Paul Barnhurst

Founder of The FP&A Guy | Providing training and content that helps FP&A and Finance Professionals be better at their job today and tomorrow.

I am a passionate teacher and creator of FP&A content. I enjoy helping FP&A professionals become more effective creators of value for their businesses. Today, I provide content and training on important subjects, including FP&A, Excel, Power Query, Data Visualization, Storytelling, and more. 

I host three popular podcasts, FP&A Tomorrow, Future Finance, and Financial Modeler’s Corner, which bring you the best and brightest people in finance and FP&A. 

I am a Microsoft MVP and have earned the AFP FP&A Certification and the FMI Advanced Financial Modeler Certification. 

I am a big advocate of FP&A planning tools and share research on FP&A software. I have also published several market guides to help buyers understand the landscape. 

☛ Feel free to contact me – Pbarnhurst@thefpandaguy.com

Podcast Host

Paul Barnhurst, The FPandA Guy

More Learning Resources Coming Soon

Something I have been really proud of is the fact that I have helped nearly 200 students through affiliate resources, educate themselves, and earn FP&A Certifications while getting a discount. 

On my website today, you will find links to the following programs:

➡️ AFP - Certified Corporate FP&A Professional
➡️ CFI - Financial Planning and Analysis Professional
➡️ Wharton Online - Financial Planning & Analysis Certificate Program
➡️ Financial Modeling Institute - Advanced Financial Modeler
➡️ FP&A Professionals Institute - Certification and discount on all courses

New stuff coming soon

➡️ AI Finance & Business Cert from Columbia
➡️ AI Finance Club
➡️ Copilot Course
➡️ CFO Tech certification from CFO Leadership Council
➡️ Financial Modeling Training from people such as Carolina Lago and Giles Male
➡️ Copilot training
➡️ Power BI and Power Platform Training

and I have my own new course dropping soon. 

I am excited to offer exclusive discounts on nearly 20 programs in the near future.  I continue to look for great programs to add, and the ones I have added, I either built part of the program, completed it, or I know the people responsible for it personally.  

I work to ensure every one of these is a quality program; I do not just add a program for the affiliate commission.  I also work to get you a discount with these programs.  If you know of a great training program I should add to my website DM me and let me know. 


In the meantime, here is my table comparing the most common FP&A Programs.

FP&A Guy Hot Takes

➡️ Finance is not nor ever will be a revenue center

➡️ ChatGPT will lose the enterprise market to other LLM tools and become primarily a consumer tool

➡️ FP&A will become the most common career path to becoming a CFO

➡️ Dashboards overrated, Data Storytelling underrated

➡️ Budgeting is overrated, planning and target setting is underrated

➡️ Excel is overrated and spreadsheets are underrated

➡️ Pies are only good for two things eating and playing Pac-Man

➡️ FP&A tool selection is overrated and implementation is underrated

➡️ Youtube is overrated, Podcasting is underrated

➡️ Excel formulas are overrated, modeling design principles underrated

➡️ Cafe Rio Sweet Pork is overrated and Crow Burger is underrated

➡️ Water with lots of ice is best

➡️ Jordan over Lebron

➡️ Clean-shaven is overrated and big beards are highly underrated

➡️ VBA is overrated and Power Query is underrated

Friday Humor

1. How do you describe an FP&A Professionals Job?

It is 80% cleaning data and 20% complaining about cleaning data

2. What is the difference between an FP&A Professional and an Accountant?

When an accountant gets creative they go to jail. When an FP&A Professional gets creative they get promoted. 

3. Not all CFOs use a MAC but all CFOs who go to jail used a MAC

4. What is the best place to store an Excel error message?

Column FU row 2 - FU2

5. What do Gold diggers and Cell References have in common?

If you want them to stay in place you need to throw money at them. 

6. Why was the spreadsheet constipated?

Because it could not BUDGET :)

7. What Does EBITDA really stand for?

Earnings Before It Tumbles Down Again

Earnings Before I Tricked the Dumb Auditor

Earnings Before Interest Therapy Depression and Anxiety

Earnings Before I Totally Deny Actual profits

Earnings Before Imaginary Things Disappear Again

Everyone Brags, Ignoring The Debt Altogether

8. What does Adjusted EBIDTA stand for? 

Earnings without any of the bad stuff

New job, a big, visible project, I was not sure how to solve. I turned to Power Query and the rest is history.

➡️ Within 4 years, I received 4 promotions

➡️ I fell in love with Excel for the first time and craved learning more, and today I am a Microsoft MVP

➡️ I impressed my boss countless times by, in the words of Oz du Soleil whooping up on crap data and providing value-added insights 

I owe a lot of my success today to that decision to learn Power Query. It was one of the best investments I ever made in my career. Still have my early books from Rob Collie and Ken Puls. 

If you do not know Power Query, stop waiting and get started learning today. 

Let me know in the comments what is holding you back? How can I help you on your journey? 

It is time to make Power Query one of the most utilized tools in Excel.

Most finance people hate their ERP.  

As my Future Finance Co-host often says, there are two things that will get you fired as a CFO

1. Fraud
2. Mentioning you want to replace your ERP

That is why it is so exciting to see what people such as John Glasgow are doing in this space.

John quit his job and built Campfire because he believed a better option existed.  

I have had the privilege of meeting John personally multiple times, interviewing him for my podcast, and attending Campfire's AI Summit. I can say I have come away impressed with him and what he has accomplished at Campfire every time. 

On a personal level, I am very grateful for Campfire as they have been the exclusive sponsor of FP&A Unlocked for the last six months.  Their sponsorship has allowed me to continue to bring the best and brightest guests in FP&A.  It has also allowed me to continue offering CPE credits for my accounting friends. 

That is why I am so excited to announce I will be hosting a webinar with John and Hank.

In this webinar, we will introduce you to what John and team have been building at Campfire, "Ember Agents." It is AI agents built for the modern accounting team, and they just released it in the last few days.

We will be discussing how Ember agents automates work for your teams, from flux analysis to accruals.  This webinar will include a live demo so you can see Ember Agents in action. 

Register today so you do not miss this exciting event. 

📅 Date: March 31st, 2026
⏱️ Time: 10 - 11 AM PST
🔗Register Here: https://lnkd.in/gZREc3zU


Sponsored by Campfire

After 40 years, Excel is not DEAD; in fact, it is getting a new intelligent layer that will help transform the future of finance.
 
An intelligent coworker is on every desktop. Microsoft Excel is leading the way in the era of AI. Brian Jones, Excel product team lead, shared his thoughts this week on Financial Modeler's Corner.
 
