Chris Reilly’s first finance experience was historic. He worked on the Lehman bankruptcy at the height of the financial crisis in 2008 unwinding the investment bank’s portfolio with “sights of empty offices and employees being laid off”. This period at management consultancy FTI Consulting occupied days and nights dealing with the aftermath of the financial crisis.
Following his consultancy days, Reilly moved to Hilton Worldwide in a more traditional FP&A treasury senior analyst role. Here he learned to love private equity and ended up pursuing middle market PE in Denver for nearly a decade. In 2020, he made his “pipe dream” of setting up his own consultancy business a reality, founding Mission Capital Consulting where he provides custom built M&A and FP&A models. He also runs a successful course Financial Modeling for Private Equity (“I started saying to myself, I wish I could have coached myself or coach an analyst or something like that on how to do this the right way because of all the sleepless nights I spent doing it the wrong way.”)
Chris is a leading voice in finance on LinkedIn, providing his more than 25,000 followers with insights and practical advice each day.
In this episode he talks to Paul about:
- How he became skilled in finance through “sink or swim” encounters that taught him modeling and FP&A
- How mastering the Three Statements changed his career trajectory
- The brutal response from a boss that changed his attitude to financial modeling forever
- His worst model? (Or why is still haunted by 7,000 rows on multiple tabs)
- Why every financial model starts with the end user in mind (and how to do this practically)
- Why the model itself should not be considered only a means to a “conversation”.
- Why building a model of their own lives” can be the most powerful beginning training
- His new courses including financial modeling for private equity which have attracted five-star reviews
- How he went from fine arts and Spanish double major to a career in finance
Hello everyone. Welcome to FP&A Today, I am your host, Paul Barnhurst, AKA the FP&A guy. And you are listening to FP&A Today. Every week we welcome a leader from the world of financial planning and analysis and discuss some of the biggest stories and challenges in the world of FP&A. We’ll provide you with actionable advice about financial planning and analysis. This is going to be your go-to resource for everything FP&A. As a reminder, FP&A Today now has CPE credit for episodes. If you wanna get credit for an episode, download the earmark app and you can search FP&A Today and apply for CPA credit for courses you’ve listened to. Also, if you’ve enjoyed what you’ve heard so far, please take the time to give us a rating on Spotify or Apple or whatever podcast platform you listen to. And with that, I wanna welcome today’s guest on the show. Today I have with me Chris Reilly. Chris, welcome to the show.
Chris Reilly
Thanks so much for having me, Paul. I really appreciate it.
Paul Barnhurst
Yeah, really excited to have you. So let me just give a little bit about Chris’s background and then I’ll give him an opportunity to go into a little more depth. So Chris is currently resides in the Denver Metro area. He graduated from Villanova School of Business. He has worked in finance with companies such as FTI Consulting and Hilton, and some mid middle market private equity firms. He specializes in financial modeling and FP&A. So Chris, can you maybe just tell us a little bit about your background and how you ended up where you’re at today?
Chris Reilly
Yeah, sure. So again, thanks so much for having me on. You know, alluded to there, I started my career in New York City for FTI Consulting and did a lot of consulting during the financial crisis and then transitioned from that to Hilton Worldwide, the big hotel company in a more traditional FP&A treasury type role. And then after that I really struck an interest in private equity and so I pursued middle market PE out here in Denver. My wife and I wanted to relocate at the time. And so I spent about 6, 7, 8 years middle market private equity. And then just a few years ago I decided to go out on my own as like an M&A, FP&A contractor. And I also like to do financial modeling education.
Paul Barnhurst
Got it. Great. So can you talk a little bit, you just mentioned FTI being there during the financial crisis doing consulting. What was that like? I mean, what were maybe some of the takeaways and the learnings from that?
Chris Reilly
Yeah, it was actually really fascinating. So I started out in the Lehman bankruptcy when I started my first week. And so I was in Rockefeller Center working on that, helping them unwind some of the derivative portfolios. And it was kind of a shocking way to enter the working world to see a lot of people that were really upset, a lot of people being let go empty offices, empty boxes and that kind of thing. And there we were just trying to help pick up some of the pieces and provide some enterprise value to Lehman as they unwound this portfolio. So it was just a very kind of interesting and sobering way to start my working career. And I never really forgot it because it was just so unique.
Paul Barnhurst
I bet I remember grads, I was in grad school when Lehman and all that happened in 08 and we did an investment portfolio and we were doing our presentation to the board. And I remember they said, this is one of the best presentations we’ve ever had. And I’m sure you guys learned some really good lessons, but we don’t wanna go through this again. Cause it was a really bad year for the portfolio as you can imagine. I don’t remember what the exact numbers were, but it was probably 20 something percent. It was a little better than the market, but it wasn’t by any means good
Chris Reilly
<laugh>. Yeah, I can imagine
Paul Barnhurst
<laugh>. So I could relate a little bit to that. And then going to work in late 2008 with all that going on, I went to work for American Express. Being a bank, that was definitely a difficult time to come into the company.
Chris Reilly
Yeah, I can imagine. Yeah, the whole experience was very interesting and unique time.
Paul Barnhurst
Yeah, no, that makes a lot of sense. So I know you mentioned you’ve been running your own business for the last couple years. Currently you’re running your own business. So maybe can you talk a little bit about what led to you deciding to go out onto your own and what your area of emphasis is for your firm?
