As part of a series of insight articles to be published over the coming months, Chiltern’s partners reflect on some of their experiences gained over a combined 30 year career advising and investing in owner managed companies.
Most advisers will tell you that it is far easier to sell a large company than a small owner managed business or raise tens of millions of pounds versus tens of thousands of pounds. This would appear counter-intuitive however for most entrepreneurs this is a growing pain experienced early on during their careers particularly when trying to raise development capital.
We are currently in a benign credit and investment market with funding more readily available than was the case a few years ago. Whilst many of the banks are being encouraged to lend to smaller businesses their limited appetites for risk make them less willing to lend to sub-£10m revenue businesses.
How investors and banks assess risk differs depending on the institution, however common criteria will include: financial performance and track record; customer concentration; sector; and exposure to market cyclicality. One of the other key factors is appropriate and dedicated financial resource, with the ability to explain the business model and KPIs, and how these link through to the underlying accounting records, policies and financial reports.
Implementing a financial reporting system for most mid-market businesses is now straightforward. What is more important is putting in place the right senior resource to analyse that data and present information for external and internal use, and to act as a business partner to the CEO and other senior managers.
One solution is to outsource this function to your accountant which can work up to a certain point – but with a tendency to focus on their comfort zone of reporting what’s happened (facts) rather than the added value of anticipating what’s about to happen (judgement).
At some point there will be the need to cross the Rubicon and invest in a finance director or experienced financial controller. Having worked with over 100 companies, Chiltern Capital’s partners have the experience to support businesses through these strategic debates.
We appreciate that this might not seem the most exciting way to use scarce resource to grow your company – however the right appointment is likely to pay for itself many times over.