Anyone who tells you Excel is dead is not paying attention or a liar. Claude ChatGPT, Microsoft, and lots of startups are pumping hundreds of millions into building an intelligent layer for Excel.
 
That is why I wanted to bring Brian on and talk firsthand about Excel and Copilot. Below are some takeaways about how to use Copilot to get the most out of it in Excel.
 
➡ Use Copilot to Understand Workbooks You Inherit - Ask Copilot "What is this workbook about and how does it flow?" before diving into an unfamiliar model. It's like having a knowledgeable colleague walk you through someone else's work.
 
➡ Use AI for Tedious, Time-Consuming Tasks First
→ Broken formula references, reformatting, restructuring layouts,
→ adding documentation and comments
These are high-value, low-risk starting points. Let AI handle the grunt work so you can focus on analysis and judgment.
 
➡ Build a skill sheet. A dedicated worksheet inside your workbook that tells Copilot how you work. Tell it your layouts, formatting, formula preferences Tec. Great for teams with their own modeling standards. Think of it as an advanced template that guides the AI to work the way your team works.
 
➡ Model Choice Matters - Copilot in Excel lets you toggle between Anthropic (Claude) and OpenAI models. Each has a different awareness of finance concepts and workflows. Test both for your specific use case Remeber outputs can differ meaningfully it takes time to get the most out of AI.
 
➡ Prompt Differently, Get Different Results - How you phrase a request significantly changes what you get. Experiment with different approaches to the same task. This is a new muscle finance professionals need to build.
 
➡ Keep retesting what failed. Unlike traditional software, Copilot improves continuously. Something that didn't work six weeks ago might work today.
 
Brian put it well: every spreadsheet is essentially an app. And for the first time, there's an intelligent coworker sitting beside you helping you build it, understand it, and improve it.
 
Excel isn't going anywhere. Learn it deeper, then let AI take you further.
 
Listen to the full episode: https://lnkd.in/gsQkvFcH
 
 
🎓 Master the fundamentals so you can be better at AI​ and modeling earn your Advanced Financial Modeler accreditation from the Financial Modeling Institute (FMI) today at https://lnkd.in/gQV55MxS (Use code Podcast to save 15%)

Rey (Reinaldo) del Valle came up through the ranks of FP&A at Disney, MTV Networks, FedEx, Norwegian Cruise Lines. He then leveraged his FP&A experience to become a CFO and has worked on several major turnarounds and scale-ups during his career. He was even nominated for Los Angeles CFO of the year due to the amazing work he is doing.
 
Key highlights from the conversation:
 
→ Great FP&A transforms data into actionable insight. Always ask "what do we do with this information?"
→ Benchmarks matter more than people think (Rey saved $500K+ in audit fees by knowing what "normal" looked like)
→ You can't cost-cut your way to profitability in a turnaround—find the growth levers
→ Strategic messages need 7+ touches before they penetrate the organization → Active listening beats having all the answers (even as CFO)
 
Rey shared his FP&A as architects' framework. We work with leadership to understand their vision, then design the financial roadmap to get there. Accountants ensure structural integrity, but we're creating the blueprint.
 
Speaking of turnarounds, Rey stressed that nobody ever turned a business around by just cutting cost. While working at ABC Family, the business grew operating profit from $20M to $200M over 4 years. Not through aggressive cost-cutting, but through strategic collaboration efforts across the business to grow profitability.
 
Listen to the full episode to hear Rey's take on making the FP&A-to-CFO transition, why subtotal functions are his secret Excel weapon, and what he learned from managing through entertainment industry strikes.
 
Listen here: https://lnkd.in/gd42bApE
 
Campfire sponsors FP&A Unlocked. It is the AI-first ERP powering next-gen finance & accounting teams. General ledger, revenue automation, close management, and so much more—all on one unified platform.
 
What are you waiting for more learn more at:
https://lnkd.in/dKxnyDNV

In this episode of FP&A Unlocked, host Paul Barnhurst sits down with Rey (Reinaldo) del Valle to discuss what it really takes to move from reporting t

Open article: FP&A Career Path for Finance Professionals to Become Strategic CFOs with Rey Del Valle by Paul Barnhurst • 2 min read

FP&A Career Path for Finance Professionals to Become Strategic CFOs with Rey Del Valle

Exciting Announcements 🏀🏀🎓🛜

1. Market Resources - Several new training programs from trusted resources, including three focused on AI and finance, are on my website, all with exclusive FP&A Guy codes to give you even more value 

2. My website has had an overhaul with a new design and several new pages. Check it out at TheFPandAGuy. Let me know what you think, and thanks, Claude, for helping me it :) 

3. March Madness Brackets are here

🔵 FP&A Software Bracket - Vote for your favorite FP&A software and let us see if Runway can defend its title. This year, we have new upstarts, including

➡️ Claude for Excel
➡️ Copilot in Excel
➡️ ChatGPT for Excel
➡️ Una Software 
➡️ FinQore 
➡️ Pluvo 
➡️ and more

We also have traditional programs like

➡️ Workday Adaptive Planning 
➡️ Oracle 
➡️ Board 
➡️ Prophix 
➡️ and more poised for a deep run

If voting for your favorite software isn't your cup of tea, then fill out your March Madness bracket and prove you know basketball. Prizes for winners. 

Head on over to my website, fill out your bracket, and find a great learning resource. 

Go Cougars win it all!

AI tool consolidation will accelerate. 

This morning, I got an email saying Superhuman had acquired Rows.com. Superhuman was acquired by Grammarly last summer. 

The goal of these acquisitions is to create an AI-based productivity platform. 

Companies are racing to make the right AI acquisitions to create AI platforms. 

I expect to see more of this type of acquisition in finance and FP&A in 2026.

I think we will see companies focus more on platforms than on best-of-breed point solutions.

This has been HG Capital's investment thesis in the space. Look at who they have large ownership stakes in insightsoftware, Lucanet, Prophix, and OneStream. 

All these companies offer a platform of solutions, and all focus 100% on the office of the CFO. 

My prediction is that we are quickly heading toward tool consolidation, and it will be more of a platform consolidation than the same type of tool buying a similar product in the same space. 

I think for many AI ideas, the ship has sailed, and it will be a difficult road for many new players. The AI finance market is fragmented, and I believe consolidation is on the horizon. 

I talk to multiple companies weekly and stay close to the space. If you are interested in some of the research I have put together feel free to reach out.  I will share an update soon on some of the new tools I have seen.

Open article: Rows — The AI Analyst Platform by rows.com

Over 5,000 CPE hours earned from FP&A Unlocked 🥳 🎆 🪅 

I am proud to offer CPE credit. I have done that since the beginning as a service to others. I did it with FP&A Today, early on with Financial Modeler's Corner, and today with FP&A Unlocked. 