Chris Reilly
Yeah, so good question. I mean, for me it had always kind of been a pipe dream a little bit. I’d be driving down in traffic and just going to my cubicle and just thinking philosophically to myself, Wow, wouldn’t it be great if I could just do my own thing? And little bit daydreaming at the time, not really realizing how much work goes into it, but it laid the foundation for me wanting to eventually do my own thing at some point regardless of where my initial career took me. And so after I spent a bunch of years in private equity I really honed my financial modeling skills and I really honed my business skills when I was younger in my career I was decent at the modeling piece, but I didn’t quite understand the big picture. Private equity really sort of illuminated my understanding of how business works, how transaction works.
And once I felt like I got to that point, I had enough skills, a decent enough network, I decided well let me go ahead and pursue this dream. I always wanted to go out on my own and see if I can do the parts of private equity and FP&A that I love the most, which is analyzing transactions and building the models and hopefully I have enough of a network to stand me up to get going. And so I just of went for it two years ago and I’m still here I guess. So far so good.
Paul Barnhurst
Yeah, a big part of it is still being there, just keeping it going. So no, that’s exciting and that’s great that it’s worked out for you so far and I’m sure it will continue to work out. Your smart guy, you’ll figure that out. But you mentioned the private equity taught you a lot about how a business works, a lot of that type experience and a lot about transactions and things. So how was that different than maybe corporate finance? What were the key takeaways from private equity?
Chris Reilly
Yeah, so I think in corporate finance I was part of primarily in Hilton where I did a lot of corporate fin and the company was almost so large that I had trouble zooming out and understanding the big picture. Now thankfully, Hilton does have a lot of hotel assets and you can drive by those and you sort of understand, okay, I see this building and I kind of understand how it generates revenue, but when you roll it all up and all the different business models they have, it’s a little bit hard to understand the big picture. And when I got into middle market PE, we’re buying much smaller companies, relatively speaking to something gigantic like Hilton. And so right away you’re meeting the management team at the very top of the business, which was completely new for me. And they talk through their whole strategy, they talk through their entire P&L and then in the private equity in the office, we talk about how we’re going to acquire this company and change it.
And just by going through that conversation, all of a sudden all the lights switch on, at least for me, where I finally understood, I get it, there’s this enterprise that this team has built, they could use some help from our office, our team, and together we’re going to acquire it and grow it. And so it wasn’t overnight, it took me about a year to really understand all the pieces and the nuance, but going through that helped me understand the big picture of how it all came together. And then suddenly I felt like things that I was reading in the Wall Street Journal that it all started to make sense and I felt like I could carry a conversation. I just sort of knew what was going on and I was able to talk at a more strategic level than purely an analytical one where I didn’t quite have the big picture experience. So it really clicked just going through middle market transactions in PE.
Paul Barnhurst
That makes a lot of sense. I could see where being able to see that whole transaction, meeting with the management, discussing things strategically helps put together the analytical work and stuff you’ve done before to have that holistic view of the company.
Chris Reilly
Yeah,
Paul Barnhurst
<affirmative>. Ok. And I know you talk about FP&A financial modeling if fair amount on LinkedIn. Can you kind of walk through how you learned FP&A, I believe that was mostly in your private equity. Cause I know you have a little bit of a non-traditional background, not the traditional corporate finance where you’re in an FP&A department.
Chris Reilly
Yeah, no, it’s a good question. How are they all intermingled in a way? So I mostly learned, so I did get some good, what I’ll call classic FP&A exposure at Hilton. So I had some experience there. But where I felt like where I really learned it again was in private equity because as soon as we were going to buy this company, well then our job is to create a proforma financial model over the next five years build the three statements and that kind of thing. And it’s very common to encounter the finance person at the target company who may not have the experience for that, or the skillset. They might be just more of a bookkeeper or maybe a controller and they’re not used to that forward looking finance function. And so when the managing partner just says, hey, build a model and figure it out, well then you’ve gotta figure it out.
And so a lot of my FP&A experience was self-taught in how do I build this income statement? How do I build this balance sheet and link it all together to see how the company’s going to perform over the next five years and how is that going to impact our return on investment? So it was just a lot of conversations with the management team, a lot of conversations with the finance team, so many iterations, sleepless nights until again it all finally sort of clicked. And I just, I just sort of learned by doing it because I had to get it done.
Paul Barnhurst
That can often be the best teacher when you have something due to the next morning and you know, have to figure it out no matter how frustrating it might be.
Chris Reilly
Yeah, no sink or swim is it’s challenging and stressful in the moment, but every time I’ve been put in that situation I look back and I think just, wow, I really learned a lot doing that even though it was tough at the time.
Paul Barnhurst
Even though sometimes you are like, I may not wanna do that again. But I definitely learned a lot. Right. So it sounds like, yeah, the FP&A experience is really around, a lot of it is these models and building out and understanding the companies where you got your hands dirty so to speak in private equity. Am I hearing that right? Is that kind of where a lot of that experience came is really the process of meeting with management and building out those financials to figure out if these deals made sense?
Chris Reilly
Yeah, exactly. I’ll just give you an example. We looked at a company in the oil and gas space a long time ago and to forecast how that company was going to do, you couldn’t really make up these vanilla assumptions like growing revenue by X and expenses by Y and just seeing how it all flows through. We had to talk about barrels of production and pipeline and where the business was going to expand and different growth avenues. And so you really just had to get in the room with the management team and become their FP&A team to help structure this model. And so that kind of process would rinse and repeat for every company we looked at. We’d look at something in the grocery space and you learn groceries, you look at agriculture, you learn agriculture. So after a while you get enough reps and it starts to make more sense, but it’s really, you’re in the room with the team, having them walk you through their business and then you build a model around that and that’s where that FP&A skillset comes from.
