How a part-time CFO could scale your business to bridge the valuation gap.
The business is sound, but the valuation is a long way from the owners expectation as they have been looking at public company multiples for their private company and all the convincing doesn’t help bridge the gap. The owners value expectation comes off the public company highs but they remain too high for private investment. What’s next?
A virtual or part-time CFO could be the answer. Over the next 12 – 18 months, the CFO can work with the business owner to substantially improve the value of the business and bridge that valuation gap.
For example:
When the investor is first approached the business had a turnover of $20m and $1.5m or 7.5% profit. The owners believe it is worth $20m or at the least a 10x multiple or $15m. In reality the business is probably valued at around 3x or $4.5m.
Over the next 12 months the business grows 10% to $22m and profit increases to 10% or $2.2m. Value is around 3.5x or $7.7m.
The next 12 months enables the business to grow a further 10% with profitability increasing to 12.5% or $3m.
On the basis of a 4x to 5x multiple, the business is now worth $12m to $15m.
Over 2 years the value of the business has been increased by around $10m. the valuation gap has been bridged.
How does a CFO from CFO Evolve achieve this?
The finance team have done a great job and financials are timely and accurate. The accountant has equally ensured tax and compliance are up to scratch. It is now time for the CFO to ensure the company is focussed on the future. To do this they tailor the strategy to maximise the company value and significantly aid the business execute the strategy. As a rule of thumb, a third of businesses have a strategic plan and can execute it, a third of businesses have a strategic plan and are unable to execute it and the final third do not have a strategic plan so nothing to execute. In the words of Lewis Carroll:
“if you don’t know where you are going, any road will get you there.”
With a robust strategy in place it is now necessary to ensure the budget and forecasts are realistic and robust. In particular a forecasting model needs to reflect the profit and loss, balance sheet, cash forecast and be based upon other systems such as CRM or inventory management. Forecasting and achieving and surpassing the forecasts is frequently one of the more difficult functions for a business to achieve. To achieve this the CFO will join the companies leadership teams weekly meetings to work with them to drive results using all the grey-haired wisdom they have gained over their exceptional careers. As part of this working with the team ensuring the strategic goals are being achieved whether this is implementing new systems, processes or people. The business in addition to meeting forecasts the business is becoming scalable and repeatable.
With the business operating more effectively, monthly meetings with the owners in a board or advisory capacity are re-designed to change the conversation to ensure there is an understanding of where the company is against budgets and forecasts, and everyone is focussed on what needs to be done next. This includes looking at the risks of the business and the mitigation strategies that need to be put in place.
For a portion of the price of a full-time CFO, an exceptional part-time CFO has the ability to double the value of a business and make it ready for investment or sale.
CFO Evolve provides exceptional part-time CFOs, passionately building great businesses through financial and strategic insights. Contact us if you think that we can assist with your business growth.
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