I am the only podcast I am aware of that offers both.

➡️ CPE credit for accountants
➡️ Continuing education credit for people who have the FPAC

I wanted to share a few stats I am proud of related to my podcast and CPE hours earned:

1. 103 Episodes all with CPE credit available
2. 5,233 CPE hours earned to date
3. Over 50 hours earned per episode
4. 142 hours earned from the highest episode
5. 4.9 average ratings for episodes on Earmark
6. 725 people have rated episodes

I am incredibly proud that, in addition to offering a valuable educational experience, I can help people earn CPE and FPAC credit. In the near future, my courses will also be eligible for FPAC credit. 

Huge thanks to Earmark and Blake Oliver for creating such an amazing platform that allows me to offer this service.

The life of a LinkedIn content creator as told through his DMs. These are all real message summaries some with a little sarcasm most without 


➡️ Dear Steven

➡️ Dear Amanda

➡️ Can you find my husband a job?

➡️ Will you do my homework I do not understand it

➡️ We have a family fund that wants to invest in The FP&A Guy Vertical 

➡️ Will you collaborate with me and sell my product even though you know nothing about my product or me 

➡️ Can I promote your podcast I will get you millions of views 

➡️ Will you hire me to do FP&A

➡️ Do you need random software designed for a company with lots of employees?

➡️ You seem nice can we chat offline always with an American name, a pretty photo and a fake job

What is your story?

Seeing an expert share an "AI Prompt Pack" for the 10th time on LinkedIn today then close LinkedIn and consult an expert. Prompts are one small part of optimizing what you get from AI.  

#STOPTHEMADNESS

A watershed moment for modeling with AI in Excel has arrived!
 
This week on the ModSquad, Ian Schnoor, CFA, CFM, Giles Male, and I tested the new Claude Excel add-in.
 
This week we tested Claude on:
 
→ A deferred revenue schedule
→ The AFM FMI Henderson Case Build
→ A CFM FMI Debt Build
 
For the Deferred Revenue Schedule the build was a 9 out of 10 and included documentation better than what 95% of modelers would have provided. There were still some small issues like formatting, documentation layout, and using different functions each time but the results were impressive.
 
Ian had Claude build a full 3-statement model from an AFM case study in 15 minutes, and a complex quarterly debt sculpting model from a CFM case in 10 minutes.
 
For both cases, the results were amazing. Balance sheets, balancing, debt schedules, accurate, correct IRR, etc. There were still minor issues emphasizing the need to know what you are doing to find them, but output was light years ahead of where it was six months ago.
 
Here is where I landed after this episode:
 
→ The mechanical build is being solved — start using AI for it when it makes sense and saves you time
 
→ You still need to know your craft:
 
1. Because catching the subtle errors is more important than ever
2. Because AI often uses more complex formulas and functions then we would use
3. Because your boss expects you to validate the model and understand the assumptions deeply
4. There are times it makes sense to build on your own, just because AI is better, does not mean it is always the solution.
 
→ Don't outsource your judgment. Augment it.
 
→ Documentation and scoping are high-value, low-risk places to start today
 
We've come a long way from our early episodes, where we debated whether to even show the output or not, it was so bad.
 
🎙️ Watch the full episode:
https://lnkd.in/g9mUHSyK

"I didn't understand a single word. We're not doing any of it."
 
This was said by a CEO to Jeff Greenfield after they both witnessed a marketing expert give a presentation.
 
It is a reminder that if people do not understand what you are doing, it does not matter how good it is. This week, Jeff shares advice on marketing attribution, how people need to understand the attribution model, and how marketing and finance can work better together.
 
Key Takeaways:
 
→ Don't rely solely on Google Analytics. It's built to measure Google channels, which means it consistently undervalues upper-funnel channels like social, CTV, podcasts, and display. Finance should understand this structural bias before accepting marketing's numbers at face value.
 
→ Expand your marketing data model beyond clicks. Add an impressions column alongside clicks and sales in your tracking sheet. Graph all three over time and look for lagged correlations. For example, clicks today often result from impressions from days or weeks ago.
 
→ Separate base sales (what you'd get with zero advertising) from incremental sales (what advertising actually drove). A platform like Google may "take credit" for organic or word-of-mouth sales. FP&A should push marketing to isolate true incremental impact.
 
→ Finance and marketing need to agree upfront on how success will be measured before a budget is submitted. When the CFO and CMO are using different models and definitions, budget meetings become adversarial rather than strategic.
 
→ Use regression-based models (e.g., Facebook's open-source Robyn tool) to evaluate marketing spend. These aren't perfect, but they put marketing on the same methodological footing as finance.
 
→ Finance has the fiduciary responsibility for marketing spend. If marketing can't produce rigorous models, FP&A should run their own. Some organisations even place analytics directly under the CFO for this reason.
 
🎙️ Catch the full episode here: https://lnkd.in/gFziK2u8
 
FP&A Unlocked is sponsored by Campfire.

Campfire is the AI-first ERP that powers next-gen finance and accounting teams. With integrated solutions for the general ledger, revenue automation, close management, and more, all in one unified platform.
 
Learn more: https://lnkd.in/dKxnyDNV

In this episode of FP&A Unlocked, host Paul Barnhurst is joined by Jeff Greenfield , an entrepreneur, advisor, and founder of Provalytics, a leading a

Open article: The Marketing Attribution Strategy for FP&A Teams to Take Control of Marketing ROI with Jeff Greenfield
 by Paul Barnhurst • 2 min read

The Marketing Attribution Strategy for FP&A Teams to Take Control of Marketing ROI with Jeff Greenfield

AI is a magnifier

Before you run off and master AI make sure you know the fundamentals well so AI magnifies you in the right way. 

If you want an FP&A Certification to help with mastering th fundamentals. Check out my website I have reviews and discount codes for all the major programs.

Open article: Compare Top FP&A Certifications: AFP, CFI, Wharton & More — The FP&A Guy by thefpandaguy.com

Compare Top FP&A Certifications: AFP, CFI, Wharton & More — The FP&A Guy

Are you doing exciting things with AI?

If so, DM me and let us chat. I am looking for guests who can walk through how they are using AI on the job.  I am not looking for software vendors who have a solution or people testing something in pilot mode.  I am looking for practitioners who have used AI in their day-to-day job to help automate workflows or who have built agents. 

If that is use please reach out and let us chat.

Move byeond reporting by using the 1:3:1 rule

Businesses want FP&A professionals who can tell the business what to do with data, not just deliver analysis and reports.  

