Steven Mugglestone

The more I learn, the less I know

Great Corporate Finance Advice Is Never Just About Finance:

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….. and lessons from the Titanic

Ask a number of business people or the public in general as to how they would describe a corporate finance professional adviser and it is likely that they will say male, young, sharp suit, fast talker and generally an all-round slippery character, more intent on “doing a deal” than providing significant support and advice.  It is fair to say that during the pre-credit crunch days, this negative image was fairly common.

Times have changed, with more commercially experienced and generally well-rounded business professionals becoming part of corporate finance businesses, utilising and blending the skills and experience of entrepreneurs and finance professionals who have many years of experience working within businesses as well as advising them.

It is worth looking at what makes a great corporate finance adviser, why would a business use them and what are the common misconceptions as to what they do.

Finance Broker

The first key area to understand is that whilst corporate finance advisers do source finance, they are not merely a finance broker.  They act for the business to provide the best platform possible for the business to either start, acquire or expand.  This cannot be done by any individual who believes that picking up the phone and introducing two parties to do business is called a finance service, it is not.  It is merely that, a broking service, introducing parties.  Great corporate finance advisers provide so much more.

The Right Adviser

Ask yourself, as a business person, do you know everything; everyone; what works and what does not work; where your business is in the market place; the future of your market place; what you do well and what you need to address.  If the answer is yes, then Lord Sugar/Sir Richard you will not need a corporate finance adviser.  For the not so successful but rationale business people trying to work their way through the real business world, you do need support and you will find out “every day is a school day” and choosing the right adviser with the right experience will prove to be the most important decision that you can make.

Corporate Finance Adviser, Your First Finance Director (or assistant if you already have one)

A great corporate finance adviser will be a great business’ first Finance Director, or will be the greatest support to those businesses with an FD.  Your business or new project, acquisition or expansion is a journey, and for success you will need to have the best team and the best plans.  Here is how great corporate finance support helps:

Helping Set your Strategy

The old stereotype of a corporate finance adviser was of the young man, keen to do a deal, but severely lacking business and life experience.  This is changing and many corporate finance advisers bring a wealth of business experience from a wealth of businesses that have both advised and worked in businesses through good and bad times.  It is worth asking the questions, before appointing any adviser, what have you really done and who have you worked with.  Professionals who have worked for the same organisation all of their lives are likely to bring you the same party line.  You should ensure that you find advisers with not only the badges of business, success and qualifications, but the scars of business as well, illustrating real business experience.

With all of this experience, you can draw upon that knowledge and experience to build your strategic plan, covering customer and marketing strategies, systems and processes and people development, but also ensuring that the financial areas that underpin strategic plan are relevant and robust.

A great corporate finance adviser with help lead defining your strategic investment activity.  This will mean assessing where a business is going to channel its resources to improve;  ensuring that investments in both capital and human resource, marketing or other activities together with other related improvements and new areas that they are undertaking have a reason and a goal and that these are appropriately considered taking account of strengths and opportunities.  The costs and impact on the business can be measured and the future impact forecasted.  With a new FD, a great corporate finance adviser is ideally placed and qualified to ensure that strategic activities are appropriately considered, planned, assessed and monitored and along the way they can add to the creative and entrepreneurial flair gained from their experience in this area.

Strategic plans need to consider risk and risk management.  All project management and strategic plans will contain a risk register and risk plan.  Full consideration of both financial and commercial risks involved in all activities are considered and recorded and appropriate mitigation and insurance will be put in place.  This is not done for the sake of it, but is done to consider what can go wrong and put in places procedures and systems, as well as insurance policies, to mitigate them.

Any businesses should consider a time plan and a great corporate finance adviser will help ensure that an appropriate timetable is considered and worked to, including consideration of the most appropriate exit for you from your business.  This may be in respect of a specific area or the overall plan for the business leading to eventual exit by sale, or perhaps listing on a recognised market.