Paul Barnhurst (11:24):
That makes a lot of sense. I could see the value in that. And you quickly start to see the similarities and differences between industries.
Chris Reilly
Yes, <affirmative>. Absolutely.
Paul Barnhurst
Because I imagine you probably looked at transactions from quite a few different industries. It sounds like it wasn’t a PE firm that specialized in just one industry then.
Chris Reilly
No, that’s right. So it was multiple industries, but they, they’d be looking for businesses that had common characteristics and that would span a few different segments.
Paul Barnhurst
Sure, yeah. I mean that’s pretty typical. Most PE have at least an area they target. I know last two companies I worked for you, they were PE firms that were in the technology space. <affirmative> software. One was big in SaaS, another was big in cybersecurity and things like that.
Chris Reilly
Yeah. Mm-hmm.
[Datarails ad]
Paul Barnhurst
So switching gears a little bit, I know you speak a lot on LinkedIn about financial modeling. I know I’ve heard really good things about your modeling. I’ve seen some of the work you’ve done and I know you do a really good job there. When you’re building a model, what’s the process you go through? How do you think about that when you first are sitting down to build a model?
Chris Reilly
So the first thing that I like to think about is who’s the end user and why are we building this tool? Because often the end user is somebody who doesn’t have the excel or modeling skills that I have. And so I run the risk of complicating something just by the nature of the design, which it sounds like you empathize with,
Paul Barnhurst
I’ve done it,
Chris Reilly
<laugh> done it, done it multiple times. So I think, okay, who’s the end user? And then I try to backfill from there with my starting point being we do need some kind of data source from somewhere. So let’s figure out the data source, let’s figure out the end user. And then it’s my job to make the middle of the model as efficient and as streamlined and basically scalable as possible. And so that’s where I’ll do my thinking and I’ll kind of map it out once I have the data and I know the end user. So I kind of start with the book ends and then I fill in the middle pieces.
Paul Barnhurst
And if I’m hearing that the book ends or there’s two things, There’s the raw data, figuring out the data source, what all you need, what’s available, how to manage that <affirmative>. And then there’s the front end which is really thinking of what am I trying to solve? What are the answers they need to get out of this model and who is it for .
Then from there you kind of fill in going, okay, well then I’m going to need a three statement based on what they want. I need these schedules. And you start putting the blocks together.
Chris Reilly
Yeah, exactly. Cause at the end of the day, you want the model to just be a tool to drive conversation to hopefully make some good decisions. And so I’m thinking, okay, how can somebody receive this file, open it up, hit print and they can go into a meeting and actually have a talk and get somewhere. And so it’s my job as the modeler to build modules in the middle to make that an efficient process. But the model itself doesn’t, is not the business, it’s not the thesis, it’s getting it into the right hands for a real conversation. So for stuff, for stuff to take place,
Paul Barnhurst
And I like how you said the real conversation, the model itself is not the answer. The model helps enable and guide conversations. And it’s only as good as the assumptions and how correctly it’s been built in the sense of there are the formulas, all right, is there no errors? Do the assumptions make sense ? Cause we know the assumptions aren’t going to be right. Cause if we could forecast that, well you and I would be retired at the moment I always tell people like, Well you forecasted that really close. I’m like, Yeah, no, that wasn’t my forecasting skills. I don’t have a crystal ball.
Chris Reilly
Right. That was, I just did it. I just made a decent guess.
Paul Barnhurst
<laugh> that was an estimate that worked out. Wait till you see the next one. Just remember the last one was close so you can’t get too mad at the next one. But I’m sure you’ve seen just about everything in modeling. So maybe before we talk a little bit of some guidance for people, do you have a modeling horror story? Maybe a model you inherited or something you’ve seen where just kind of, you still kind of cringe when you think about it?
Chris Reilly
Oh yeah man, I will never forget this one. So this was in the PE world, more of a VC kind of deal. And unfortunately the company had hired a consultant to build the model, which doesn’t make consulting look all that good. But because everybody’s a little bit different, <laugh>, there was a model that had this, not exaggeration, six to 7,000 rows on multiple tabs. And so it made my computer freak out, made the fan go on, everything heated up and anytime you would change any cell, the whole thing with freeze, it would bug, the wheel would spin all this kind of stuff. And we got nowhere. Absolutely useless. So the whole thing basically was unusable and the management team was frustrated. And so what ended up happening was I ended up rebuilding the whole thing. And it’s sort of a good lesson there because it took out all of this fluff.
(17:54):
I think the model was genuine in its intent that it was trying to forecast some population growth. It was a healthcare deal, but at the end of the day it was just too complicated and you can’t predict that kind of stuff when at the end of the day the idea is just let’s get a general financial picture to assess if we can complete a transaction. So I remember I was so angry, I was showing my colleagues, I’m like, can I just show you this? I just kept scrolling and scrolling and scrolling. This is the worst model I have ever seen.
Paul Barnhurst
Yeah, that is pretty bad. I remember you mentioning something, I think about that model on LinkedIn one time row 6,000 for an assumption and I just shook my head when I saw it.
Chris Reilly
<laugh>. Yeah, that was a bad one.
Paul Barnhurst
Yeah, no, we all have those horror stories so to help prevent those horror stories. Speaking on the opposite end of that, what do you believe are the most important or maybe the top three skills that somebody needs to be a successful modeler?
