 1. Pull the Net Income from the Income Statement 2. Pull the Depreciation from the Income Statement (or use the change in Accumulated Depreciation from the Balance Sheet if available) ? ?????????? — ?????????????? ?????????? You're calculating the changes between two periods. For Assets: Previous Period - Current Period For Liabilities & Equity: Current Period - Previous Period (note, if Fixed Assets are shown on a "net basis," you'll need to subtract Depreciation from your calculation as well) ? ?????? ???????????? If done correctly, the ending cash should match what you see on the Balance Sheet. Once it does, you can be confident your model is structurally sound. And now you can carry those formulas forward to reflect your forecast. ???????? ?????? Once your Statement of Cash Flows is built correctly, you leave it alone. FOREVER. Your modeling should only be done in the Income Statement and Balance Sheet. The Statement of Cash Flows is nothing more than a formulaic bridge between the other two statements. ? ?????????????????? ?????????????? ? Get Income Statement & Balance Sheet ? Calculate Changes b/t Balance Sheet ? Working when Ending Cash matches the Balance Sheet Hey! I'm Chris Reilly, and I teach financial modeling. ??.??. ???? ?????? ???????? ???? ????, ????&??, ????????, ???? ????, ?? ???????? ???????? ?????????????? ?????????????????? ???????????????? ?????????????? ???????? ?????? ???????? ?????? ?? https://bit.ly/FMECourses