Former MM PE Backed CFO
@cfo_mm
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Middle Market Private Equity Backed CFO. It’s as exciting as it sounds. I have a sub-3% mortgage. thecfomm @gmail .com
Cashville, SC
Joined July 2021
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"So are these real costs?"
"Yes, they are real, but you just add them back."
"Where do they go then?"
"They go just go away - it's called Adjusted EBITDA. We just pretend they are gone"
"And then people buy the company based on that?"
"Yes, Tucker. It's called modern capitalism."
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Me when a business unit leader tells me EBITDA was higher because there was more depreciation.
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Every PE guy to CFOs right now: “I know it’s early but do we have a view on how the quarter turned out. Just high level.” Then proceeds to ask for 15 metrics that are largely impossible to know on 3/31 for a global multi-entity business.
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I sold a company a while ago and the CEO (I was the CFO) insisted we send out the draft docs with a net working capital and a net worth adjustment. I questioned heavily about the net worth adjustment - never saw that before. The CEO (ex-Fortune 500 CFO) ...
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Day 1 PE backed CFO starter pack
-Memorize the QofE
-announce EBITDA margins have significant room for growth
-mandate multiple reporting format changes including font revisions
-go through all P&L line items and question why they aren't addbacks
-shit on predecessor's board deck
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I’ve been working on something for a while. Everything I wish I had been told before my first role - in a succinct delivery (not some 500 page book). I might even finish one of these years if I get the time.
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How to speak PE. A guide for new CFOs.
Use the word PortCo - the deal team doesn't understand "your other companies"
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Washing machine pipe froze and busted. Water everywhere. Ceiling underneath that caved in. Downstairs heat broke. So far I've built 4 spreadsheets and it hasn't fixed any of it.
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The Big 4 first year analyst that was responsible last summer for flying to Amsterdam and checking on the nickel is going to have some explaining to do
JPMORGAN CHASE OWNED BAGS OF MATERIAL KEPT IN A DUTCH WAREHOUSE THAT WERE SUPPOSED TO CONTAIN NICKEL BUT TURNED OUT TO BE FULL OF STONES - WSJ
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Raising PE to acquire local French cafes. Will raise EBITDA by 50% simply by bringing checks to the tables within 30 minutes of completing food. 125% IRR estimated.
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Hearing a lot of PE people can't leave Manhattan due to flight cancellations. They will have free time and be angry. This could be bad.
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Bonus is based on EBITDA and bonus lowers EBITDA which lowers bonus which.....
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Starting a festival called Burning Cash where CFOs of over levered PE backed industrial platform companies meet in Topeka, KS and drink yellow tail in the lobby of the Hilton Garden Inn after attending lectures about accounts payable solutions
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PE partner: "we have a consultant we need you to hire"
CFO: "cool, any experience in our industry?"
Partner: "no but they went to HBS."
[Silence]
Partner: "you still there?"
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"hope you are enjoying some time off - been doing some skiing out west. Just wanted to catch you before starting new years preparations. Any insight on how we ended the year? Mainly curious on any visibility to EBITDA, debt, cash, FCF, Q1 etc."
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I finally did it. I gave the CEO a forecast update that caused him to leave the room and come back with a whiskey. Bucket list getting shorter.
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This is every banker from Harris Williams
why does every dude from alabama have this haircut?
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Of all the PE personas, my least favorite is the "extra data request" person. Every time you provide exactly what is asked for, you get 3 follow up data requests usually prefaced with "helpful, but......". You know you can just not do that, right?
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PE VP: “where is that forecast you promised us this weekend?”
Me: “I keep forgetting that you are alive. “
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When you do so much prep for the board meeting and they don’t ask you any of the hard questions and you can’t show off how prepared you are.
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CFO presents analysis to CEO after much preparation and checking (results aren’t great).
CEO: “this data doesn’t look right.”
Every. Single. Time.
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PE Sponsors chartered a plane for all PortCo CFOs to go to a conference in Sheboygan, WI this week. -19 F. Called "ERP implementations and working capital management: tracking liquidity on a bi-hourly basis"
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Just sent strategic plan to PE guys with this note: “didn’t have time to format. Pls fix.”
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Before you make fun of a kid for believing in Santa Claus remember that some PE deal teams actually believe the mark to market values they put on their PortCos.
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Hypothesis: good CFOs were not popular kids. Allows us to be comfortable saying no over and over again and dealing with the fallout of that. Don't think you can overstate how much middle market CFOs have to be the adult in the room on most management teams.