I recently interviewed a recruiting professional who mentioned that one of the most common requests is to find candidates who can tell the business what to do with the data, rather than just throwing it at them and letting them figure it out. 

This is where the 1:3:1 rule comes into play.  When conducting an analysis and delivering your results, use this rule to help guide

1 - Focus on one problem/or one question you are trying to answer
3 - Come up with 3 potential solutions to the problem
1 - Provide your recommended path forward

If you want to move from reporting to delivering information that gets used, make sure you include Calls To Action and recommendations in your deliverables.  Leadership is looking for your opinion, not just a summary of the data. 

Join me next Thursday for a webinar where I will talke more about the 1:3:1 rule and data in general:

Turning Data into Decisions: FP&A's  Guide to High-Impact Analysis  

We will cover:

✅ How to turn analysis into insights with actual calls to action 
✅ How to structure your work around what leadership is really asking 
✅ What separates a real analysis from just another report

Sponsored by insightsoftware

🗓️ Date: March 26th, 2026
🕰️ Time: 12:30 PM - 1:00 PM
👉 Link to Register: https://lnkd.in/gVKBj2fE

Fama-French anyone?
 
 
Can't say I expected a deep discussion on Fama-French, felt like I was back in my finance class in grad school.
 
But that's what happens when your guest has been doing this for 20 years, and the random number generator picks question 17 ﻿
﻿
 
John Thomas Foxworthy M.S. Data Science joined us on Future Finance this week, and I learned a lot from him.
 
He has spent the last two decades watching people overcomplicate AI. His solution!? Ask better questions.
 
Key Takeaways:
 
→ The #1 reason AI projects fail isn't the technology; it's because no one asked the right questions before deploying it.
 
→ Before any AI initiative: run a feasibility study. Assess your data maturity. Know your org's readiness. Let the problem define the solution, not the other way around.
 
→ There are really only three things AI does: describes what happened, predicts what will happen, and recommends what should happen. Everything else is marketing.
 
→ "All models are wrong, but some are useful." If you can't sit with uncertainty and probability, AI will frustrate you. The shift from deterministic to probabilistic thinking is the hardest and most important shift.
 
→ For planning specifically: AI can help you find the scenarios you haven't thought of yet. That's where the real planning value lives.
 
John also shared the Sephora story about how they spent two full years collecting data before deploying a single model, and then tripled revenue in three years.
 
Patience + Process = Results.
 
His book, The Augmented Intelligence Revolution, drops later this year.
 
🎧 Full episode here: https://lnkd.in/gRB7UDzr
 
🎓 Check out our sponsor QFlow.ai at https://lnkd.in/gWYnU9uz GTM Finance CoPilot

Happy to share that I'll be speaking at Turning Data Into Decisions: FP&A's Guide to High-Impact Analysis! Make sure to attend it on March 26.

FP&A teams have more data than ever. So why is leadership still asking "now what?"

The gap between data and decisions is a real business problem, and Paul Barnhurst is breaking it down live on March 26th.

He'll cover: 
✅ How to turn analysis into insights with actual calls to action 
✅ How to structure your work around what leadership is really asking 
✅ What separates a real analysis from just another report

👇 Register now and start the shift from reporting data to driving decisions.

#FPandA #FinancialPlanning #SAPData #insightsoftware #LinkedInLive

Turning Data Into Decisions: FP&A's Guide to High-Impact Analysis

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

Theory is great until someone sends you 17 blurry PDFs and says "hey what's our business worth?"

This is the wake-up call that happens in the real world.

Businesses still need cash to operate, and they need profit if they eventually want to sell, but 9 times out of 10 the underlying data is a mess, and the "finance team" isn't sophisticated enough to build a forecast.

That's where YOU come in, right?  Just jump in and "stand up the model."

It's easy enough to understand on paper, but when you open that blank spreadsheet, suddenly, you can just freeze up.

Having spent over 15 years in Private Equity & FP&A, I know exactly how that feels.

When it's just you, some incomplete data, and AI isn't helping at all, how do you move forward?

That's where I can help -- I teach you to build (and own) the financial models that run real companies -- completely from scratch.

(𝘣𝘦𝘤𝘢𝘶𝘴𝘦 𝘵𝘩𝘢𝘵'𝘴 𝘵𝘩𝘦 𝘰𝘯𝘭𝘺 𝘸𝘢𝘺 𝘵𝘰 𝘳𝘦𝘢𝘭𝘭𝘺 𝘭𝘦𝘢𝘳𝘯, especially in an unstructured environment).

This is financial modeling in the real world.

🌐 𝗟𝗲𝗮𝗿𝗻 𝗺𝗼𝗿𝗲 𝗵𝗲𝗿𝗲 👉 https://www.financialmodelingeducation.com/ 


———

𝗥𝗲𝗰𝗼𝗴𝗻𝗶𝘁𝗶𝗼𝗻 𝗶𝗻 𝘁𝗵𝗲 𝗺𝗮𝗿𝗸𝗲𝘁:

🏆 Trusted by over 91,000 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


———

𝗥𝗲𝘃𝗶𝗲𝘄𝘀 𝗳𝗿𝗼𝗺 𝗽𝗿𝗼𝗴𝗿𝗮𝗺 𝗮𝗹𝘂𝗺𝘀:

"𝘛𝘳𝘢𝘪𝘯𝘪𝘯𝘨 𝘪𝘴 𝘧𝘢𝘯𝘵𝘢𝘴𝘵𝘪𝘤..."
⭐⭐⭐⭐⭐

"𝘉𝘦𝘴𝘵 𝘮𝘰𝘯𝘦𝘺 𝘦𝘷𝘦𝘳 𝘴𝘱𝘦𝘯𝘵..."
⭐⭐⭐⭐⭐

"𝘈𝘣𝘴𝘰𝘭𝘶𝘵𝘦 𝘨𝘢𝘮𝘦 𝘤𝘩𝘢𝘯𝘨𝘦𝘳..."
⭐⭐⭐⭐⭐

"𝘉𝘦𝘴𝘵 𝘤𝘰𝘶𝘳𝘴𝘦 𝘐'𝘷𝘦 𝘵𝘢𝘬𝘦𝘯 𝘰𝘯𝘭𝘪𝘯𝘦..."
⭐⭐⭐⭐⭐

"𝘔𝘰𝘴𝘵 𝘤𝘰𝘮𝘱𝘳𝘦𝘩𝘦𝘯𝘴𝘪𝘷𝘦 𝘤𝘰𝘶𝘳𝘴𝘦 𝘐'𝘷𝘦 𝘵𝘢𝘬𝘦𝘯..."
⭐⭐⭐⭐⭐

"𝘐 𝘩𝘢𝘷𝘦 𝘵𝘢𝘬𝘦𝘯 𝘴𝘦𝘷𝘦𝘳𝘢𝘭 𝘮𝘰𝘥𝘦𝘭𝘪𝘯𝘨 𝘤𝘰𝘶𝘳𝘴𝘦𝘴, 𝘵𝘩𝘪𝘴 𝘰𝘯𝘦 𝘪𝘴 𝘵𝘩𝘦 𝘣𝘦𝘴𝘵..."
⭐⭐⭐⭐⭐

🌐 𝗟𝗲𝗮𝗿𝗻 𝗺𝗼𝗿𝗲 𝗵𝗲𝗿𝗲 👉 https://www.financialmodelingeducation.com/

Chris Reilly

How I like to model scenarios without over-complicating the model.

