BDO LLP | PRIVATE EQUITY
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DO YOU WORK ‘ON’ AS WELL AS ‘IN’ YOUR BUSINESS? Do you regularly create time for the leadership team to discuss the business’s strategy and overall direction of travel? In many fast-growth tech businesses with limited resources, the leadership team can find it hard to make time and space to step back from day-to-day challenges. An investor will not expect you to be holding monthly board meetings - this can be developed post-investment - but the discipline of devoting time to your strategic direction and priorities will be well received.
DO YOU KNOW YOUR KEY STRATEGIC PRIORITIES? It will be attractive to an investor if you have an agreed list of meaningful strategic priorities ahead of any investment. It will give them confidence that you are focused on growth and ready for investment. Your strategic priorities are not a tactical ‘to do list’, they must have a material impact on the growth of your business. Think geographic expansion, product extension or making acquisitions. Keep it light as too many strategic priorities can be as bad as too few or none at all!
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DO YOU HAVE MEDIUM-TERM FINANCIAL FORECASTS? Like many privately owned fast-growth tech businesses, you may not have medium-term financial forecasts. But PE investors usually have a 3-5 year time horizon for holding an investment. A medium-term financial plan will underpin their investment and the shape of any future returns. Medium-term forecasts cannot just be based on a top-down view. For example, “Sales will grow at 20% per annum” is not a solid forecast. You should also have a bottom-up analysis with carefully considered assumptions around the level of overhead investment required to support top-line growth.
DO YOU USE DATA TO MAKE KEY DECISIONS? The management information produced by in-house finance teams does not always meet the needs of a PE house in terms of frequency or detail. Financial information is often historical, focusing on past successes, rather than on re- forecasting future results as conditions change. Potential investors will be nervous if your decision-making process in the business is largely intuitive or made without using data or evidence. It’s important to make sure existing systems are being used to their potential, with any manual aspects eliminated to enable regular, timely and accurate management information to help inform and drive growth.
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