When Tom Craig founded Craig Corporate in 1985 the challenges facing privately owned and managed businesses were great. Today they are even greater: Competition is global; markets change faster; legal regulations are more complex; employees have greater expectations and finance providers are more sophisticated. His firm’s original concept of “hands on” assistance in Business Management, Corporate Finance and Tax, provided by dedicated professionals, remains just as relevant now as it was 25 years ago.
Commenting that 2010 is proving to be a challenging and interesting year, Craig quotes Warren Buffet who said that “when the tide (of recession) goes out we will see what is washed up on the beach.” This is how Tom now sees the current landscape for owner managed companies:
- The emerging pattern of economic recovery is likely to continue and indeed may quicken. This is likely to mean that companies will look forward to becoming (more) profitable. However, financing large orders or contracts will prove more difficult than in the past because banks will be less able and/or willing to provide the levels of funding in the past. As a result companies will have to seek other funding, e.g. invoice finance, private equity development finance.
- Some such companies will come to the conclusion that they do not want to take on private equity or that indeed they are now too tired to deal with these continuing banking obstacles and will seek to sell out, even if the prices they can achieve are significantly lower than might have been achieved in 2007. This will give rise to Private Equity funded buyouts and trade sales
- Private equity funds have been conserving their resources to ensure that their existing portfolio companies’ finance needs (especially with bank facility breaches) have been met. Most of this will be complete in 2010. Private Equity companies will be looking more actively at new opportunities.
Craig’s view is that some companies have used the recession as an excuse for their poor performance. Therefore, when the economy improves they are not going to recover far enough or fast enough because markets will remain very competitive and margins will be squeezed, or their strategies will prove to be flawed..
Craig’s firm has worked on several financial modelling assignments recently and the one thing that really stands out is that each one is completely different. The companies’ businesses are different, their sensitivities are different, their processes are different and their information needs are different. ”I don’t believe that the ‘one size fits all’ approach of packages like winforecast or the often simplistic basic excel model can allow businesses to yield a lot of added value from the forecasting process” states Craig.
To illustrate his point, Craig presents one assignment example where a manufacturing company with c.£30 million turnover recently undertook a major refinancing round and discovered that the financial model of their business wasn’t meeting their needs. Their complaints were common to the issues that plague many financial models. It was time consuming to update or run sensitivities; it didn’t model working capital movements accurately or in sufficient detail; a lack of structure and too many manual interventions made it prone to error and inconsistency; it wasn’t useable on a month to month basis for timely forecasting.
To address these issues Craig Corporate took the company back to understanding the basics of the business itself. “By spending time doing this, we were able to help our client identify and reaffirm the key drivers of their profitability and cash flows to ensure that these were translated into easy updated inputs and sensitivities that formed the foundation of a self contained financial model” explains Craig.
By understanding how the company’s unique financial process worked and how the model could be made integral to this, and as a result of discussions held with management, it became clear that the excellent information from the company’s manufacturing planning software could be a key input for financial modelling. It was here that Craig Corporate also identified that the output from the model had to be able to be used in their client’s monthly board meetings and for their ongoing bank covenant monitoring.
As a result the client now has a model which not only saves many man hours each month by streamlining the process of updating the model and running sensitivities, but one which is integral to the way in which the business is run. The output from the physical planning for production can be directly input into the financial model to generate a detailed forecast of turnover, profitability and cash flow for the next 12 months and beyond. This then forms the basis of monthly board reporting such as profit forecast, long term cash flow forecasting and covenant monitoring. Forecast is therefore now timelier, based on the most up to date information and central to the governance of business thereby enabling the board to make better informed decisions on the strategic direction of their business.
As well as being Chairman of Craig Corporate, Tom has also been Chairman of privately owned companies in a range of industries including gas and petrochemical pricing services, financial services, investment management, consumer products, industrial services and electronics.
Contact:
tcraig@craigcorp.co.uk
www.craigcorporate.com
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