Chris Reilly
So, I think at the basic level you just of need your technical Excel skills. You don’t have to be an expert, you don’t have to be amazing. You just have to know the 80 20 of the stuff you’re going to use most often, which is fairly basic formulas. It’s not too crazy. And just have some of those keyboard shortcuts dialed so you can at least be efficient. That’s sort of the excel level of it. The rest is truly business sense and it’s big picture knowing the financial statements. At the end of the day, gotta, yes, we can forecast revenue in Excel, but why? And then we can build expenses, but why and how are they built? And then just because we have net income, that doesn’t mean that that’s equal to cash. So how do we forecast working capital? How do we factor in capital expenditures?
And so if you start to understand those primary levers of what drive a business and then couple that with some modeling skills, just frankly intermediate modeling skills, I think then you can be really effective in FP&A because you wanna be able to have that conversation at the management level. You want to be able to come in and say, I’ve done some analysis and here’s a recommendation. Not like I have a fancy model and can somebody else interpret it but I don’t really know what’s going on. Please somebody else read this and tell me if it’s good or not. It might be a great file, but that’s not helpful if you can take the work that you’ve done and you’ve, you say here, here’s what I’ve completed and now I propose we do X, Y and Z. What does everybody think you have? You now have a much more effective tool at your disposal. And that kind of thinking comes from understanding the primary levers of the business.
Paul Barnhurst
So if I’m hearing it, you know mentioned three things. There’s the base technical skills that you need to have and I’m guessing when you say technical you mention, you know, don’t need to be an expert in Excel or spreadsheets, whatever you’re using. But probably knowing SUMIFs basic lookups and a few other formulas, there’s probably 10 that you use 80% of the time, I’m guessing. I know that’s the case with me. There’s always the occasional where you might have to find something out of the ordinary, but most of the time it’s pretty simple for
Chris Reilly
<affirmative>. Yeah, definitely.
Paul Barnhurst
And then really understanding the financial statements, understanding how they work, networking capital, what’s on the balance sheet, how it balances, how to build a cash flow, really understanding how they interrelate to each other. Is that,
Chris Reilly
Yeah, yeah. And I talk about this all the time, which I’m sure is a broken record for a lot of people, maybe especially for you. But the understanding of those statements is so important because that allows you to be strategic about the business. At the end of the day, we can overcomplicate FP&A as much as we want, but any business is going to generate revenue, it’s going to have some offsetting expense and then the team has to manage the cash and either they can do that or they can’t. And so you wanna be sort thinking and targeting that level. How do we grow it? How do we strategize to keep this business going over the long term and getting out of such hyper-technical that we’re not necessarily getting value out of it.
Paul Barnhurst
Well I love the part where you said just managing the cash, making sure you have cash. And I kind of laughed cause we just released the episode with CJ Gustafson, he just became a CFO at a VC firm and he was talking about Marc Lore who was the CEO at jet.com and we were talking about financial crisis and he goes give the advice Lore one time said, he goes, You have a viable business till you don’t. Stating the obvious you have cash till you don’t have cash <laugh>, but you need to know how to manage it and know when you’re going to run out. I know you’ve talked about that being, you’ll see that number go negative and either having something in there to prevent it or a trigger to make sure that conversation happens that oh yeah, we’re going to need to figure out a funding source here or we’re going to need to slow growth or expenses or whatever it might be. So you can have those intelligent conversations. And that’s where the third thing I think comes in and that’s the business acumen strategy, the critical thinking, whatever you wanna call it. But it’s that side where you really have to be able to see the big picture and talk intelligently and be able to sense check assumptions. And I think we’ve all worked in those situations where you get a model and you’re looking at the assumptions and going, okay, nobody even checked them. This is a beautiful model, but these numbers, they’re never going to happen
Chris Reilly
<laugh>. Yeah, right. No, exactly. That’s all part of it. And the business acumen piece that comes with time and unfortunately I feel like it always comes later and it would be nice or I mean even I just sort of recommend that become a primary focus for somebody newer in the profession. It’s just zooming out. It’s big strategic levers, why do these things happen? Because you can always backfill technical details if you have the strategy, but for me it was the opposite. I had the technicals first, I got the strategy stuff later. So I think that’s the natural progression for a lot. But if you could flip those, I think it’d be really valuable for somebody who’s kind of looking for an FP&A career
Paul Barnhurst
That is really solid advice. If you can get in the room at the beginning and really have some of those strategic discussions and listen to management and absorb that knowledge that will help you. Cause you’re right, the technical skills, I mean anyone who’s in this field generally is good with numbers, they’re intelligent people. Finance, you’re not going to go into finance if you hate numbers or if you did you’re going to be pretty miserable. And Excel isn’t hard to learn, it’s not rocket science to learn the basics of Excel. But really it’s a lot of time and wisdom that comes into understanding the strategy and to be able to think through things intelligently. I know one area I really struggled in my career was getting out of the weeds, getting that big picture detail. I still remember I had one director or he wasn’t my direct boss, but I worked very closely with him.
He was in the neighboring team and every time we were on a call would I get too detailed, he’d send me a slack, we had an agreement, he’d send me an instant message, I take it back up, take it back. And I focused on it that whole year. And I even had another general manager I supported, he thought I was too detailed and he finally came to me and said, Okay, I want every male to start with bluff. And this is really when it started to sink in, he goes bluff bottom line up front. Like you can put the details below it but just get to the point. And so it took me a while, it held me back a little bit in my career and I feel like I really started to get there. But even sometimes I would started getting into detail. My boss or somebody would be looking at me like, You stop..
