A major business transaction such as a merger, acquisition or sale consumes many internal and external resources in both the lead-up to and the aftermath of the transaction. As such, there are a number of factors to consider. Unfortunately, for high growth technology companies, which tend to have a laser-like focus on product development and sales, financial operations are often overlooked, which could potentially derail a successful business transaction. Properly structured financial operations helmed by a strategic CFO leader can help shepherd the firm through the processes.
Understand the Importance of Financial Operations
Yes, financial operations encompasses “traditional” activities of invoicing and billing, payroll, and financial statement creation. However, it also includes many underutilized functions that provide the crucial feedback and support needed to continually improve operations. To ensure your company’s operations are structured do this, you must ask questions. Do you review the income statement and balance sheet monthly? The information is there to help make decisions. Use it as such. Structure the accounts to show sales and gross margin by product or category.
Involve Finance in the Company’s Strategy
According to the Wall Street Journal, having a finance organization run by a strategic, operationally-savvy CFO can mean the difference between business transaction success or failure. Therefore, hire a strategic part-time or full-time, contractual or permanent, CFO who can ask the necessary questions, structure the financial reporting and operations, and install the financial controls above. These actions are essential to obtaining the highest value for the business when pursuing a sale of the company. The CFO can help determine how to best fund that acquisition then pursue and cultivate the debt and equity financing relationships crucial for funding a merger or acquistion. The financially savvy CFO can use the category or product-based sales and marketing data to model where and when strategic combinations would help the company achieve its growth goals.
Obtain Audited Financials
According to Bloomberg, in recent years, high-growth technology companies have been the primary culprits of non-GAAP numbers. This use of pro-forma, adjusted and non-GAAP earnings has grown significantly. The problem is that the numbers mean different things for different companies, making direct comparisons nearly impossible. These numbers also make companies look better than their actual GAAP financials show. When pursuing a business combination or sale, it is crucial to compare apples to apples. Hence, use GAAP financials and, when pursuing a sale, obtain audited financials.
Prepare for Due Diligence
According to a Forbes article, working capital, debt level, and whether margins are increasing or decreasing each year are all critical due diligence considerations. Therefore, when preparing for a sale, ensure that the financial projections are on par with the actual approved budget and show a level of capital expenditures that supports the company’s stated objectives. If not, make the necessary changes. Bring outstanding accounts receivables to less than 90 days. Otherwise, buyers will question the revenue to cash conversion and a potential lender will question the company’s ability to repay the loan and the value of the A/Rs as collateral.
Many high tech business owners and CEOs do not view financial operations as a function that is an integral to the company’s strategic vision or long-term goals. By implementing the above, a company can be very confident that it is fully financially prepared for any business transaction.