We sat down with Pierre-Alexandre Heurtebize, an expert in financial due diligence, financial modelling, corporate finance, and private equity investments. Pierre is the M&A Deal Flow Director at Horizen Capital and one of Eloquens’ most acclaimed authors. We talk about everything from financial due diligence to personal finance to financial modelling skills and so much more…
Check out the full interview here!
Eloquens is a platform which centralizes all your best practices in one location for users to download either for free or at a cost per the authors discretion.
With all your experience in financial modelling, you have published 23 best practices on Eloquens.
What are the different types of content produced on your channel?
First and foremost, I became an Eloquens author three years ago and have no regrets! I had no idea what to expect, but the experience has been fantastic. My best practices are primarily concerned with finance and corporate finance. The Price Volume Mix Analysis template, which I built from everything I learned at PwC, is probably the most popular (with over 12,000 views). When performing transaction services and financial due diligence at PwC, we followed this template. I’ve developed a complete course on how to conduct financial due diligence – P&L. Other models include a Multiple Rounds Cap Table with SAFE conversion, a DCF and Multiple based Valuation Model, and much more.
What are some of the benefits that a user can expect from using the content on your Eloquens channel? Mention a few of these best practices.
One of the most useful best practices, in my opinion, is the one I mentioned earlier about financial due diligence. Hiring a team to perform financial due diligence on a business with a revenue of $10 million or more will typically cost between $30 and $60,000. However, if you have experience within your company, you can use the template I’ve created to guide you through the main analysis. In this case, I’d still recommend hiring a professional to help you in the initial phase of your deal and understand the key points of the P&L target.
Pierre, currently you have around 900 users on your channel. These users often have similar problems which you solve but who would you say is your “ideal customer’?
My ideal customers, I believe, work in corporate finance, such as a financial analyst or CFO who does not want to spend 10 to 15 hours developing their own tool and can instead use mine. I try to build models that anyone can use, so I avoid using complicated formulas unless absolutely necessary. Therefore, I focus more on how I organize data and perform critical calculations rather than being overly complex. My channel contains simple forecasts and easy-to-read charts that visualize historical data.
In a nutshell, my ideal customer is someone who wants to gain more financial insight about their business.
Are there any prerequisites that users must meet in order to get the most out of your content?
A corporate finance background would be beneficial for the more advanced models, and by corporate finance I mean a basic understanding of accounting, excel, what a P&L balance sheet is, and so on. Although I try to keep things as simple as possible, a background in finance is required to navigate and use the models properly.
Do you intend to reach a broader audience with your channel? Is your content primarily aimed at those with a background in corporate finance?
I’m also attempting to target CEOs of companies involved in M&A transactions who have a basic understanding but not a strong grasp of finance and accounting. For example, I developed a tool that automatically calculates the Cap Table based on a few inputs. This tool is useful for entrepreneurs who want to know how their Cap Table will look after two or three rounds of funding, as well as how much equity they will retain.
I also have a Personal Finance model available on my Eloquens channel for free. At one point I was actually thinking, ‘okay how much money do I need to have in my bank account the day I retire so I can just live off that money plus the interest’. Technically you could also start using pure capital until the day you die. As a result, I put together a model that I thought could be useful for a lot of people in that regard, as well as to educate some people about personal finances. I’m thinking about adding a model to track your net assets over a month, but these are more for people’s benefit rather than my direct line of work.
The majority of my target audience consists of financial analysts, modelers, and those interested in learning more about corporate finance. For example, on my Eloquens channel, I have a full P&L analysis course, and I am looking to create a similar course for Private Equity. This would begin with a simple model, such as a traditional fundraising model, before adding layers of complexity such as debt, liquidity preferences, convertibles, and other financial instruments.
Why do small companies in particular need to use financial models and what are these financial models actually used for?
I would separate my answer into 2 categories.
- Better decision making and strategy
Financial modelling provides a view of historical numbers, allowing for better decision making based on previous metrics. It can also reveal a previously unknown angle, such as the fact that 80% of our revenue comes from a very specific geography. Based on our example, we now understand how to manage dynamics such as the marketing budget or order strategy effectively.