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Do you ever just take a step back and think "how can the world support this many recruiters in 2024?"
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The part of the CFO job they don't prepare you for in school is when you have to be the CEO's therapist. Is this only in the PE-backed world?
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budgets are just another forecast. i will die on this hill.
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Revenue Bridge:
Budget Revenue
-January miss
-Macro weakness
+Jobs strength
-WWIII Iran impact
+/-Chinese balloon
+Sandbag factor
= Forecast revenue
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Yesterday was the hardest day yet of my personal life. And the coffee doesn’t seem to be working this morning. And I have to speak at an all hands meeting this AM. Man down. Send help.
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“But your honor, my business is profitable at the revenue line.”
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Happy quarter end. The time when levered companies stop paying bills for a few weeks because cash reduces leverage but AP balances don’t increase it!
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Dear MSFT employees: if you could please also take down Excel at the same time as Teams my team will be forever grateful.
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Holiday drinks with my CFO friends. Everybody just bragging about who has more unused revolver capacity. Good times.
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i'm sitting at the bar reading my 200 emails from today and the guy next to me, hitting on a lady, drops this gem: "have you ever heard of warren buffet? he is like the original shark tank" i spit out some beer and laughed out loud. getting dirty looks from the guy now.
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Happy to report that I have almost one Chapter complete now. Lol.
I’ve been working on something for a while. Everything I wish I had been told before my first role - in a succinct delivery (not some 500 page book). I might even finish one of these years if I get the time.
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Me to PE associate: “you look really tan for this time of summer. Are you on any deals?”
Him: “please don’t let [partner] hear you say that. Please.”
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budget_cf Upside Case (Revised) vFinal (2) 2023 12 06.xlsm
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i keep a list of most important days of my life and i add to it from time to time. so far it contains: birth of kids, wedding, the day microsoft added native waterfall chart functionality, first liquidity event, graduation, when the BS balanced without a plug
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Watch out for the fallacy of busy. Lots of meetings. I must be working hard. Returning other people’s emails. I’m working hard. I’m traveling and it takes a lot of time. I must be doing good work. You are only adding value if you are executing your agenda.
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dear enterprise sales teams, when you put 5 people on an initial call for a relatively small deal i interpret that you have all sorts of insane margins / don't care about profit and i will negotiate heavily accordingly. love, cfo ps - no wonder pe is buying you
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Friendly reminder to be nice to your finance friends this time of year. We are in the vortex of year end close slamming right onto january close right onto debt and financial audits. And some (not me of course) still putting finsihing touches on budgets.
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Lots of life in the last two weeks, feeling old:
-Bought daughter a car
-Shopped for prom dress
-Bought son his first razor
-Toured first college
-Parents 50th anniversary
-Planning 20th anniversary trip with my wife
-Back to using mouse in Excel
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I'm sorry but "doubling the company in the next 3 years" is NOT a strategy. That's lazy CEO talk.
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Heard from a recruiter today that multiple large PE shops are reducing the size of their operating partner staff. Right after I leave PE my wish comes true.
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One of the downsides of working in the middle market with relatively small teams is that as the CFO you sometimes have to deal with the lower level members of the audit team. Some are great. Some are 'gotcha' junior types that are absolutely 100% infuriating.
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I have a confession to make. I’m going over to the dark side. A public company.
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A DAO where all the PE fintwit people pool some money and buy a company cutting out their PE overlords.
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There should be a practice that once the funds flow spreadsheet hits v25, the deal just automatically closes.
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Operations guy shares his screen on teams. Has like 50 browser tabs open. All excel files on sharepoint. Examine your life choices, sir.
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@dorigimals
"miscellaneous accrual reversal. It's a non cash gaap thing. We can setup a 45 minute call to go over the technical accounting if anyone would like to." Everyone will run the other way.
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Give me the confidence of a generalist operating partner with no industry experience telling us how to run the business.
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Goals for 2023:
1. Own my own captive insurance company
2. Finance a transaction with a mix of debt and equity
3. Own my own fund
4. Use DCF and public comps to value my investments.
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Company is growing quickly, attracts good talent, culture is great. Gets bought by PE and starts to put in processes and discipline. Some early talent leaves. Culture starts to crack, growth slows. How do you maintain culture while helping the company to mature?
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Copy of Copy of Updated Forecast - Board scenario 2023 03 27 v4 - Updated (1).xlsm
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I am paying for the sins of a PE team that gave too much info to lenders when trying to get the deal done. Once you give them something you can never stop updating them. Don’t do this to your management teams.