After all of this and underpinning a strategic plan is an appropriate funding structure.  The business’  own cash generation may not be appropriate to fund longer term investments and in return some higher risk areas may not attract bank or similar funding.  A great corporate finance adviser will help to ensure that funding is appropriate for both the timescale and risks related to the business’ activities and strategic plan.  An obvious key area underpinning funding for a business is the relationship with current and potential future funders.  Together with an FD, great corporate finance advisers are key to this relationship, whether banking, private equity or institutional as they understand what information is required and help to ensure that funders are comfortable with the current position of the business and its future aims, goals and requirements.

Helping to create the right operational support

Great Corporate Finance Advisers can really improve your business chances of not only securing funding but in many occasions can ensure their commercial success and improvement.

Many times individual or small teams of entrepreneurs arrive with an idea to start/build/acquire a business and these small teams have varied and complementary skills and strengths.  Many times, however, there is a skill set missing to launch the best team for the journey.  This may be a chairman/chairwoman, an FD, a sales and marketing director/adviser or chief executive.  A great corporate finance adviser will see this and will strongly advise what is needed and why.  Great corporate finance advisers will even lead the search and find that missing piece in the jigsaw.  If you thought that is what recruitment consultants did, it is worth noting that great recruitment consultants will find you what you want, but great corporate finance advisers will find you what you need.

It is also worth noting that as part of your team, you will need to ensure that all parties play to their strengths and so you will need help with controlled delegation, ensuring that the most appropriate structures and controls are put in place to allow senior members of the business to concentrate and be allowed to carry out roles that they are good at and that are crucial to the improvement of the business.  As an example, if the key director is also a key sales person, they should not be spending their time writing brochures, catalogues or processing orders, but they need to be comfortable that those areas can be carried out to the appropriate standard without them.

Do not forget good reporting to help improve the business.  A great corporate finance adviser will always ensure that the reporting format and what is reported is not about dwelling on the past but ensuring that appropriate areas are planned for and controlled.  The term key performance indicators tend to be over used but a great corporate finance adviser, together with an FD will always look to simplify the reporting to concentrate on key areas that really matter and these may not always be financial.  An FD will use budgeting as a control tool for reporting, but will also use benchmarking against best performance within the business and external to the business.  This is not done to dwell on the facts that the business is performing better or worse than others in a particular area, but to understand the reasons and address accordingly.  Sometimes you find that your competitors carry out some things better than you and if you can address these areas you can make a difference to the bottom line.

The use of benchmarking, budgeting and using key performance indicators by a great corporate finance adviser and FD will lead to identifying profit improvement, ensuring that operational reporting is used to enhance the earnings of a business.  An FD will usually be responsible for negotiating and agreeing many of the businesses supply and service contracts, but at the start a corporate finance adviser will get this going in the right direction.  This will mean that they will look to consider all relevant factors, model usage accordingly and ensure that competitive tenders can provide what the business needs.

Profit is one thing, but cash is king and a great corporate finance adviser will help to cement that ethos with you and your business.  Businesses do not go bust because of profits, but because they run out of cash.  Corporate finance advice will always tackle working capital and cash management.  The maths in this area is relatively simple in that with high stocks, work in progress and debtors with low creditors comes a strain on cash.  Systems need to be considered and put in place from the onset to control this area on a rolling weekly basis and on some occasions and with some businesses this will be done on a daily basis, to free up cash for use in the business.

Ensuring that your business is well supported from the start

There are many business functions that have to be done and are thankless task but someone has to do them.  As part of any business plan of operations, a great corporate finance adviser will help to ensure that these are dealt with from the onset and will work with an FD, who usually ends up with these roles to put appropriate support in place. These will include HR, IT and insurance (part of risk control and mitigation).  Whilst larger organisations may well have separate staff and departments in a smaller organisation and business these will inevitably be outsourced.  Outsourcing ensures that the relevant risks involved in these areas are controlled and mitigated and that costs are also controlled.

As the business and project is being  launched, this will involve a lot of legal documents and input and a corporate finance adviser will look to ensure that all trading areas are covered with appropriate legal agreements and documents including reasonable terms and conditions of trade etc.  A great corporate finance adviser will work closely with the businesses legal advisers (outsourced) to ensure that commercial matters are reviewed and considered in all of the legal agreements that the business adopts.

