Our experience

In our experience value is typically driven by the quality of earnings. This is underpinned by re-occurring revenues, a strong pipeline and the ability to cross sell services.

When the business is a B2B provider, the stickiness of customer relationships will drive value whether contracted or not. Consideration needs to be given to how this can be monitored and value attributed to it.

Where there is a professional services element, understanding key metrics such as utilisation, realisation and average charge out rate is important. Professional services business that have grown by acquisitions there will have opportunities to consolidate finance function activities and a need for common data definition and reporting.

In order to forecast cash accurately it is necessary to understand revenue and working capital by each billing profile (e.g. upfront payments versus milestone billing), so collection of these data points is needed.

A key requirement is understanding the build up and unwind of working capital, in particular build WIP, land WIP and land creditor commitments.

CFOs tell us that the a particular challenge is the cross over between detailed site by site forecasting and Group level projections. This needs to be carefully considered and designed to fit the processes and systems within the business, while giving stakeholders the information they need - “The financial model needs to fit the business, not the business fit the financial model”.

Key metrics at a site level are likely to focus on revenue security, costs to complete and end of life forecasts.

Investor returns analysis is also likely to be an important output for stakeholders to demonstrate the value of a particular project including gross development values, yields, IRR and other ROI metrics.

Construction businesses typically have a more sophisticated funding structure based on the stage of development and the security available. For this reason, flexibility to run high level scenarios is key.

A common challenge for education and training businesses is to present the appropriate level of detail (e.g. entity, discipline, course type). There needs to be good understanding

of the student life cycle (e.g. applications, to year 1 starters, to year 2 continuing students). Consideration is also given to presentation by cohort or vintage.

There may also be different geographic factors at play which materially impact EBTIDA, cash and working capital (e.g. overseas vs. domestic students). Government funding and apprenticeships also need to be considered.

Attention also needs to be given to the seasonality of the billing profile, particularly where this falls on a termly or annual basis.

For capital intensive businesses, a priority for stakeholders will often be understanding and bridging the movements in net asset valuation (NAV) and end of life IRR on a quarterly basis. Flexibility is often required to stress test changes in commodity prices and inflation and understand the impact on profitability and the NAV.

In long term forecast models (>5 years) there is often a need to present changes in capital structure over this timeframe (e.g. multiple refinancings) and understand the liquidity requirements.

For energy industry service providers, the value of the business is often within the security of future revenues which can be demonstrated through contract level modelling. Identifying the right KPIs (e.g. usage, pricing £/kwh) applying the appropriate contract renewal profile will help to underpin this.

Many FS businesses are high volume, low transactional value in nature (e.g. commission based payment services, money transfers etc). In these cases our clients use cohorts of clients based on demographics or behaviour in order to draw meaningful conclusions. Segmentation can be important as it allows Customer Lifetime Value to be created which in turn articulates the value of the business.

Key to demonstrating the value for lending businesses is clearly presenting the unwind of the back book with a link back to source information, typically a loan tape. Another key consideration is driving the front book through new originations, yields and lending periods. It is important that there are clear processes around transactional data so it is ‘clean’ and can be used to efficiently update forecasts in hours, not days

For investment appraisal support, CFOs are often keen to see investor returns, including IRR and equity multiples under different scenarios. Often clients need to be able to flex the equity and debt structure in real time to efficiently fund growth.

Careful consideration of how contract performance is reported with reference to identifying contract variations and variance to forecast is vital for businesses in the Health and Care sector.

Within the pharmaceutical sector, we work closely with CFOs to identify the medicines, therapies or products that support the growth narrative. The R&D strategy and associated capital investment and payback analysis and ROI is a key area of focus.

For highly leveraged health businesses, such as diagnostics, electives and other secondary care services, it is important to understand the cost at a procedure or pathway level. Once direct and attributable overheads have been added the full cost can be used for profitability analysis and VfM assessment of the Public Sector Comparator.

We also have a significant amount of experience in the care sector, when typically number of beds/users, occupancy and rates tend to be key drivers of revenue. Private versus publicly funded care is also a key consideration, which impacts profitability, working capital and cash conversion. In continuing care patient level reporting is required to demonstrate the true cost of provision and to make the case for additional funding.