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Thoughts and prayers to the middle market finance teams that have to work with PE deal teams that are used to working with billion dollar teams and systems.
Private-Equity Giants Settle for Bite-Size Deals
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So we settled and gave back a bit of what the adjustment gained us to avoid a long legal process. There are lots of mistakes in here that you can learn from. Viva the net worth adjustment! Just don't tell the strategic buyers about this.
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PE guys will literally use a serif font like Garamond in 8 point italics rather than something that people can actually read. IYKYK.
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PE Board to CEO: "you used that excuse last quarter for missing the sales forecast"
CEO: [[Mitch McConnel Freeze]]
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beautiful day outside to have a beer and read about the collapse of our existing monetary system
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I cut my teeth in FP&A at an S&P 500 size company. They wouldn't allow a forecast to be submitted without a very detailed risks and opportunities build up. Something I have taken with me. And something many don't do. A forecast as 1 number is almost meaningless without R&O.
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This is how I write a board deck: 1) gather up all the reports/analysis, 2) study it uninterrupted for a few hours, 3) determine "the story" the numbers are telling, 4) write the Exec Sum slide laying out the story, 5) fill in the rest of the slides relating back to that story.
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The PortCo finance team hard coded the monthly forecast again. And cash is nowhere near the 13-week cash flow.
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“Hey, I’m still out of office from long weekend, but wanted to see when you might have a read on May? Prelim is fine. Just high level.”
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“You never tell the auditors you have some concerns about internal controls. Everything is fine. Everywhere. All the time.”
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Billion dollar idea: hotels that come with docking stations and two monitors. You can leave out the guidebook to the local area and the ironing board if you need to make room.
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Bought a pair of pants that were a little too small so I gave them to my son.
His response: "I'll keep them but I'm not wearing them out. I don't want to look like a middle-aged CFO of boring companies that meets people on twitter."
This kid.
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I spend a lot of my time making sure my message lands with the CEO and deal team. I have learned that you really have to make sure they hear the bad news and internalize it. It takes 4-5 times of delivering the same message sometimes Don't assume it lands the first time.
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I bought local self storage units with zero interest rates. Here are 6 things you can learn from the Credit Suisse bailout. A 🧵
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going through my board deck checklist before sending: 1) font so small only teens can read it, 2) highlight key numbers for ADHD partners ease of use, 3) garamond font, 4) use of "pro forma" "constructive" "contextualize" "quantum", 5) HUGE appendix of useless detail
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Going through a process to evaluate all of our investments. Some are through the P&L and some are through the BS. I calculate a Creation Multiple for each one. Defined as dollars of investment required per dollar of steady-state EBITDA. 1/
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Meeting a CEO for the first time this week. On my list: 1) what are the 3 things the company needs to do to have a great outcome?, 2) what do you really want in a CFO?, 3) what does onboarding for an exec team member look like?, 4) how much do you love FCF? What am i missing?
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all i have ever wanted in life is to work in a company with a june fiscal year end so budgets don't mess up end of year holidays or the summer. is that too much to ask??????
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"what is the seasonality that causes AP to drop to almost 0 every December?"
"we don't like questions from auditors so we pay off all the AP we can right before year end"
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hard part of the job: non-finance member of management wants to really dig into the profits interests calculations at a super detailed level, but have no idea what preferred stock is, never heard of moic, irr etc. etc.
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Let's get PwC involved - we think you have committed fraud
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Never underestimate how much impact one great hire can have on a middle market company.
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Everyone wants to be an executive coach now. A couple of years ago everyone wanted to be a fractional CFO. Pretty soon there are only going to be a handful of us working the actual jobs full-time.
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Full ERP = what you pay for
Glorified acctg system = what you get
Life = still reconciling in excel
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it's that time of the year where i get to argue with execs about whether their bonus for the coming year should be based on EBITDA/FCF or a kpi metric that influences those two numbers.
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So I guess the entire point of Succession was an elaborate way to prove that the MBAs always win in the end.
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"there is a daddy tax on 100 grand bars"
{Kids come home with no 100 grand bars}
"How did you get 0 of those?"
"Every time they gave me one I asked to switch to another type of candy"
Future tax avoiders. So proud.
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when you have owned the business for 5 years and send me a question list the length of my arm to a relatively simple analysis you are telling me you still don't understand the business. 5 years later.
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profit is now gross margin. got it. glad i got that education today.
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