People like to say that an investment should be so easy that you can model it on a napkin, but is a financial model an important tool in deal analysis? I have found there to be benefits to creating and using a financial model in my acquisition work.

Models help to deepen my understanding of the business - the levers that drive costs, revenue, and cash flow;

They can show how sensitive to shocks the business may be;

They help me understand how much debt is appropriate and how much leverage to use to manage my risk.

Lastly, financial models also help to build credibility with lenders and equity investors.

Despite having an MBA, I never learned purchase accounting and only the basics of linking financials in excel, leaving me, like many others,feeling intimidated by the task.

So what to do?

I spent a few hundred dollars and maybe 40 hours putting myself through an online program (I used Breaking Into Wall Street, which was excellent).

I also benefitted from my search fund investing since many searchers come from I-banking and are experts in Excel and modeling.

If cost or access to people with expertise is a barrier, there are now a number of good online resources, templates, and videos that cover the basics.

My default now is to use a simple model that I can build/run in less than 30 minutes and then fine-tune as I go.

Plus, with experience, I generally know whether a deal will pencil before I even add the inputs and run my model - so it really serves as a check on my initial assessment.

So, I've essentially come back to using a napkin, but with 100s of reps that inform my judgment.

Links to a few example resources:
- https://www.wallstreetprep.com/knowledge/financial-modeling-quick-lesson-simple-lbo-model/
- https://multipleexpansion.com/2017/08/31/Training-LBO/
-