Chris Reilly
No, I laughed because I, I’ve been there myself, I’ve been there myself.
Paul Barnhurst
I’m glad I’m not the only one. So yeah, I get it. I mean that’s what makes a good analyst is getting into the details and really be able to work through those things. But what makes a great FP&A is having the ability to pull back up. And that’s often takes time to develop. So if someone came to you tomorrow, and I think I know the answer from what we talked about it, but if they asked you for one piece of advice to become a better modeler, they wanted to become better at financial modeling, what would be the one piece you’d give them?
Chris Reilly
So I would actually say they should build a model of their own lives. That is the way that I learned pretty much all my Excel stuff. I wanted to build a personal budget now a family budget and just tinkering with that is how I got good at the raw Excel skills. And the reason I say that is because there’s no, there theoretically is no learning curve for your own life. You kind of know what’s going on when you’re getting paid, when you have bills to pay. And so in a business you gotta learn all that stuff but your own life you just sort of intrinsically know it. And so it’s much easier to model tinker with functions and say, okay, okay, I want this output and now I’ve got it. So I built tons and tons of personal models over the years and that led me to experimenting with Excel functions and just all these other cool things that I wouldn’t have necessarily learned on the job. So I feel like that is definitely number one because of sharpens the technical skills right out of the gate and then it prepares you for that phase two stuff where you can start the more strategic thinking because the technical skills are honed. So yeah, I’d say model out your own life if you can.
Paul Barnhurst
So the advice basically if I’m taking is everybody should basically do a budget, some kind of modeling, whether it’s hey, whatever I wanna be in 10 years retirement, whatever. But start modeling out those situations that apply to your own life. Take your revenue, take your expenses, look at your assets, your liabilities, all those things that make up basically the financial statements for your own life.
Chris Reilly
Yeah, yeah, exactly. Even just do something the next 12 months, keep it basic paychecks expenses and then it gets interesting. If you use a credit card, you’ll find that okay, you have expenses one month but you pay the cash later on and all of a sudden now you’re learning cash flow forecasting instead of just P&L building. And so you can actually draw a lot of parallels from your personal life into the business setting. So just do a couple months see how it goes and it becomes a great discipline for you too. So it’s kind of a win-win.
Paul Barnhurst
Yeah, exactly. I’m sure you learn some things as you’re looking at go wait, I’m spending how much on what? <laugh> and the realization of oh man going out too much
Chris Reilly
<laugh>. Yeah, exactly. I mean just the fact of you start to realize being better disciplined with your money, which is good for when you’re looking at a business cause FP&A one of things we have to be is disciplined around how that capital’s allocated and it’s true in our own lives. So I could see where there’s a lot of benefits from that.
Paul Barnhurst
So next question here, I’ve heard you talk a lot about integrated three statement modeling and I think, and I have talked about this, and I think most of the audience knows, I haven’t done a lot of three statement modeling. I’ve done a little bit, most of my experiences been P&L, maybe some Capex stuff and key metrics, whether it’s transactions or different things like that. So when I always hear everybody, hey you gotta always have a three statement, start with the integrated. You don’t necessarily always see that when you’re working in big companies. So could you talk a little bit about what the benefits of having an integrated three statement model is? Maybe why, you know, talk about that so much. You almost kind of preach the importance of that three statements.
Chris Reilly
So at the end of the day, the reason you’re building that model is to ultimately forecast cash in the future. And it’s not going to be as accurate as a 13 week cash flow, which can be done by day or by week. But directionally, if you need to know what the cash might do over the next 12, 24 months, even five years, you need those three statements because the income statement is accrual based, even though accrual accounting has its own beauty to it because it’s simpler to follow when you understand it, you have to translate that into the cash. Because like we said earlier, you know, either have the business or you don’t. And so the three statement piece allows you to forecast the working capital, the capital expenditures, the debt payments, and even any equity contributions or distributions so that when you zoom out and look at the cash flow, you can see where’s that ending balance going to be in the future.
And now given that, do we need to potentially raise any more capital from debt or equity or could we maybe distribute, Right? And so if you’re looking at it at the private equity level, you’re saying, okay, if we need more, we’ve gotta talk to lenders or if we can distribute capital back, then we can make a return on our investment. So the integrated three statements allow you a holistic, complete picture of translating an accrual based business to seeing the cash in the future. And that’s why I harp on it so much. Cause at the end of the day you need to have a sense of the cash.
Paul Barnhurst (30:52):
Well as they often say, cash is king, right? Yes.
And we talk about, especially right now, I see all these SaaS businesses, you see the economy turning a little bit, right? SaaS businesses in the early days, especially VC backed, they’re not making money, they’re burning a lot of cash. And the last few years money’s been cheap. Risk has been relatively inexpensive in the sense of loans, there’s not a much interest you’re paying on those. And so they’ve invested in a lot of these companies and there’s been I think a lot of inefficiency. I don’t wanna say a lot, but a fair amount you’re not as worried about the unit economics. We can get to the next round of raising and we’re growing great revenue. But I think you’re seeing that return to the basics today, the three statement, the cash. It’s like okay, how do we really manage, what are our unit economics? How do we make sure we can survive 18 months and that we’re growing this in a healthy way, in a sustainable way versus revenue at all costs.
