Post on 11-Mar-2021
F4G – Finance for Growth
Integrated Financial Strategy
ENTERPRISE IRELAND – TUESDAY/WEDNESDAY, 27TH 28TH MARCH 2018
SGL – What we do for our Clients
Corporate Finance and Outsource Strategic CFO services – on a
continuous or project basis – to businesses looking to raise finance (from
all sources) and add expert finance resource to their management team.
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Strategic
Growth
Leaders
DEVELOPING AN
INTEGRATED
FINANCIAL
STRATEGY
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The SGL Business Roadmap…
Strategy
Objectives
Critical Success Factors (CSFs)
Key Performance Indicators (KPI’s)
Actions
Syste
ms &
Pro
cesses
Peo
ple
&
Cu
ltu
re
Fin
an
ce
Ma
rke
tin
g
& S
ale
s
Pro
du
cts
&
Serv
ices
Vision
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Path – Vision to Execution …
Know Your Starting Point
The External Environment
SWOT Analysis
Brain Storming
Evaluation & Prioritisation
Developing / Resourcing the Plan
Execution
Review - Continuous
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Vision and Strategy…
Strategy 1
Strategy 3
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Business Plan – SWOT Analysis…
Stakeholders
Competitors
Market
Technology
Customer
Holistic look at your business – that
numbers alone wont tell you
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Vision
MaximiseExit
MonetiseValue
Strategy
Rapidly Grow Sales
Finance Working Capital
Strategy
Product Innovation
R&D Funding
Business
Finance
Business v Financial Focus
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Strategy
Pricing Strategy
Margin Maximisation
Strategy
Competitive Positioning
Balance Sales & Margin
Strategy
Marketing Spend
Break-even Management
Business
Finance
Business v Financial Focus
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Role of Finance Lead in the Plan
Establishing Numerical measure of Vision
Determining the right Capital Structure
Balance Growth with Profitability – B/E
Establish & Monitor KPI/CSF
Manage Business & Finance Risk
Stewart for Business Stakeholders
Maximise Return on Investment
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Finance Fundamentals for SME’s
Sales are for Show
Margin is for Dough
Cash is King
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Financing the Plan…
Financial modelling is key
Agreeing the key assumptions
Scenario planning
Bottlenecks / limiting factors
Prioritisation / phasing of projects
Identify Funding gap
Quantification of benefits / ROI
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Continuous Review…
Management (Board) Financial/Operations Information
Pack – Monthly
KPI/CSF Dashboard – Daily
Re-calibrate the Strategy – As necessary
Re-assess the Vision
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What is the CEO’s Financial Focus
Managing & Controlling CASH (Don’t delegate to Accountant!)
Knowing what parts of a business are/are not performing
Having current financial information to run the business to plan
Growing – Sales, Margin and CASH
Having a strategic view of funding needs and have the current
financial information to be able to apply for it
Having the information to deliver growth and increase business
value
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FD/CFO – Business Partner
The successful CFO
Understands the key business drivers
Develops influencing skills
And is always proactive
The CFO
Delivers shareholder value
Owns the business model and ensures it’s completely
understood by the management team
Drives higher returns through efficient use of assets and capital
Executes as well as being a strategist
Provides confidence to all stakeholders
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Who is the Company Finance Lead?
CEO
Financial Director/CFO
Financial Controller
Finance Manager
Management Accountant
Financial Accountant
Company Accountant
Auditor/External Accountant
Assistant Accountant
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How Effective is your Business Finance Lead?
Depends on
Accounting Training – Reporting & Commercial
Experience – Practice & Industry
Diversity of roles in career
Years with the company
Years within the industry/sector
Position in Management Team
Personality
Attitude
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Company Accountant
Technical Accounting
& Tax
Tax Compliance
Audit Annually
Book-keeping Payroll
Services
Historic Reporting & Compliance Work
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Financial Reporting & Role
Book-keeping
Sales Invoices & Customer receipts
Purchase Invoices & Supplier Payments
Bank/Credit Card payments
Journals – Depreciation, Accruals, etc
Payroll processing & Payments
Credit Control
Tax Returns – VAT/PAYE
Routine/Operational
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Financial Reporting & Role
Statutory Audit – Annually
Management Accounts – Monthly
Product/ Project pricing
Departmental analysis
Cost control/reduction
FX Management
Accounts System Management
Periodic/Ad hoc – Tactical
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Commercial FD/CFO
Build
Business
Value
Cashflow Management
for Growth
GP Margin
& Cost Control
Financial Planning
Budgeting & Forecasting
Future Focused – Growth & Profitability
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Financial Reporting & Role
Budgeting – Annual
Forecasting – Monthly/Quarterly/Annual
Financial Modelling – Projections/Scenarios
Raising Finance
Capital Spend – Assets
Working Capital – Cash Cycle
Business Growth – Investment
Manage Business & Finance Risk
Project Forward Focus – Strategic/Planning
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Decision Making – CFO Impact
CFO is a key participator and driver
Also a facilitator, influencer and inculcator
ANALYTICS
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PAST
What
Happened?
(Reporting)
How/Why things happened
(Modelling / Variances)
PRESENT
What is happening now
(Alerts)
Next Best Action?
(Recommend)
FUTURE
What will happen?
