June 2012
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What is the Most Important Item
When Preparing for Private Equity?
By Greg Morris, Nperspective CFO Principal
When you are preparing to seek a private equity partner what is the most important financial consideration to ensure your success and the best valuation for your business? Is it:
- Timely and accurate financial statements?
- Strategic plan?
- Bank financing?
- Good internal controls?
While all of these are important, they are not the most important.
A private equity firm is responsible for other companies/ people's money. More significantly, they bear responsibility for a high and fast return on that money. So they are totally focused on how you (and your company) are going to increase the value of your company which increases the return on investment. When the equity company invests in your company - how do they know they will get a return?
The equity company will want to look at your forecasting system. How often, who is involved, how much detail, do you regularly run "what ifs". This forecast is for cash and also for the income statement and balance sheet. Most likely they will want a 13 week detailed cash forecast, this is for the next 13 weeks (basically 3 months) and then by month for the next 9 months to complete a full year forecast. This will need to be updated every week. This is not a budget and does not replace the budget.
The equity firm will also want to know the details. Anyone can put numbers on paper. But what are the action plans, the timetable, who is responsible for those actions that are going to increase value. What are the "drivers" of value? What is being done to sustain that value increase - not just temporarily? What is the process for making sure action plans are done or if not done- when will be done and what resources are needed to complete the action plans.
To get this to be part of the normal everyday life of the company, everyone has to understand what it means to be owned by a private equity company. The company has to embrace it and all employees have to be a part of it. The forecast and action plans aren't just the responsibility of CFO. Everyone has to be involved. This is not easy for everyone to understand. When you are expected to drive value, fast- it has to be a team effort. And that effort is easier when everyone understands and can work together towards common goals.
Many of Nperspective's CFOs have assisted companies in preparing to work with a Private Equity partner and have worked on the Private Equity side so that we are in the unique position of understanding both parties' objectives and able to assist in the right level of preparation needed for success.
Please contact Janet Watson at (813) 317-3460 or jwatson@npcfo.com for further information or a free consultation. |
| Did You Know? |
Did you know that one of Nperspective's CFOs was recently approved by the Bankruptcy Court for the Middle District of Florida as the Chief Restructuring Officer (CRO) for an Orlando based company that has filed Chapter 11 reorganization? We are working to assist this company in a sale of the going concern.
Contact Janet Watson for more information.
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