(with template for you) 👇


~~~
📥 𝗧𝗟;𝗗𝗥: Grab the template 👉 https://lnkd.in/ez48VdTi 
~~~


𝗛𝗼𝘄 𝘁𝗼 𝘂𝘀𝗲 𝘁𝗵𝗲 𝘁𝗲𝗺𝗽𝗹𝗮𝘁𝗲:

𝗦𝗰𝗲𝗻𝗮𝗿𝗶𝗼 𝘀𝗲𝗹𝗲𝗰𝘁𝗶𝗼𝗻:

We're using the classic Base, Upside, and Downside scenarios here.

The scenarios can be selected in Column B using a drop-down list.

This allows you to build scenarios on a line-by-line basis.


⸻⸻⸻


𝗖𝗵𝗮𝗻𝗴𝗶𝗻𝗴 𝘀𝗰𝗲𝗻𝗮𝗿𝗶𝗼 𝗶𝗻𝗽𝘂𝘁𝘀:

You can enter the assumptions for each case on the right side of the sheet.

(The are different sections for Base, Upside, and Downside).

The 𝗽𝘂𝗿𝗽𝗹𝗲 𝗳𝗼𝗿𝗺𝘂𝗹𝗮𝘀 saves this all from becoming a dumpster fire.

This formula checks the drop-down list in Column B.

Then, it pulls the corresponding assumption from one of the three cases.

~~~
💡𝗞𝗲𝘆 𝗣𝗼𝗶𝗻𝘁: Whatever is in purple is the "𝗟𝗜𝗩𝗘 𝗦𝗖𝗘𝗡𝗔𝗥𝗜𝗢."
~~~

Many modelers like to use the =CHOOSE function here.

But for this template, I used a simple IF statement.


⸻⸻⸻


𝗠𝗼𝘀𝘁 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝘁 𝗽𝗮𝗿𝘁: 𝗻𝗼𝘁 𝗺𝗲𝘀𝘀𝗶𝗻𝗴 𝘂𝗽 𝘆𝗼𝘂𝗿 𝗺𝗼𝗱𝗲𝗹

The live scenario "flows down" into the three statement model.

(On a different sheet that isn't included with the template.)

The outputs then 𝘭𝘪𝘯𝘬 𝘣𝘢𝘤𝘬 to my scenario one-pager.

This lets me quickly view the 𝘢𝘯𝘯𝘶𝘢𝘭 impact of my 𝘮𝘰𝘯𝘵𝘩𝘭𝘺 model.

𝗧𝗵𝗶𝘀 𝗺𝗮𝗸𝗲𝘀 𝘁𝗵𝗲 𝗲𝗻𝘁𝗶𝗿𝗲 𝘁𝗵𝗶𝗻𝗴 𝗲𝗮𝘀𝘆 𝘁𝗼 𝗺𝗮𝗻𝗮𝗴𝗲 𝗳𝗿𝗼𝗺 𝗼𝗻𝗲 𝗹𝗼𝗰𝗮𝘁𝗶𝗼𝗻.

*𝗡𝗼𝘁𝗲 𝟭: Depreciation isn't affected here. I usually model Capex Spend separately, with its own scenarios, and let it flow to this page.

*𝗡𝗼𝘁𝗲 𝟮: I will often allow Debt and Interest Expense to adjust naturally with the other changes to the P&L.


⸻⸻⸻


𝗭𝗼𝗼𝗺𝗶𝗻𝗴 𝗼𝘂𝘁

Of course, scenarios become complex and need details that can't be captured here.

For example, changes in headcount or existing contracts probably can't be modeled at this level without creating a giant mess.

What we're looking at here are big picture changes to kick off a conversation.

(This is the "50,000 foot view" your boss mentioned earlier today).

After we choose a course with this "macro view," we can 𝘵𝘩𝘦𝘯 dive into the details and create something more specific.


⸻⸻⸻

Friendly reminder that...

𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝘄𝗶𝘁𝗵 𝗔𝗜 𝘄𝗼𝗻'𝘁 𝗵𝗲𝗹𝗽 𝘂𝗻𝗹𝗲𝘀𝘀 𝘆𝗼𝘂 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗳𝘂𝗻𝗱𝗮𝗺𝗲𝗻𝘁𝗮𝗹𝘀. 

🎓 Differentiate yourself here 👉 https://bit.ly/FMECourses

Private equity & FP&A veteran that teaches you to build the financial models that run real companies | 🎓 91,000+ students

So Claude has blown me away again.

Here's what it did this time 👇


I received a very thoughtful question from a student in my LBO course, asking for clarification between the total cash flow sweep formula, and the portion that was being swept to the revolver.

At first glance, they didn't understand why the figures were different.


⸻⸻⸻


I thought to myself, 𝘩𝘦𝘺 𝘺𝘢 𝘬𝘯𝘰𝘸 𝘸𝘩𝘢𝘵? 𝘓𝘦𝘵'𝘴 𝘨𝘪𝘷𝘦 𝘊𝘭𝘢𝘶𝘥𝘦 𝘢 𝘤𝘳𝘢𝘤𝘬 𝘢𝘵 𝘵𝘩𝘪𝘴...

I opened the model, clicked on Claude, copied the question, and asked it to audit the model and respond.

𝗜𝘁 𝗴𝗮𝘃𝗲 𝗺𝗲 𝗮 𝘁𝗵𝗼𝗿𝗼𝘂𝗴𝗵 𝗮𝗻𝗱 𝗰𝗼𝗿𝗿𝗲𝗰𝘁 𝗮𝗻𝘀𝘄𝗲𝗿 ✅.

(and this is a big a$$ LBO model)

Once again I'm like... 𝘋𝘈𝘔𝘕 — 𝘵𝘩𝘪𝘴 𝘵𝘩𝘪𝘯𝘨 𝘪𝘴 𝘨𝘰𝘰𝘥.

