Where once Financial Leverage ruled supreme, now the largest contributor to future value creation in portfolio companies is Operational Improvement – a growing trend revealed in a study by global consultancy firm, A.T. Kearney.
In today’s interconnected world where we demand instant gratification at the touch of a button, it is staggering the number of companies that rely on outdated methods of data collection, transmission and processing. I know, I have witnessed it first-hand.
As a Portfolio Manager for a leading private equity firm, obtaining month-end reports was vexing. The numerous calls and reminders (even in my most diplomatic of tones!) were both frustrating and onerous, because only after I had my precious data could the work continue: valuations, IRR calculations and LP reports.
Private equity imposes certain disciplines and models to compel companies to succeed or at least satisfy its highly-driven and monetary-oriented ownership. Companies are forced to immediately improve financial efficiency, performance, and continuity. Having your finger on the ‘pulse of the business’ – for each of your portfolio companies – is not nice to have, it is vital.
Having a process in place is a start, but an automated system with e-mail reminders, approval workflows and exception reporting was a great blessing. Little did I realise the power of a timely reminder.
Even my CFOs were happier; with a simple Excel interface financials were posted in minutes, they could use the built-in charting capabilities to ‘see their data’ and, think through scenarios in preparation for the next board meeting.
We all benefitted. As soon as the data was uploaded and signed-off, I would receive an email notification. The data was consistent – no more matching Charts of Accounts to normalise the inputs.
Private equity players look at their balance sheet not a static indicator of performance, but as a dynamic tool for growth. One critical component of this approach is to make equity sweat: aggressively manage down working capital, disciplining capital expenditures, and working the balance sheet hard.
With data available – anytime, anywhere – at a click of my mouse or a flick of my finger, I know I’m ahead of the curve.
Imtiaz Ali is Senior Consultant and Data Visualisation Ninja at Baxon Solutions. He previously worked as a Finance Director in the healthcare sector, and as Associate Director at The Abraaj Group.
He enjoys marathon running, big data and all things Excel.