Finally, a great corporate finance adviser will look to ensure that the business considers the most appropriate structure for tax purposes from the start as well as help creating an appropriate tax mitigation plan going forward.   Whilst not an expert, they will ensure that appropriate tax advice is sort and that tax costs are mitigated and planned for, together with sensible structures being put in place to ensure that all relevant reliefs and tax breaks are made available to help the business, and individuals involved in the business to manage its tax costs.

A great corporate finance adviser is not just or only a finance broker, they will seek be the business’ closest ally, confident, adviser, FD, trouble shooter, solution finder, strategic thinker and planner.  They will be there, with you to launch your business and ensure that you are fully equipped for the journey, that you know where you are going, that you are protected for the journey ahead and that you will know when you get there.  They will be your best business friend as well as its greatest challenger and together you will achieve success.

Corporate Finance and lessons from Titanic

A final lesson, explanation and metaphor for 2012 and the 100th anniversary of the sinking of the Titanic, we can use the analogy of that famous ship, newly constructed, together with the initial plans for its maiden voyage.  The ship, the crew and Edward Smith, the captain can easily be seen as a newly launched, funded and appropriately staffed business, but how did it get there and is it really heading in the right direction.  As a corporate finance adviser helping to ensure that the project is funded and is equipped to tackle the appropriate business journey and using the Titanic as the analogy, you would have considered the following:

  • Is the vehicle the appropriate and robust structure for the journey (i.e. are you also using the right and same rivets, which contributed to the structures failure)
  • Do you have the most appropriate crew and captain/leader with the most appropriate navigator/finance director and engineer/operations director, together the rest of the crew
  • Was Edward Smith, the right captain for job, so close to retirement, with pressures by management to set speed records for the crossing?  A chief executive, has to be strong and sometimes this will mean not succumbing to shareholder pressures,
  • Are you setting in the right direction and at the right speed (i.e. your business plan and growth strategy)?  If you are deliberately heading for choppy waters, are you equipped for that stage of the journey?
  • Do you understand the external factors affecting your journey, the weather conditions, the markets, taxation and various legal factors?   It is now considered that the Titanic sailed into an area where warm air streams came into contact with severe cold air streams from the arctic which not only resulted in an iceberg floating through but atmospheric conditions that went from warm to severely cold air over a short distance and visibility issues that meant that lookouts could not have seen the iceberg until it was too late.  These are all significant lessons for any business, pointing to failure due to a lack of good planning.
  • If disaster does strike can you cope with the aftermath?  Do you have enough lifeboats and do you have a disaster recovery plan.  The decision to limit the number of lifeboats on the Titanic was not only about considering the ship was unsinkable, but was also about the look of the ship and that lifeboats strewn along the ship were not aesthetically pleasing.  How many times have you heard similar argument in business when considering risk matters?  Great corporate finance advisers will help you to ensure that plans B, C and D are considered as well as planning for the worst situation while aiming for the best result.  Risk management is crucial and accepted in all project planning and for any business person this includes protecting yourself and your family financially by way of appropriate structures, ownership and insurance and commercially by way of how you plan to deal with commercial and other factors which can seriously affect your business.
  • For White Star, the Titanic disaster signalled the start of the end of their business, yet time and time again good and appropriate disaster recovery planning has saved a business.
  • Recent analysis suggests that Titanic was doomed from the start, in that a number of key individual problems, challenged and issues contributed to her disaster.   This alone is a lesson for businesses and corporate finance advisers alike.

Many business gurus claim that you learn more by failure than you do from success and with that in mind, a great corporate finance adviser will ensure that you, your business and your business plans are appropriately equipped to deal with the journey ahead.  Perhaps if this approach has been adopted by White Star and Titanic, history may have recorded that Titanic was the greatest ocean liner and success of its age, rather than the tragic disaster that remain as a key moment in our history forever.

Steven Mugglestone BA FCA
Citizen Corporate Finance
Finance Director Services, , McGregors Corporate Entrepreneurial Chartered Accountants and Business Advisers …….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.



Written by Steven Mugglestone

May 8, 2012 at 6:01 pm

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