I reviewed it for accuracy, made some adjustments, and was able to respond.


⸻⸻⸻


Total time spent was probably the same.

But the 𝗾𝘂𝗮𝗹𝗶𝘁𝘆 of answer was probably 𝗯𝗲𝘁𝘁𝗲𝗿 than what I would have come up with on my own.

The walkthrough was succint and provided ample detail to drive the point home.


⸻⸻⸻


This whole thing is starting to feel palatable to me:

As a subject-matter expert, I'm able to use AI to:

   - provide a better experience for my students
   - validate my own learning
   - double-check my work

I'm excited to see what will pop next.


⸻⸻⸻


Still just have to say it.

Modeling with Claude is awesome because I know what I'm doing.

That comes from years of building models the hard way.

Fundamentals first, AI second.

I can teach you the building blocks here 👉 https://bit.ly/FMECourses

Even if you're "good," sometimes it's hard to remember all the pieces of a model.

You can use this checklist as a guideline (↓📥)


~~~
📥 𝗧𝗟;𝗗𝗥: grab the checklist 👉 https://lnkd.in/eVTU67fY 
~~~


🔎 𝗕𝗜𝗚 𝗣𝗜𝗖𝗧𝗨𝗥𝗘

Anytime I build a model I like to map out two things:

1. The data request list (what I'll need from the client), and;
2. The model structure

This checklist is my starting point for both, broken down as follows:


⸻⸻⸻


📂 𝗥𝗔𝗪 𝗗𝗔𝗧𝗔

Typically direct exports from an accounting system.

Call me old school, but I still prefer to copy/paste CSVs into the model so that everything is self-contained.

(or, I'll use PowerQuery to pull CSVs in automatically)


⸻⸻⸻


🧮 𝗦𝗨𝗣𝗣𝗢𝗥𝗧 𝗖𝗔𝗟𝗖𝗨𝗟𝗔𝗧𝗜𝗢𝗡𝗦

Detailed schedules to forecast the "biggest movers" of the business:

   - Revenue
   - Headcount
   - Material OpEx items, etc.


⸻⸻⸻


📊 𝗖𝗢𝗡𝗦𝗢𝗟𝗜𝗗𝗔𝗧𝗜𝗢𝗡

Raw Data and Support Calculations "roll up" here into the Three Statement Model consolidation.


⸻⸻⸻


📄 𝗢𝗨𝗧𝗣𝗨𝗧𝗦

As the name implies → print-friendly outputs that are linked from other places in the model, typically the Consolidation.

You 𝗱𝗼𝗻'𝘁 model here or have them link anywhere else.

They are outputs, should be automated, and left alone.

𝗧𝗵𝗶𝘀 𝗶𝘀 𝗮 𝗴𝗿𝗲𝗮𝘁 𝗽𝗹𝗮𝗰𝗲 𝘁𝗼 𝘂𝘀𝗲 𝗔𝗜.


⸻⸻⸻


⚙️ 𝗔𝗦𝗦𝗨𝗠𝗣𝗧𝗜𝗢𝗡𝗦

A place to enter most of the forecast assumptions.

Some people live and die by the "Assumption Page," but I usually go against best practices here and put my assumptions inside the Support Schedules and Consolidations themselves.

I do this because I like to see the numbers change as I change the assumption.

However, I will do my best to link everything back to an Assumptions page so it's printable and sitting in one place.


⸻⸻⸻


🚨 𝗘𝗥𝗥𝗢𝗥 𝗖𝗛𝗘𝗖𝗞𝗜𝗡𝗚

Despite our best efforts, nearly 90% of spreadsheets contain errors (Google it).

This is the place in the model where I do my best to capture anything that might go wrong so I'm notified immediately.

In my opinion, this is the most important sheet in the entire file, should be reviewed constantly, and is always the last thing you check before you close (and send) the file.

𝗔𝗻𝗼𝘁𝗵𝗲𝗿 𝗔𝗜 𝘂𝘀𝗲 𝗰𝗮𝘀𝗲: ask it to check for errors.  It 𝘸𝘰𝘯'𝘵 be perfect.  The final work product is still on you, but using AI is a good start.


⸻⸻⸻


🔽 𝗜𝗡 𝗦𝗨𝗠𝗠𝗔𝗥𝗬

   ↓ Raw Data
   ↓ Support Calculations
   ↓ Consolidation
   ↓ Outputs
   ↓ Assumptions
   ↓ Error Checking


⸻⸻⸻


𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝘄𝗶𝘁𝗵 𝗔𝗜 𝘄𝗼𝗻'𝘁 𝗵𝗲𝗹𝗽 𝘂𝗻𝗹𝗲𝘀𝘀 𝘆𝗼𝘂 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗳𝘂𝗻𝗱𝗮𝗺𝗲𝗻𝘁𝗮𝗹𝘀.

🎓 Master the judgement AI can't replace 👉 https://bit.ly/FMECourses

How to make this 𝘄𝗼𝗿𝗸𝗶𝗻𝗴 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗰𝗵𝗮𝗿𝘁 (helpful to know 𝘩𝘰𝘸 before you ask AI to do it, in case you need to fix something) 👇


🎓 𝗡𝗲𝘁 𝗪𝗼𝗿𝗸𝗶𝗻𝗴 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝟭𝟬𝟭

NWC = Current Assets - Current Liabilities

Purpose is to see if a company has enough current assets to cover its short-term liabilities, which suggests good financial health.

~~~
📥 𝗕𝘁𝘄: This balance sheet guide can help 👉 https://lnkd.in/ew4nwaVx 
~~~


⸻⸻⸻


👀 𝗦𝗵𝗼𝘄 𝗠𝗲

It's helpful to see it visually for a couple reasons:

   ‣ 1. To identify any trends.

   ‣ 2. To identify any outliers.

   ‣ 3. To see how much "cushion" there is.

That's the purpose of the graph below.

   ‣ Current Assets stack above zero.

   ‣ Current Liabilities stack below zero.

And the 𝗱𝗼𝘁𝘁𝗲𝗱 𝗹𝗶𝗻𝗲 𝗿𝗲𝗽𝗿𝗲𝘀𝗲𝗻𝘁𝘀 𝘁𝗵𝗲 𝗡𝗲𝘁 𝗪𝗼𝗿𝗸𝗶𝗻𝗴 𝗖𝗮𝗽𝗶𝘁𝗮𝗹.

In this example I've included a data table below the graph, as it's helpful to see the numbers in a table alongside an image.


