In expansion mode and seeking external investment that will enable your company to realise its potential more quickly than organic growth allows?
If so, it’s a significant milestone on the business journey. The way your enterprise performs at this juncture will help determine whether or not it obtains the funds it needs to support rapid growth.
December 2019 alone saw more than 20 companies list on the ASX. If you’re pondering the possibility of following suit, or looking to pitch your offering to venture capitalists or private investors, presenting your company in the best possible light will be a key focus.
An innovative product or service offering and a high-performing team will stand you in good stead but these aren’t the only things investors give heed to, when weighing potential opportunities. In fact, some of the best ways to demonstrate business success and future potential emanate from the finance department.
The annual accounts, financial reports, data and metrics all tell a story – and if your business is looking for external buy-in that doesn’t end badly, it had best be a non-fiction one!
Research commissioned by BlackLine in 2019 highlighted the importance of providing investors with detailed, up-to-date figures which provide an accurate and comprehensive picture of company performance.
More than 700 institutional investors were surveyed on the financial controls and processes at the companies in which they held a stake, and how companies’ financial practices affected their decision-making process.
Red flags and positive signals
“Creative accounting”, or “cooking the books” as it’s more vulgarly termed, was identified as a major bugbear – and professional investors are in no doubt that it’s rife. So much so that the majority of survey respondents stated that companies did not use financial statements that presented an accurate and realistic view of their accounts.
More than 80 per cent of respondents stated that they believed finance departments resorted to legal but creative accounting tactics to polish up the quarterly or annual figures, in order to appease investors.
As modus operandi go, it’s a risky one and it can backfire. Evidence that creative accounting has taken place can make investors less likely to part with their funds. So can signs of lax financial controls – think late filing of accounts, regular post-reporting adjustments and an obvious absence of long-term financial planning.
These things are not always deal-breakers but they can certainly be deal-stallers. It’s not uncommon for investors to call for structural changes before they buy in. In some cases, their demands can include overhauling the management team; replacing a foundational or longstanding finance leader with an outsider who is perceived to be more likely to run a tight ship.
Conversely, evidence of effective financial management and good decision-making is universally appreciated by investors and is a key factor in the decision to take a stake.
Knowledge isn’t just power, it’s also reassurance – that things are being managed prudently, scrupulously and in compliance with relevant standards and legislation.
A closer, highly granular view of financial data and operations which allows investors to see how the enterprise is performing in real, or near real, time can provide that reassurance.
Such a view also makes it possible for business leaders to practise data-driven decision-making, rather than relying on instinct and assumptions to inform their choices.
But for Australian companies which organise their financials along traditional, quarterly results-driven lines, an accurate, up-to-date picture of the accounts can be well-nigh impossible to provide. And in a fluid and fast changing business environment, last year’s or last quarter’s figures may provide minimal insight into the status quo.
Cloud-based enterprise financial platforms which facilitate unified, automated and continuous accounting, reporting and close practices can represent a solution to this information lag and the trust deficit it can help engender.
Time to act
Timely and highly accurate financial reporting doesn’t only stand your business in better stead when you’re seeking the external investment you need to realise its potential.
A reputation for integrity and rigorous financial management can result in a more positive brand reputation, a healthier internal culture and greater access to business opportunities. They’re all things to strive for, if you’re focused on expansion and growth, in 2020 and beyond.
Terry Smagh, senior vice-president and general manager Asia Pacific and Japan, BlackLine