📬 Does MFCF Always Lead to EV Creation?

7 ways AI helps you move 3x faster

What’s the secret to a successful finance automation strategy? Focus on the 20% of tasks that consume 80% of your team’s time. Brex’s AI-powered automation guide reveals what those tasks are — and how to automate them. Discover 7 ways finance teams use AI to close the books 3x faster and unlock new value.

Get the free guide

Private SaaS CFO from Austin, TX asked:

I love the concept of MFCF. It combines the use of more exotic FCF Calcs (such as unlevered FCF or FCFE) with the budgeting/investment concept of "layer caking" your budgets and investments.

My question for you is: If MFCF is the ultimate driver of EV, but it is NOT something that public investors have access to, how do you convey MFCF growth from a public IR perspective?

Do you ever receive any pushback from the sell side or buy side community? Have you ever run a business where MFCF performance did not lead to EV creation?

I'm trying to connect the dots between the operationalization of the MFCF metric and how you tell that story to public shareholders.

Private SaaS CFO… welcome to the church of MFCF. All are welcome.

So, the sellside and buyside have their own pet metrics and in-house definitions. They use these for comparability purposes and to give a common language across their institution.

So, expecting them to adopt MFCF as their metric for your business is not realistic. Which means you should see MFCF as an internal value driving tool, more so than a tool for investors (certainly public market investors).

But …

The principles are universal. So, most public market investors LOVE it when you give them more color on the shape of the unit economics.

For example, saying: “We will spend $10m on R&D in the next 12 months. Approximately 50% of that is to help us keep pace with the market and keep our share of growth. But the other 50% we are deploying into new features that we believe will help us outgrow our competitors.”

They like stuff like that.

So while they may take that language and convert it into their own understanding, you can guide them to see your view of the world. It needs patience and consistency.

One word of warning, though: this may not be the sort of information you want in the public domain. So there is a balance in being helpful and educating the market, and laying your commercial secrets bare.

It’s a fine line.

Hope this helps, and thanks for the question.

Lucas from France asked:

For the 13-week cashflow forecast built on the direct method, how do you deal with mid & long-term uncertainty? Or a necessary mix of indirect/direct methods?

In France, 30 days is the usual B2B payment term, with a legal max at 60 days. Why bother to go as far as 13 weeks if weeks 4-8 will be underestimated and 9+ empty?

Same for B2C business - I am selling bikes to customers, and I receive the cash in 2 days. So any cash-in after 2 days has to be based on indirect.

Thanks for the question, Lucas.

You have neatly summarized one of the trickiest bits of pulling together a robust 13-week cashflow forecast.

Put simply, you have two types of inputs in a cashflow forecast built on the direct method:

1. Inputs that are forecasting the timing of a future cash settlement of a transaction that has already happened.

2. Inputs that are forecasting the timing AND magnitude of cash settlement of a future transaction.

1 is MUCH easier than 2.

For example, if you are selling on 30-day credit terms, predicting cash receipts for the next 4 weeks should be relatively easy. You know how much you sold over the last 4 weeks and should have a good estimate of when that will land as cash over the next month.

But as you move 5 weeks+ out, you have to first estimate a future sales level, and then figure out how and when it will be settled in cash.

The same principle works in reverse for payables.

This is still using the direct method, it just means there is an extra step involved in some of the assumptions. i.e, you will need an estimate of sales for each of the next 9 weeks, to help you estimate cash receipts for weeks 5-13.

This can get tricky as different customers and suppliers have different terms, so there will be weeks (probably most weeks) where you have some combination of assumptions.

I wouldn’t see that as using the ‘indirect’ method in the way you describe. More that you are just using a forecast sales/purchases value to project forward cash transactions.

The indirect method is something different altogether, where you are specifically imputing a cashflow forecast from a full P&L and balance sheet model.

Great question.

Jerry from the UK asked:

I work in a not-for-profit organization. We are trying to land next year’s financial budget, and I seem to be a lone voice on our exec when it comes to establishing a cost reduction program that is significant enough to provide sufficient, or what I would deem sufficient, headroom on our financial covenants. They just don’t seem to be listening to my professional opinion.

Do you have any tips for persuading other execs in a not-for-profit organization that a larger EBITDA and taking tough decisions are actually more beneficial in the long run?

Jerry,

The problem you face here is that the object of a non-profit is not to maximize profit, it is to optimize for some other specific objective.

So I think having the argument through an EBITDA lens is a lost cause.

I think you need to frame this in the context of the non-profit’s stated charitable objective.

Generating income as a non-profit is hard. Whether that’s donations, fundraising, memberships, events, etc. It’s hard work.

It is THE scarce resource of the org.

So it makes sense that as much of that income as possible is directed towards furthering the organization's objectives, right?

Put another way, if 25 cents of every $1 you raise is spent on overheads, that means the beneficiaries of your non-profit are only seeing 75 cents of every $1 you raise as income.

Contrast that to if you could lower that 25 cents to 15?

That would increase the 75 cents to 85 - a 13% increase. That means your non-profit could achieve 13% more with the same income line. More impact per $ raised.

Show them what that 13% would have been worth over the last 12 months. Spell out what you could have done with that money. Make it real, in the context of the purpose of the charity.

On a separate note, you make an interesting point about financial covenants. It is not the purpose of a non-profit to sit on excess headroom to keep banks and accountants happy. So I would want to challenge those covenants and be sure they are truly appropriate.

Thanks for the question, Jerry, and best of luck.

Every week, I’ll share a book I loved or found useful.

A few of the biggest stories that every CFO is paying close attention to. This is the section you probably don’t want to see your name in.

Lockheed Martin Names Company Veteran Evan Scott CFO as Jay Malave Leaves

Jesus “Jay” Malave is stepping down as CFO… probably to clear his conscience. Evan Scott, a 26-year Lockheed vet, will backfill the role. A great story of a one-time Lockheed graduate climbing the ladder all the way to the board room. Congratulations to Evan.

IRS could cut up to 40% of workforce, memo indicates

What’s the worst that could happen? On second thought… don’t answer that.

United Airlines Gives Two Profit Scenarios: ‘Impossible to Predict’

Me to the board this quarter: “Ok, hear me out… THREE forecasts for the Street.”

ICYMI, here are some of my favorite finance/business social media posts from this week. In the words of Kendall Roy, “all bangers, all the time.”:

• If you’re looking to sponsor CFO Secrets Newsletter, fill out this form, and we’ll be in touch.

• Find amazing accounting talent in places like the Philippines and Latin America in partnership with OnlyExperts (20% off for CFO Secrets readers)

• If you enjoyed today’s content, don’t forget to subscribe.

Let me know what you thought of today’s Mailbag. Just hit reply… I read every message.

In Saturday’s CFO Secrets newsletter, I shared how to make sure you never deliver useless reporting. You can check it all out here.

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.