⸻⸻⸻


⚙️ 𝗛𝗼𝘄 𝗧𝗼 𝗠𝗮𝗸𝗲 𝗜𝘁

(yes, still helpful even in the age of AI in case you want to modify things)

As modelers, this is a great chart to add to your monthly reporting pack.

Steps:

   ‣ 1. Start a new section called "Charts"

   ‣ 2. Include the dates along the top

   ‣ 3. Make your Current Assets positive

   ‣ 4. Make your Current Liabilities negative

   ‣ 5. Sum the Net Working Capital at the bottom

   ‣ 6. Create a Stacked Bar Chart

   ‣ 7. Change the chart type for the Net Working Capital figure only to Line Chart

        (leave the rest at Stacked Bar Chart)

   ‣ 8. You can customize and adjust from there


⸻⸻⸻


💬 𝗪𝗵𝗮𝘁 𝗜𝘁 𝗧𝗲𝗹𝗹𝘀 𝗠𝗲

In this example, we have a company that comfortably covers its Current Liabilities with its balance of Current Assets, and doesn't have much seasonality.

𝗕𝗼𝗻𝘂𝘀: can easily be forwarded to your team in a layout they can understand.


⸻⸻⸻


⚠️ 𝗪𝗮𝘁𝗰𝗵 𝗢𝘂𝘁 𝗙𝗼𝗿

Sometimes calculations take on a life of their own, and you can accidentally create misleading representations of your working capital balances.

Those one-offs would stand out immediately on a graph like this.

You can investigate (and fix) from there.

Lastly, assets might be tied up in AR or longer-term projects (which aren't immediately liquid), and this can skew the perceived health of the NWC as well.

So often times it's helpful to include a second layer of detail (like an aging schedule) to get a more complete picture.


⸻⸻⸻


💡 𝗛𝗼𝘄 𝗜 𝗰𝗮𝗻 𝗵𝗲𝗹𝗽:

Working capital is "core stuff" in three statement modeling.

If you're not quite sure how to build it correctly, I can walk you through it.

↳ https://bit.ly/FMECourses

When perfect accuracy isn't always helpful...

How I model Revolvers differently 👇


🏫 𝗥𝗲𝘃𝗼𝗹𝘃𝗲𝗿 𝟭𝟬𝟭

A "Revolver" is just a fancy term for "giant credit card."

If the business doesn't have enough cash, I "draw" on the Revolver.

(↑ this just means I borrow from it, like your credit card)

If the business has too much cash, I will (usually) pay down the Revolver.

(↑ often called a "sweep", the same as paying down your credit card)

~~~
✨ 𝗥𝗲𝘀𝗼𝘂𝗿𝗰𝗲: Model-building Checklist 👉 https://lnkd.in/eVTU67fY 
~~~


⸻⸻⸻


📦 𝗘𝘅𝗰𝗲𝗲𝗱𝗶𝗻𝗴 𝗖𝗮𝗽𝗮𝗰𝗶𝘁𝘆

Just like you have a credit limit, the Revolver has a "capacity,"

meaning you can't borrow more than [$X].

In the picture below it happens to be $10mm (you can see it in the middle).

Now, if I wanted to be perfectly accurate, then...

If I exceed Revolver Capacity, then 𝘵𝘦𝘤𝘩𝘯𝘪𝘤𝘢𝘭𝘭𝘺 the cash in the business should go negative.

But -- this is where we can draw a line in the sand and remember:

𝗧𝗵𝗲 𝗺𝗼𝗱𝗲𝗹 𝗶𝘀 𝗮𝗻 𝗮𝗯𝘀𝘁𝗿𝗮𝗰𝘁 𝗿𝗲𝗽𝗿𝗲𝘀𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝘁𝗵𝗲 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝘁𝗼 𝗵𝗲𝗹𝗽 𝘂𝘀 𝗺𝗮𝗸𝗲 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻𝘀.

(↑ and NOT the business itself)


⸻⸻⸻


✔️ 𝗧𝗵𝗲 "𝗕𝗿𝗼𝗸𝗲𝗻" 𝗦𝗼𝗹𝘂𝘁𝗶𝗼𝗻

Now contrarily,

If I just "let the model run" and allow the Revolver to "draw" (borrow) whatever it needs to,

it helps me communicate something to my team:

✓ I can say, "based on our expected operations this year, I think we will exceed capacity on our Revolver and need to:

   (1) Work on a reforecast
   (2) Ask for a larger Revolver, or
   (3) Both

✓ In addition, 𝘐 𝘬𝘯𝘰𝘸 𝘦𝘹𝘢𝘤𝘵𝘭𝘺 𝘩𝘰𝘸 𝘮𝘶𝘤𝘩 𝘸𝘦'𝘭𝘭 𝘯𝘦𝘦𝘥 because my model tells me.

(↑ I'll round up just a little for room)


⸻⸻⸻


🗨️ 𝗔 𝗖𝗹𝗲𝗮𝗻𝗲𝗿 𝗖𝗵𝗮𝘁

It's a much cleaner conversation than:

Me: "Looks like cash is going negative."

Boss: "Why?"

Me: "I'll check the model. Okay looks like Revolver exceeds capacity."

Boss: "How much are we over?"

Me: "The Revolver capacity plus the negative cash amount."

Boss: "So what do we need?"

Etc., etc., etc...

See what I'm saying?

Making the model perfectly accurate actually slows me down in this instance and creates confusion.

Whereas, if I build checks/indicators around major business issues, it allows the model to provide insight and help us make decisions as a team.


⸻⸻⸻


✅ 𝗧𝗿𝘂𝗲 𝗣𝘂𝗿𝗽𝗼𝘀𝗲

✓ That's the point of the model: just accurate enough that I have some runway to make a decision on what to do next.

I get no prize or bonus points for it being pretty or perfect.

But, I guarantee you we've created value if the model starts a strategic conversation with our lender and we come to terms on a larger Revolver.


⸻⸻⸻

𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝘄𝗶𝘁𝗵 𝗔𝗜 𝗵𝗮𝘀 𝗯𝗲𝗲𝗻 𝗿𝗲𝗮𝗹𝗹𝘆 𝗰𝗼𝗼𝗹.

It helps me b/c I spent 15+ years building from scratch.

So I know what's good and what's not.

I can teach you the fundamentals here 👉 https://bit.ly/FMECourses

I thought AI would make this obsolete but I was wrong.

The most common Excel shortcuts I use when modeling 👇


~~~
📥 𝗧𝗟;𝗗𝗥: Download here 👉 https://lnkd.in/e7DJFDxt 
~~~  


𝗦𝘁𝗶𝗹𝗹 𝗴𝗼𝘁 𝗶𝘁!

This is pretty much it: the 80/20 of all shortcuts I use in Excel.