Financial forecasts are trying to figure out how your company will grow in the future. Many people say that having a business plan is risky because no one knows what will happen in the future, so why would I spend time planning for five years? They have a valid point. You can’t just think about the future because there are so many unknowns, and it’s very unlikely that things will go as planned. However, it is important because you can set up a list of inputs and know what the output will be if things happen in a certain way. This requires testing several scenarios because the more time you spend on your forecast the more prepared you will be from various perspectives such as the cost or cash flow side.
You mentioned planning for the next five years; do you believe there is any advantage to planning for a longer period of time? Consider the next ten years.
I would recommend sticking to five years even for bigger companies. Planning for longer than five years is only reliable or useful for corporate finance projects that that deal with infrastructure or with a very long timeline. For instance, I have done some financial modelling for clients that work in health insurance where you know that your clients are going to stay with you for 15,20,25 years or so. In that case, yes, it can be useful to model over an extensive period of time but for any regular business I think five years is more than enough.
Do you think it’s important to adapt and change financial models in response to socioeconomic changes or market disruptions?
Yes, I believe you should always readjust your financial models, either by tweaking your inputs or changing the way you model things. Changing the financial model is critical, especially in a start-up where parts are moving quickly, such as the launch of a new product or new geographies. Perhaps you will have to completely rethink your business model.
For people interested in financial due diligence, its often difficult to know where to put their focus in such a complicated world. Based on your experience, what skills do you believe are required to be a successful financial modeler?
Okay, so again, there are two main points to consider.
- Business acumen.
One of the most important things I learned from my MBA, my experience in private equity, and my time at PWC is that working as a consultant exposes you to a wide range of business models. After a while, your brain becomes wired to quickly understand a new business model you’ve never heard of, making it easier to focus on the model’s correct inputs and outputs.
- Excel mastery.
There are several levels in the Excel learning journey, at least according to the steps I took. The first involves learning about the platform itself, including the controls, shortcuts, and various formulas.
The second level entails learning about the complex formula and applying several formulae at the same time.
I believe the next level, which took me years to achieve, is to be able to use minimal complex formulae while focusing on the structure and building of the excel. In short, you will work far more efficiently than the average person because you will know exactly where to enter the numbers, how to build your tables, replicate them, and duplicate them from the start. Furthermore, the formulae are simple to follow, so anyone can understand your model in less than five or ten minutes.
“Order and simplification are the first steps toward mastery of a subject.”
Working with business teams can include a wide range of professionals other than financial analysts. How important is it to be able to explain financial models to non-finance professionals in simple terms, despite having very complex formulae?
It’s 90% of your job. You could be the best engineer in the world, or the best financial modeller, but if you can’t explain what you’ve done to your clients, your work is unlikely to be used. It reminds me of my second internship, when I spent three weeks developing a cool model with a lot of macros to assist the company. But nobody used it because they couldn’t figure out what was going on.
That is why I try to keep my models as simple as possible. When a model could be more accurate but ten times more complex, I advise clients to choose simplicity because forecasts are never certain anyways.
Do you have a long-term vision for the content on your Eloquens channel? How does this stem from operations at Horizen Capital?
At Horizen we’re currently raising a 25 million fund to invest in SaaS companies at the moment. From all of that, I am developing some more templates but at the moment the only thing that limits me is my time. In the future, I would like to create more financial models related to M&A transactions, Private Equity, Management Package Waterfalls and more.
In addition, I intend to release more content that teaches people about financial modelling, such as courses and various articles. I’ve already written a few articles on how to create a cashflow statement, as well as how to perform transactional services. People can learn financial analysis properly by using my templates, courses, and articles.
When I have more time, I want to create a location (online or in person) where people can attend live sessions as well as an online course to improve their financial due diligence.
Pierre studied at ESSEC Business School in France, where he specialised in finance as well as business administration and management. He began his career in private equity at BNP Paribas, doing small cap acquisitions, before moving to PWC in transaction services for three years in Paris and two years in Sydney. Following this stint, Pierre returned to Europe as an independent contractor before joining newly launched, Horizen Capital. Under the Horizen Capital brand, Pierre has been involved in corporate finance advisory, financial due diligence, and financial modelling for the past few years.
With over 23 available best practices and more than 33,000 views already, Pierre’s various templates and courses are available for download now on his Eloquens channel!