(Extrapolation)
Best/Worst that can happen
(Predict/Optimize
/ Simulate
Information
Insight
FD/CFO Insight
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Business & Financial Information
Shared
measure of
Company
strategy
Break Even
analysis
Resource
Allocation
emphasis
Balanced view
of company
performance
(KPI)
Trading/
overtrading
analysis
Capital and
Debt
Structures
Working
Capital
need
Liquidity
assessment
Geographical
profitability
Customer
profitability
Profitability
examination
Product
profitability
Yield
management
Employee
metrics –
organisational
examination
Sales
metrics
Risk
management
& Policy
Stakeholder
management
Cash
Management
Debtor
Management
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The Right Capital Structure
Capital Structure has a major impact on the return on equity
for investors/owners on exit or restructure
It’s important to get it right at the outset and for every stage
of the company development …. Not just a start-up issue!
Equity is only given away once – Most expensive form of
Finance
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Plan to build on a stable foundation
Getting it wrong … Getting it right …
Business Failure Attractive returns
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Financing from – Debt Vs Equity
Short-term or long-term
No Ownership and therefore
limited say in the Business
Loans that must be repaid,
usually with interest
Regular repayments that must
be met
Vulnerable to economic
downturns or interest rate hikes
Too much debt can reduce
ability to raise capital in the
future
Tax advantage
Long term funding
Investors have ownership in
business
Investors understand that they
may not get money back
Return arises only when the
business can afford it
Investors can bring valuable
experience
Debt (Borrowings) Equity (Shares)
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Financing from – Debt Vs Equity
Lenders accept less risk
because they receive less
reward – return of money is
more important than return on
money
Does not share in the upside –
returns to the provider are fixed
and low and therefore must be
protected from downside
Providers accept more risk and
receive more upside – return on
money is more important than
return of money
Risk money shares the upside
but is lost in the downside
Debt (Borrowings) Equity (Shares)
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The Investor Perspective
Equity investors
Equity investor – Private, Angels, VC’s
Focus on the future – Product, Market size, innovation,
potential upside and Exit plan
Seek multiple of investment
Sizzle and not so much the sausage
Pre revenue – like to get in early
Cash flow projections / Financial strategy key
Live/die by your cashflows
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Debt
Historical biased
Pre revenue – debt is unlikely
BS, P&L (EBITDA) Important
But Cash flow driven – Ability to repay
Care less about the sizzle and more about the sausage
Debt providers have limited upside, focus on capacity
to service debt
FCF – Free Cash Flow
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Getting the W/C-Debt structure right
Short-term finance is generally only suitable for
fluctuations in W/C and for normal trade finance
Cash tied up in Debtors, although constantly turning over,
it can be the longest term asset in the business!
As long as a business is in operation it will need W/C – to
assume W/C finance can be repaid in the short term is
quite unrealistic for some businesses
Seek to “match” the funding approach to the assets
within the business (see following diagram and some
funding options for W/C)
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Match Funding Source with Use
€
Time
Permanent
Finance
Short Term
WC
Short Term
WC
Total Assets
Net
Current
Assets
Fixed Assets
Revolving
Credit
Equity and Term Debt
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Identifying the funding gap…
Financial Modelling – P&L; Balance Sheet; Cash Flow
Cash Burn – No Mths Spend vs No Mths to Market
Understand your Cash Cycle – Time-line for converting Raw Materials to Cash
History provides trends to support projections – Understand Blips!
Strong & Realistic Table of underlying Assumptions critical
Establish the purpose of Funds sought – generate future return
Sensitivity Analysis – Sales Lower! Costs Higher!
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Summary Financials…
High level picture focused on P&L and Cash flow tied
into Balance Sheet
Annual figures for three years perfectly adequate –
Include historical figures if available/appropriate
Gross profit/margin is important to investors…strong
indication of scalability
When is your peak cash requirement? How much?
Assumptions – Underlying projections
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The Funding Lifecycle
Identifying appropriate funding
R&D Start-up
Early Growth
Fast Growth
Sustain Growth
Maturity
Founders
Business Angels
Venture Capital
Grant bodies
Debt
Corporate Venturing
Public Listing/IPO
Private Equity
WC Finance
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Simplified fund-raising process
1. Preparation• Set the strategic direction & establish your funding requirement
• Establish list of most appropriate funders
2. Your plan• Information Memorandum / Business Plan
• Management presentation
3. Approach • Target preferred most likely funders in the first place
4. Head of Terms• Feedback from potential funders & initial negotiations
• Target receipt of indicative funding proposals
5. Negotiations• Detailed negotiations with preferred party(ies)
• Financial, tax & commercial due diligence
6. Completion• Legal process and documentation
• Completion and Receipt of funds
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Investor Experience – CFO Engagement
Introduced to CEO by VC Investor to review 2014 Budget
Engaged as Part-time CFO to help implement a new plan
Proposed a Better Plan focussed on Margin not just Sales growth –
Make “Every sale a profitable Sale”
Developed a Procurement based strategy to reduce Break-even
level by maximising both Sales competitiveness and Margin
generation
3-part Strategic objective –position business for fund-raising
Profitable
€10m Sales
Establish UK Operation
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Investor Experience – Funding History
Boot strapped 2005
Seed Round €560k 2008 – EI; Angel
Follow-on Round - €2.2m Nov 2012 – EI; Lead VC;
VC ; Angels (Super)
“A-Round ” €7m – 2017!!
Interim Round – EIIS Angels - PlanB
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Thank You
Barry Doyle – Director