These have been tried & true for years.

𝗣𝗿𝗼 𝘁𝗶𝗽: add your most used ones to the quick access tool bar.

Example, I use Paste/Special most often.

So, instead of typing "alt + e + s", I added it to my Quick Access Toolbar and just type "alt + 1" instead.

(sounds pointless, but actually lot of time saved).


⸻⸻⸻


𝗪𝗵𝘆 𝗔𝗜 𝗵𝗮𝘀𝗻'𝘁 𝗿𝗲𝗽𝗹𝗮𝗰𝗲𝗱 𝘁𝗵𝗶𝘀 (𝙮𝙚𝙩):

Shortcut keys are fast AF.

So when you know exactly what you need, it's 𝘮𝘶𝘤𝘩 𝘧𝘢𝘴𝘵𝘦𝘳 building the model using memorized shortcuts than it is to:

   - think of the prompt
   - write the prompt
   - wait for the AI
   - audit & understand the output
   - make edits

𝗠𝘆 𝗹𝗶𝘁𝗺𝘂𝘀 𝘁𝗲𝘀𝘁: if it's under 10 minutes and I mostly know what I need -- go old school with shortcut keys.

If it's longer than 10 minutes or previously would have resulted in some kind of Google search to an Excel forum from 2004, bring in AI.

Feel free to print this out and tape it to your desk -- there's no shame in it.

Hope this helps 🙂.


⸻⸻⸻

Needs to be said:

𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝘄𝗶𝘁𝗵 𝗔𝗜 𝘄𝗼𝗻'𝘁 𝗵𝗲𝗹𝗽 𝘂𝗻𝗹𝗲𝘀𝘀 𝘆𝗼𝘂 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗳𝘂𝗻𝗱𝗮𝗺𝗲𝗻𝘁𝗮𝗹𝘀. 

🎓 Master the judgement AI can't replace 👉 https://bit.ly/FMECourses

Back to basics... a 𝗽𝗿𝗶𝘃𝗮𝘁𝗲 𝗲𝗾𝘂𝗶𝘁𝘆 𝘄𝗮𝘁𝗲𝗿𝗳𝗮𝗹𝗹 even kids can understand...

(probably) 👇



(➕) 𝗘𝗡𝗧𝗘𝗥𝗣𝗥𝗜𝗦𝗘 𝗩𝗔𝗟𝗨𝗘

When a company is sold, the 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 𝗣𝗿𝗶𝗰𝗲 is called the "Enterprise Value."

It's usually calculated as a multiple of EBITDA, for example:

$1mm of EBITDA x 8.0x = $8mm Enterprise Value

This Enterprise Value (plus any cash on the Balance Sheet) is the "Total Proceeds" from the image.

~~~
📚 𝗜𝗳 𝗻𝗲𝗲𝗱𝗲𝗱; 𝗣𝗘 𝗶𝗻𝘁𝗲𝗿𝘃𝗶𝗲𝘄 𝗴𝘂𝗶𝗱𝗲: https://lnkd.in/ewh-x6_k 
~~~


⸻⸻⸻


(➖) 𝗗𝗘𝗕𝗧

Then, things are paid off in order of priority:

1. First, the Total Proceeds "flow" down the waterfall to first tier, 𝘁𝗵𝗲 𝗗𝗲𝗯𝘁.

The Debt needs to be paid off in full before the waterfall can "flow" to the next tier.

So in this image, the "Debt bucket" is completely full before it overflows and continues down the rocks.


⸻⸻⸻


(➖) 𝗣𝗥𝗘𝗙𝗘𝗥𝗥𝗘𝗗 𝗘𝗤𝗨𝗜𝗧𝗬

2. Then, the Remaining Proceeds "flow" down to the next tier, 𝘁𝗵𝗲 𝗣𝗿𝗲𝗳𝗲𝗿𝗿𝗲𝗱 𝗘𝗾𝘂𝗶𝘁𝘆.

(this is, of course, if the cap table has Preferred Equity, but it's common to see in PE deals)

Just like the "Debt bucket," the "Preferred bucket" needs to be fully repaid as well before the water can flow further.

Normally, the Preferred Equity includes:

   (a) its Return of Capital, plus;
   (b) a "Preferred Dividend" (i.e., 8% of the capital invested)

This dividend is also called the "hurdle rate."

(topic for another day: Participating and non-Participating Preferred)

Once the "Preferred bucket" is completely full, the water overflows and continues down the rocks.


⸻⸻⸻


🟰 𝗖𝗢𝗠𝗠𝗢𝗡 𝗘𝗤𝗨𝗜𝗧𝗬

3. Finally, to the extent there are proceeds leftover, the rest goes to 𝘁𝗵𝗲 𝗖𝗼𝗺𝗺𝗼𝗻 𝗘𝗾𝘂𝗶𝘁𝘆 holders according to their "pro rata" share.

(in other words, how much of the Common Equity they own)

This can be the biggest pool because there's no "bucket" to fill, but the risk is of course that the Common Equity comes last in the waterfall.

Generally speaking, the lower down in the waterfall you are, the higher potential return you can achieve, but it comes with the most risk because everyone else needs to get their money back first.

Also generally speaking, another non-economic benefit of Common Equity is that it typically comes with voting rights about the strategic direction of the company, whereas the Debt and Preferred Equity typically only have economic rights.

Last note, to keep the image simple, I've skipped the "𝗰𝗮𝘁𝗰𝗵-𝘂𝗽 𝗽𝗿𝗼𝘃𝗶𝘀𝗶𝗼𝗻" that often comes right after the Preferred Hurdle is cleared (again, topic for another time).


⸻⸻⸻


Been using AI modeling a ton, it's awesome.

It helps me b/c I've been building by hand for 15+ years.

𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝘄𝗶𝘁𝗵 𝗔𝗜 𝘄𝗼𝗻'𝘁 𝗵𝗲𝗹𝗽 𝘂𝗻𝗹𝗲𝘀𝘀 𝘆𝗼𝘂 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗳𝘂𝗻𝗱𝗮𝗺𝗲𝗻𝘁𝗮𝗹𝘀. 

🎓 Master the judgetment AI can't replace 👉 https://bit.ly/FMECourses

Hey I could really use your input -- if I was going to make a course about financial modeling with AI, what would be most important to you?

Note: this would be focused on people who are often in Excel building models and want an extra edge; it's NOT geared towards re-inventing the FP&A function -- that's beyond my expertise. 

Please leave a comment. All thoughts are good. I'm just in the brainstorming phase right now.

Which one is a Current Asset?

The questions get harder 👉 https://lnkd.in/eccYpT-R

The author can see how you vote. Learn more

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