In our experience, identifying and modelling the operational metrics that drive growth is key to articulating the value of the business. In hospitality, KPIs are likely to include orders, covers and average spend. The frequency of reporting is typically high with in-month and in-week reporting of revenue, an area of likely focus.

Leisure businesses incur a significant amount of upfront and refurbishment capex. Flexible forecasting can allow CFOs to understand the impact of their refurbishment and site roll out programme on EBITDA and funding as well as the ROI of the capital spend.

In gym and subscription based businesses, KPIs include of membership volume, value and churn. Coupled with demographic data, these KPIs, can give lifetime values by cohort, which in turn can drive value.

For travel businesses, appropriate modelling of the bookings to departure curve will help to ensure revenue and cost recognition is accurate but also support the understanding of working capital movements and quantification of cash held on behalf of clients. There may also be regulatory requirements that are important to track such as CAA covenants or TOMS.

Analysis of PAX data will help to demonstrate the level of repeat customers and recurring revenue, as well as allow for return on investment analysis by channel and brochure.

Key considerations for Manufacturing and Industrial businesses are likely to include: the drivers of volume and price growth across different product types; capacity constraints (e.g. number of shifts, machine utilisation etc.); and a good understanding of production overheads.

When working with innovative businesses developing new products, there may be several areas to consider. Deeper analysis may be required on product lines which aren't yet material but will drive future value for the business. Investment costs need to be analysed separately to understand the underlying performance of the business. This should include appropriate identification of R&D costs and so return on investment for new products.

New products and R&D spend require new KPIs and lead indicators to be reported to help monitor performance effectively in addition to the current reporting processes and outputs.

For capital intensive businesses, the forecast capex profile is likely to be important, alongside inventory forecasting (i.e. raw materials to finished goods). It is often useful to identify and report key customers separately, where individual contracts are material or have distinct cash flow profiles. This is especially true for long standing contracts, framework agreements or customer relationships. Consideration is also given to the customer sector to understand the resilience of the business to macroeconomic and sector demand.

There is a wealth of transactional and e-commerce data available to retail & consumer businesses which can be leveraged by both the operations and the finance teams to good effect. We support CFOs in identifying a suitable segmentation of the customer base into cohorts (e.g. based on repeat purchasing patterns, demography or location) and appropriate revenue drivers which may include footfall, average basket size and conversion.

Presenting trading by store and e-commerce platforms separately, to demonstrate like for like (LFL) growth in a store environment will be important, alongside separate e-commerce metrics and the ROI on marketing spend.

Working capital considerations will focus on inventory turnover and the seasonality of procurement and sales. Analysing asset based financing (e.g. debt secured against inventory) to manage cash flow pinch points in the year also helps to provide valuable outputs for stakeholders.

The frequency of reporting is typically greater than for other sectors. Efficient processes for in-month and in-week forecasting are critical. Retail and Consumer businesses also need to have robust processes around cash collections from e-commerce platforms and strong processes around returns is also critical.

Typically in TMT businesses, the key to demonstrating value is understanding the ARR or MRR build up and its constituent parts, including the ability to upsell and cross sell products, whilst minimising churn and downsell. We recommend a T account (corkscrew) or customer waterfall approach which breaks down the ARR/MRR movement into new logos, churn, upsell, downsell and cross sell.

As part of analysing or forecasting new logos, a view of the historic pipeline and pipeline conversion is important as this can provide a degree of security over future revenues. This can be further segmented by customer type, geography, size or other groupings to give further insight.

As SaaS style businesses mature, there are opportunities to not simply focus on ARR/MRR but to better understand the billing to cash processes and drive cash generation.

In our experience, presenting the appropriate profitability and operational metrics, which demonstrate the underlying performance for SaaS businesses (e.g. the rule of 40) and efficiency of the cost base (e.g. sales / sales head; opportunities conversion %; win conversion %) is also key in understanding the performance of the business.

Cash flow conversion or Cash EBITDA is typically determined by understanding the material customer billing profiles (e.g. annually in advance vs. monthly subscriptions). This will also support the forecasting of working capital (e.g. deferred revenue).