16 PAUL MORRIS: DEMYSTIFYING PRIVATE EQUITY – AN INSIDER’SVIEW
FIVE WAYS INVESTING IN YOUR FINANCE DIRECTOR WILL HELP CREATE VALUE
Is the role of a finance director simply to manage the finance of the business? Do they just count the cash and manage the payroll? In my experience, all too often that is exactly what entrepreneurs think. Of course, a critical part of the FD’s role is to implement good controls in the business and to manage both profits and cash. But if your FD’s remit is limited to just that, you are missing an opportunity. The right FD will create value, not just protect it. If your business invests in an experienced and skilled FD, it will reap enormous benefits. Here are just a few examples how shareholder value will be created by the right FD;
ROBUST AND ACCURATE FORECASTING Accurate and complete historic information is important but not the whole story. The right FD will be able to prepare and monitor detailed profit and cash forecasts on a monthly basis for up to three years. In addition, they should develop a set of key performance indicators covering sales as well as finance. These forecasts and KPIs will be essential for the management team to make the right business decisions in areas such as recruitment and investment in systems. CUSTOMER PROFITABILITY A common challenge for businesses is the ability to calculate the “real” profitability of an individual customer relationship. A top FD will ensure the whole business knows the levels of profitability not only at a gross but net level. The business will understand the true profitability of a relationship having taken account of allocated costs for support and administration. Arming the sales team with this information will help in pricing discussions with customers. BROADER IMPACT ONTHE BUSINESS An experienced FD will be able to take on broader business responsibilities. Typically, these could include compliance, HR, systems and legal. The FD will not be a subject matter expert in these areas, but can take decisions after receiving guidance from third parties. So in a way you will get several executives for the price of one! FUND RAISING At some point your business may decide to raise finance via a bank or PE firm. The preparation for a fund-raise and the successful management of the process will be food and drink to an experienced FD. Bankers and investors understand the value of a good FD. Their appetite to lend or invest will be enhanced when a strong FD is running a smooth process. Your business will be more likely to strike the right deal and get better terms as a result. ACQUISITIONS Any growth strategy that includes acquisitions, requires an effective FD managing the process. The acquisition process has many elements from identifying and meeting targets through to negotiating the deal and raising the finance. Having an FD who can lead the acquisition process frees up the management team to focus on driving the organic growth strategy. I have made the case for ambitious growing businesses recruiting an experienced and talented FD. The decision will deliver value across the business. It is an investment that will deliver massive returns rather than an additional cost!
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