CASE STUDY: HERE’S WHAT REALLY HAPPENED TO ME

Preface: A financial model is easy to admire when nobody is challenging it.

The real test begins when you put the CFM in front of people whose job is to question your assumptions, identify weaknesses, protect their capital, and determine whether the business and financing structure you are proposing actually make sense.

That is where the Cash Flow Model was designed to work.

I have spent hours in meetings with lenders, bankers, investors, and other capital providers doing exactly that. The location changes. The business changes. The people sitting across the table change. But the process is remarkably similar.

A Conference Room in San Francisco

One example involved a specialty food manufacturing company I was seeking funding for in a meeting with a hedge fund in San Francisco.

My team came prepared to discuss the business, its operating requirements, the proposed financing, and how the capital would be used. But experienced investors do not simply accept the assumptions placed in front of them. They challenge them.

For hours, different possibilities were discussed. Revenue assumptions were questioned. Operating expenses were examined. Financing structures were considered. The timing and amount of capital required were challenged. What if this? What if that? Exhausting, as they worked hard to poke holes in just about everything proposed, albeit nicely.

That was precisely why I had the Cash Flow Model with me on my laptop. I had asked them in advance to have a presentation link set up so I could project my PowerPoint, but the actual CFM was also part of the presentation.

Instead of defending an assumption simply because it was in the presentation, I changed it. Instead of promising that a different financing structure would work, I showed them — specifically, principal and interest payments each month, when fees were paid, what my Ending Bank Balance would be, etc. Instead of saying that we would revise the projections and come back later, I showed them on the spot. During the meeting, I changed the assumption, pressed a button, and we looked at the result together — and we did this over and over again.

Sometimes the new scenario improved the financial picture. Sometimes it created a problem somewhere else. Reducing the amount borrowed might reduce debt service but require additional equity or operating cash. Changing repayment terms could preserve liquidity in one period while creating greater pressure later. A change in operating expenses could affect profitability, Operating Breakeven, funding requirements, and Ending Bank Balance.

The important point was not whether my original assumption or someone else's assumption was right. The Cash Flow Model gave us a common financial framework in which those ideas could be tested.

CFM was not there to defend my assumptions. It was there to test everybody's assumptions.

Different Continent. Same Questions. A Conference Table in Dubai.

I experienced essentially the same process in Dubai while presenting to a Family Office investment group.

The setting was different. The participants were different. The business discussion was different — we were seeking funding for a crude oil and distillate terminal and tank farm. But once we began talking seriously about capital, the drill was remarkably familiar.

How much money is actually required? Where does it go? How long does it need to remain in the business? What happens under a different operating scenario? What happens if this or that? When does the company begin supporting itself? What does repayment look like? How much liquidity remains along the way? How do you know?

Again, the conversation moved beyond a static presentation.

Ideas were proposed from across the table. Assumptions changed. Alternative operating and financing scenarios were considered. Rather than responding with assurances about what should happen, I put those ideas into the CFM and, together, we all examined what the numbers said could happen.

That distinction mattered.

Anyone seeking capital can tell a lender or investor that revenue is expected to grow, that the company should have enough cash, or that a proposed financing structure should work. Those are assertions. A serious capital discussion eventually moves beyond assertions and into numbers.

The Cash Flow Model allowed me to come to those discussions prepared with something more useful than promises.

I had a dynamic model.