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