Chris Reilly
Right? Right. Yeah, no absolutely. And especially you brought up SaaS, there’s this tendency revenue at all costs was sort means head count at all costs. And then let’s see how much runway we have and then maybe the next round triggers or money is cheap and that is one way to do it when the time is right, but when it’s not so right or even a little bit uncertain, some of that stuff does have to be scaled back. And again, it all kind of comes back to basics. Whether it’s a SaaS company or an ice cream shop, you got revenue and expense and it’s all gotta net out somewhere at the end of the day. And you can string it along with financing rounds for a while. Don’t get me wrong, it doesn’t mean the company has no value, but at some point it does have to equalize to be self-funding or you’re going to run into issues. And so again, it all comes back to those three statements. Why I harp on it so much is you can predict that time if you run everything through those three statements.
Yeah, and it’s funny, as you mentioned, it reminded me a line a little off the three statement, but I think you like this again, this was actually in this week’s podcast that was just released CJ and he mentioned he was talking about CAC, right? Customer acquisition cost, which is huge in SaaS. He said low CAC payback period. Customers fund your growth high CAC payback period, VCs fund your growth. And that last part is unsustainable. And I really like that way. I’d never quite thought of it that way. And that’s where you talk about the runway and the headcount and managing revenue in your cash. Because if you’re constantly raising and you’re spending a lot to acquire customers, you’re going to be in trouble. And having that view of the cash will help you realize that. Because sometimes just seeing the P&L and seeing the head count doesn’t dawn on you until you really see it laid out and start to realize we’re spending how much and just a clear cash picture. I know there’s times I’ve done that in my personal life where you put the budget together and you’re like, wait, I burned how much last month?
Like I gotta slow that burn rate, I’m going to be in trouble.
<laugh>. Yeah. Yeah, I’ve been there <laugh>. That’s an interesting way of framing it. Never thought that either. That’s
Paul Barnhurst
Cool. Yeah, that really stuck with me. I thought it was a really good way to sum it up on that whole idea. So moving forward here, I think that’s been helpful on three statement maybe can you talk a little bit, I know you’ve developed a few different courses, so can you talk a little bit about the courses you have out there and what you hope people learn from your courses around financial modeling? And before you do that, I’m just going to share, I was talking to somebody who’s had a model built by Chris and they commented that they were the best financial modeler that they had ever worked with. So I want the audience to know Chris is really good. He knows his stuff. He is a really good modeler. I’ve seen some of his models and I know he does really good work. So from there, now that I set you up, Chris, I’ll let you talk a little bit about your courses and a little bit of what you offer.
Chris Reilly
Well I appreciate that compliment and
Paul Barnhurst
It is true, he did say he’s a CFO of a large company and that’s what he said.
Chris Reilly
Oh well. Well that’s awesome. Well I’ll just talk about the primary one because everything else sort flows down from that. And basically my flagship one that’s the most popular is financial modeling for private equity. And the reason that I like it so much and that it performs so well is because you learn all the three statements which we’ve talked about, but then on top of it you learn how to layer in a buyout transaction into those three statements and then ultimately calculate a return on your investment. So it’s really a pretty comprehensive business education taught through a financial model. And I built it up from scratch because when I started in private equity I alluded to earlier, I mean I really struggled. I didn’t quite know all the big picture stuff. It took me a long time to get there over a year. And as time went on, I got better at it.
I started saying to myself, I wish I could have coached myself or coach an analyst or something like that on how to do this the right way because of all the sleepless nights I spent doing it the wrong way. And so that was my goal. I wanted to do it from scratch. I wanted to make it as relatable as possible but also as detailed as possible. So you really got the sense of how does a true middle market buyout work and also how do we model out all these financial statements so you get this holistic education through this course. So I built it in the covid days and it’s done really well since, and it, let’s see, it’s also on Wall Street Prep. So that was a nice validation for it’s good enough for them to feature it. So that was nice. And it also was a precursor for FTI Consulting. I rebuilt their new hire training last year in a similar fashion. So it’s a nice way for somebody at home to get that comprehensive education that they’re teaching at some of the biggest management consulting firms in the world.
Paul Barnhurst
Well great. And I appreciate you sharing that. And I can relate to when you said you wanted others not to have to go through the pain you did. That’s why one of the things I teach at almost all my Excel trainings I do is 10 design principles for designing Excel financial models. How to think of color coding, how to link things, assumption pages so that it’s structured. And I always like to say, hey, these are design principles, not commandments in the sense of you, you have to follow these 10 >. It’s come up with what works for you. There are some that you really should follow. There’s some that are almost like a rule don’t hard code. That’s pretty universal rule. Don’t stick it all over your model. Others are a little more subjective. And I’ve found that that’s something I wish I had been taught when I started. My models were a mess,. The first few I built. Sometimes they still are if I’m not careful if I get down carried away. So I appreciate that and I’m sure it’s a good course for anyone who’s interested in learning more there. So next question we have for you here is, as you look at FP&A, you look kind of toward the future and what’s going on. What do you see as the biggest challenges and opportunities in the field of FP&A?
Chris Reilly
So this might be sort of a strange answer, but in my mind the challenge and maybe also an opportunity depending on how you approach it, is the over complication and the inundation of sophisticated data and processes that we have at our disposal. There’s like, there’s AI now and there’s machine learning and there’s all this automation. And as you’ve probably gathered from this conversation, some of that stuff is just over my head. I like to keep it as basic as possible in these primary levers of revenue and expense equals X. And we either have the cash or we don’t. And so I worry that somebody may go way down the rabbit hole of getting hyper technical with technical skills, which are awesome skills to have, but it’s at the sacrifice of not getting the bigger picture business understanding. So I think if you can still anchor yourself around a business education and just strategic initiatives you can do to help the business grow, then that technical skill is a great compliment to that. But I worry that that can almost suck too many people in and they lose sight of the big picture. So I view that as therefore a challenge and opportunity because if you have that context, you can leverage that as a great skill. But there’s just so much out there now that it almost, at least in my opinion, distracts from what we’re all here to solve, which is how do we keep this business going?
