FINANCE: Remove Barriers to Growth with A Sound Financial Infrastructure
July 1, 2007
Remove Barriers to Growth with A Sound Financial Infrastructure I’m sure you are concerned, as a business owner, about eliminating barriers to growth. Having a sound financial infrastructure is a critical component to achieving your growth goals.
Are you planning to grow internally, through acquisitions, or both? If so, it likely will be necessary to obtain external financing from a solid financial partner to support that growth.
Are you thinking about positioning your company for sale? Having a sound infrastructure will result in a smoother process and a higher price for your company.
The stronger a company’s financial infrastructure, the more comfort the lender takes in the company’s financial data. In turn, the more comfortable or knowledgeable the lender is about a business, the more the lender’s analysis or due diligence will be streamlined, and the lender will be generally more willing to provide accommodating terms and interest rates.
What do I mean by a sound financial infrastructure?
Strong financial management: The importance of having a top-notch financial officer cannot be undersold from a lender’s perspective. A financial executive will be able to explain a company’s business and its prospects in the financial terms to lenders. A solid financial officer will lend credibility to non-audited interim financial information that is typically reported to lenders on a regular basis.
Detailed portfolio data: It is important to lenders that a company’s annual financial statements are verified by an independent public accounting firm. Annually audited financial statements are the type most desired by lenders. Alternatively, reviewed financial statements may be acceptable to a lender, especially if augmented by field audits by an independent CPA to confirm items such as RMR, attrition and accounts receivable.
Reliable management information systems: A name-brand management information system is critical to generate reliable, actionable financial information both for management decision-making purposes and for producing quality financial data relied upon by auditors and lenders.
Ability to forecast financial statements: This component blends those noted above in that it typically requires a combination of strong financial management, and quality historical and current financial data. The format is typically a simple spreadsheet. Lenders realize that the usefulness of financial projections is only as good as the assumptions utilized. However, thoughtful, accurate, detailed projections are integral to assessing financial risk.