Craig Corporate’s reputation as an expert in financial diligence and modelling and its track record in working with investment portfolio companies has led to the launch of the company’s first bespoke training course for investment executives, delivered to leading venture capital investor Scottish Equity Partners (SEP).
Expert financial diligence, robust financial models and rigorous financial controls underpin successful investing and Craig Corporate has worked on numerous assignments for SEP and other professional investment firms. Craig Corporate Senior Director Bill Finlay says the range of services provided to investment firm clients includes pre-investment financial diligence and post-investment work, trouble-shooting and secondments to portfolio companies to act as interim Finance Director when required.
The company’s track record for identifying financial irregularities, implementing systems that improve financial transparency and assessing the abilities of portfolio company finance teams, has enabled Craig Corporate to develop long-standing relationships with investment firms such as SEP.
Tony Robison, an SEP Director with responsibility for portfolio management and deal support says: “There are several compelling reasons why we regularly use Craig Corporate for financial diligence work, fair valuation, financial modelling and cost reviews. The overriding ones are the quality of their work, their flexibility, wide range of skills and the value we get from them. We have also used members of their team as interim Finance Directors for three to six month periods and it has proved very helpful for our portfolio.”
SEP, which has a strong track record for building value in high growth technology and technology-enabled companies, approached Craig Corporate to create a finance course as part of its continuing professional development strategy for its investment team who operate from offices in London, Glasgow and Edinburgh.
Robison was initially seeking an ‘off-the-shelf’finance course and looked at numerous options but none seemed to have the ideal blend of technical content, practical exercises and case studies. He says: “Our investment team are all highly-numerate and highly capable with a wide range of skills and experience but they have diverse professional backgrounds. We provide a series of CPD courses to ensure they are all equally adept and up-to-date on new developments in every discipline. We were seeking high-quality finance training, tailored for the venture capital industry.”
Robison asked Craig Corporate Managing Director Paul Yacoubian and Senior Director Bill Finlay to create a course for the SEP investment team. He says: “Craig Corporate was the ideal partner because we have worked with them on numerous assignments. They have a wide range of financial expertise and they are excellent at applying financial disciplines to often complex real-life situations, identifying anomalies and flagging concerns.”
The course Craig Corporate designed for SEP spanned:
- accounting systems and controls including financial and management accounts
- revenue models and revenue recognition
- gross margins and revenue expenditure
- balance sheet issues: goodwill, R&D expenditure, forex accounting, manipulation of accounts
- budgets and forecasts
- KPIs and analytical reviews
- building and reviewing financial models
- financial diligence
Robison says: “Creating a bespoke course with Craig Corporate was the ideal solution for us – working through all the financial aspects of the deal process, covering changes in the accounting rules and addressing financial modelling in a forensic way.”
Benchmarking and validation
SEP’s Robison says: “Craig Corporate have a history of working with SEP on due diligence exercises, validating points we’ve raised in our own assessment and verifying financial models. They can also benchmark companies against ‘best-in-class’, challenging growth assumptions and cost base. Their perspective on the quality of the finance team and whether the existing team can scale with the business can also be beneficial. Craig Corporate understand our investment criteria and our approach to investment management and that made them the ideal training partner.”
SEP has called in Craig Corporate on occasions when a company’s progress has not gone to plan. Robison says: “Sometimes the cost base may have got out of kilter with revenue growth and it is helpful to have an independent financial expert to provide another view. It enables us to maintain a positive relationship with the companies we’re invested in while making sure that any problems are addressed.”
Bill Finlay says Craig Corporate adds value at different stages in the investment cycle and in a number of ways including budgets and forecasts analysis, ratio analysis, by drilling down into the cost base, and through checking the integrity and accuracy of each element of financial formulas used. He adds: “We have also developed a traffic light warning system for portfolio company financial models.”
Finlay sees a number of common pitfalls through financial diligence work for clients including over-optimistic sales forecasts, gaps between actual and forecast cash balances, outdated cost data, and treatment of exceptional items. “We identify pitfalls and we devise solutions. Our prime focus is to improve business performance.”
Besides financial diligence work for investment firm clients, Craig Corporate also has significant experience in diligence for companies making strategic acquisitions or divestments and engaged in corporate restructuring or a change of ownership structure. Finlay says: “Financial diligence work often marks the start of an ongoing relationship with a company as they see that we can add value and improve performance.”