Paul Barnhurst
But the shiny new toys are fun,
Chris Reilly (39:45):
<laugh>, they’re very fun <laugh>,
Paul Barnhurst (39:47):
We all love them. But it is a good point. I mean when you keep at its core what the business is about, as you mentioned, you really have that foundation as you said, and then use technology to help grow and leverage versus technology enables things to better. But you have to have a solid understanding, you have to have a process, you have to have the bedrock in place and then you use technology to help enable and grow versus thinking technology is a solution. I think sometimes we think once I get this technology and everything will be easier and I’ll have more free time or it’ll solve this problem. And it’s like, well processes and people usually solve the problem technology, yes, it can streamline it, it can make things easier. We’ve all seen great things or like, oh I can press a button and get what, right? Versus the old days where you’re sitting there coughing and pasting or doing whatever you’re doing to try to put it together. So I think you’re exactly right. It’s a great opportunity and it is a challenge and we’re always, as individuals, we always need that business acumen to fall back on because that’s always going to be valuable no matter what they may automate is having those basics, really being able just to understand your drivers and add strategic value is never going to go anywhere because that’s not something computers do,
Chris Reilly (
Right? They can be predictive in that sort of thing, which is helpful. I don’t get me wrong and I’m not anti-technology either. No, I know you not. Yeah, there’s great backend technology that gets us to a solution faster. But you actually said it really well. It’s not the solution, it just accelerates our decision making forward, which is the benefit.
Paul Barnhurst
I was actually thinking we were going to put the label on this episode, Chris. anti-technology.
Chris Reilly
No. Pen and paper only <laugh>.
Paul Barnhurst
That reminds me of a story. But we won’t go there. We don’t have enough time for that. So next question here, this is a question we’d like to ask everybody. I’m a big believer of experience and in particular failures help us grow. Failure leads to success is kind of the idea. I remember somebody teaching me that. So one question we like to ask is just for people to describe a time they had a failure in work, maybe an analysis that had gone wrong, an implementation that fell short and what they learned from the experience. What was maybe their takeaway from that?
Chris Reilly
Yeah, it’s a really thoughtful question. I have a lot. But the one that sticks out in my mind is it’s another private equity one and it actually sort of harkens back to the theme we’ve been touching on. But I mean I had a model built for a company we were looking at and they had a massive accounts receivable balance that I didn’t even see. I knew it was in my file but my brain didn’t see it , right? It was because of my model balanced. Balance sheet balances model is good. And so then I bring it to the VP and he looks, he points at the AR and he says the accounts receivable. And he says, What’s this? I said, Well I don’t know but my model balances. And he just looks at me, he goes, that kind of thinking is going to get you fired.
And I’m like, Oh wow. Reality check right then and there. So I took that to heart. He was a little harsh with his check in, but then he came back to help me later. For me I learned okay, that it’s not just the model, I gotta understand what this is why it’s here. I gotta write down every question I can think of and start again. Start thinking like a business owner not thinking like a modeler. And so I eventually figured out, well these AR, they’re long-term contracts and blah blah blah. We didn’t end up doing the deal partly because of that. And so that one just always stuck with me because it was such sort of a big concrete statement to say that’s going to get you fired. That’s just such a wake up call. And that led me down this road of alright, now I’m going to start thinking like an owner thinking more strategically thinking like an FP&A professional and not like a model builder.
Paul Barnhurst
I can see why that stuck with you. That would’ve stuck with me as well. It’s one of those moments where you have a reality check, like am I doing things? And the answer is obviously not. If I just got told I might get fired as hard as that is to internalize, right? Cause you think I’m doing a good job, it balances, I’m working hard, I’m working my butt off. There’s probably a little bit of defensiveness like oh wow. But sounds like despite all that, you really internalized it and said, okay, how can I respond to this? And you took the response of how can I be better? How can I become a better FP&A professional? It was kind of one of those pivotal or key moments for you.
Chris Reilly
Yeah, definitely a major inflection point. Yeah, that one stands out the most.
Paul Barnhurst
No, I could definitely see why that would’ve stood out to me too. So that makes a lot of sense. Appreciate you sharing that one. So next question here, this is another one we’d like to ask everybody. It’s kind of a personal question, have a little fun here. What’s something unique about yourself that we’re not going to find online we’re not going to find on your LinkedIn profile that you can share with the audience?
Chris Reilly
Most people probably wouldn’t guess that before I got into business and modeling, I was a fine arts and Spanish double major for a long time. So I don’t have a business background. I don’t really have a business brain or that kind of thing. I made a transition to business in college when I didn’t really know what I wanted to do frankly. And I figured at a business and accounting background would help me just sort land an initial job and learn what I wanted. But it’s not who I’ve been. Like I’ve heard some guests on your show by 10 years old, I was on the computer and I was doing data analysis. That wasn’t me. I’ve always been into more of the arts kind of stuff. That’s my context. But then as I got into more professional career, I started building these, the models and the business sense. So that all came later, but that’s not really who I am at my core.
Paul Barnhurst
Got it. So co couple follow up questions to that. First is, you mentioned Spanish, so do you speak Spanish? Are you fluent?
Chris Reilly
Spanish? Oh, it’s been so long now. If I hear it I can sort of identify it decently, but it’s a lot of hard work unfortunately wasted.
Paul Barnhurst
Sure. No, I understand. I took two years in high school and that’s probably about as far as I’m getting, so I get it.
Chris Reilly
Yeah, I still got those
Paul Barnhurst
<laugh>. Yeah, I have a few others than that but not many. Second you mentioned art, so fun art, do you do drawing or pictures or anything you kind of still do today in that area is maybe just kind of a hobby or a de-stress, whatever it might be?
I’ll do every now and so it’s few and far between these days. But every now and again I will do a pencil drawing of something that was usually what I was best at. And I’ll do it of family members or if somebody wants a picture of their house as a gift or something or a picture of the dog, something like that. I don’t do it nearly as much as I wish I did. But it’s every now and again I’ll take out the stuff and draw something.
Paul Barnhurst
Well good. No, that sounds like that’s a fun opportunity when you have time. I know with young kids at home, I know you have a few there. It can be hard to find much free time.
Chris Reilly
Yeah, quite limited <laugh> as you know.
Paul Barnhurst
You. No, you and I have talked, I know how that is. So here’s the next question for you and this is one that you probably thought about a little bit cause I know you got this ahead of time. It’s my favorite question to ask because I love to see the different answers people give is what is your ex favorite Excel formula function feature and why could be any of those?
Chris Reilly
I think it is the Index Match combo. Probably my all-time favorite. I know everybody’s all about X look up these days. I’ve dabbled, but I’m still an index match purist. I don’t know. The ability to get multiple dimensions of a lookup from anywhere, not confined by ranges to me is super helpful. So that one’s probably my all time favorite. I’ll use it for bringing in balance sheet balances or that kind of thing. I think that’s gotta be number one.
Paul Barnhurst
Yeah, that’s definitely one we hear a lot. And I know a lot of people love Index Match. It’s a great formula. So I
Chris Reilly
Can appreciate what is yours.
Paul Barnhurst
You know what, I don’t know if have one. What I’m really enjoying right now, and I don’t know if you’ve seen them yet, I’m just starting to work on a course, is Excel finally released out of beta in the last about month, six weeks, 14 new formulas. There’s 11 of them that are dynamic arrays where you can basically stack tables together in one formula vertically, horizontally. You can drop things from the data. So as a total you could drop it, you could stack it all together and say drop the totals, Drop the first and last columns. So there are a lot of shaping of dynamic arrays and right now that’s probably my favorite thing to play with. Now as far as really formula function, power query, I have to say that one because it really pretty much got me promoted at two jobs ago, <affirmative>. And it saved my bacon because the place was a total mess and I had to fix all the data and I could have never done it without Power Query. So that’s my favorite thing within Excel.
Speaker 3 (49:13):
<affirmative> <affirmative>, I guess
Paul Barnhurst
I’m only having fun with the new shaping formulas, but that’s more just toying around with them at the moment just because they’re kind of cool to see.
Yeah, most people aren’t surprised when I say power query
Chris Reilly
<laugh>. Yeah, I was not surprised. <laugh>.
Paul Barnhurst
Yeah, anyone who’s followed me on LinkedIn knows I preached that one from time to time. So last question here and then we’ll let you go. I know we’re coming up to the top of our time, so if someone was starting a career today in FP&A just finished college, they wanna work in FP&A, what would be the advice you would offer them?
Chris Reilly
I feel like again, it’s the start with some of those technical skills to build a personal budget. Again, just gives you an FP&A education even though it may not seem like it or you might not realize it. So I think that’s a great place to just start in terms of those core skills. And then again, I think it comes back to that three statement understanding as well. How do you translate your technical skills into how a business works? Because a valuable FP&A professional is going to be able to go into the room and say, Here’s where the business is at today and here’s what I think we should consider for the future to keep the business going. I mean, that’s really the bottom line of what you’re trying to solve for in the FP&A role. So I think if you can hone those initial technical skills, again, just modeling your own life is a very helpful way to do it. And then understand the primary business levers, especially in the three statement setting. You really have a nice foundation for if you’re going in for an internship or interview or whatever, to be able to talk thoughtfully about really the end goal of an FP&A career.
Paul Barnhurst
I appreciate that advice and it’s the first time we’ve had the advice put that way. And I really think there’s some solid advice there. And just that importance of budgeting and understanding the three statements and how to think about it in your own life is a lot of value. Well Chris, I wanna thank you for being on the show. I’ve really enjoyed your time. It’s been a great having you here. And just before we sign off, I’ll let you an opportunity to say goodbye, let people know where they can find you, but I just wanna remind people first earmark, if you want CP credit for this audio podcast, you can go there and answer some questions and get that. And second, if you’ve enjoyed the podcast, you enjoy listening to FP&A Today please take time to give us a rating on your podcast platform that you’re listening to, whether that’s Spotify, Spotify, Apple, whatever it may be. So Chris, thanks again for being on the show. If people wanna follow you, learn more about you, where could they go?
Chris Reilly
Yeah, I’m on LinkedIn pretty much all the time and I always try to connect with people there and respond to people when I can and stuff. So anybody wants to learn more, that’s where to find me.
Paul Barnhurst
All right. Well thank you Chris. Really appreciate having you on the show. And you have A great evening.
Chris Reilly
Yeah, no, thanks so much Paul. Really appreciate being on. Thank you.