Automated financial reporting and investor confidence

Darren Cran of AccountsIQ explains that catching the eye of investors is much easier with the right kind of financial management

Attracting investors is indispensable for growing, ambitious businesses, whether they are expanding startups or established enterprises. Investment at the right moment can mean the difference between success and failure, as promising companies often falter due to insufficient cash flow.

Despite economic challenges such as higher interest rates, inflation and market uncertainty, the UK continues to witness a flow of investments into its growing companies. KPMG reported that in the summer of 2023, five of the ten largest venture capital deals in Europe were concluded in the UK. Investment was stable in the third quarter of 2023, but the number of deals dropped 34 per cent from the previous quarter.

This signals a shift where money, although available, is scarcer and investors more careful about the companies they invest in. Due diligence is more comprehensive and includes financial management and systems, with requirements and expectations higher.

Investors will, of course, assess the personal capabilities of the people at the company’s helm. The human element is still vital, but investors always will want to see evidence that a company can deliver profits – and how long it will take. For startups that have been funding losses to grab market share, this is one of the most important hurdles they must jump to secure investment.

A data-driven business wins more friends

Financial management systems play a pivotal role as investors seek a well defined strategy that articulates whether the aim is revenue growth, market share or profit. This strategy needs to be supported by forecasts built on accurate data.

A company seeking investment is far more likely to impress potential investors if it can quickly supply them with data from its financial management system that makes it easy to see cashflow predictions, profit and loss forecasts, sales forecasts, operational costs, fixed overheads, net profit margins and audited accounts.

Companies need to be able to show they can slice and dice easily to provide the different dimensions required by investors who are likely to want a detailed picture of recurring revenue by customer or industry segment.

Equally, they may want to see churn rate set against marketing expenditure or an accurate summary of the individual performance of each company function or location. Subscription income by location and customer segment is also frequently requested.

The power of automation and data accessibility

Investors will also look for evidence the leadership team has access to the right data and analysis. Is reporting comprehensive, accurate and timely? Can the top team see what is happening inside the business whenever they need to, by for example, having access to dashboards?

To explain growth forecasts, the leadership needs to draw on sophisticated forecast and scenario planning tools so they can demonstrate how they estimate their capital or other funding requirements, how they asses the full market potential and how they model different pricing structures.

Investors are more likely to be convinced if they see a company that shares key metrics with people right across the business, to galvanise, motivate and spotlight where performance is weak or out-pacing expectations.

Manual methods do not inspire investor confidence

However, investor confidence diminishes when companies rely on outdated manual processes. If there is any suggestion the team lacks the bandwidth to focus on future growth opportunities because it is short on insight and is tied down using outdated manual processes, wasting hours on data aggregation and collation, this is a red flag.

Today’s investors like to see accurate and consistent KPI-tracking. Revenue growth forecasts should be backed up by credible evidence that is detailed and informed by deeper analysis of company performance. Many investors will expect to examine customer contracts and partner agreements accompanied by accurate calculation of metrics such as cost-to-serve. Fixed and variable costs and all profit margins will come under heavy scrutiny.

Automated financial management systems

If a company seeking investment has poor data and document-management, its responses are unlikely to meet the expectations of investors looking for high-quality strategic thinking and scalability.

They are more likely to be impressed by slick, automated workflows and cloud-based financial management systems that save time and fuel better decision-making. This is nigh-on impossible if a company is still relying on spreadsheets or a loosely connected stack of diverse business software packages.

The vast amount of time required for manual data collection and tasks such as reconciliation are significant growth inhibitors. Importantly, investors favour companies that can adapt to improved business models and ways of working.

Growth – not number-crunching

It is the quality of strategic decision-making and the information on which it is based that will help convince investors they should put their money into a company to assist its next-stage growth and development.

A great product, solution or service is utterly critical, as is intimate understanding the market. But to convince increasingly tech-savvy investors, businesses must prove they have the right financial management systems so they are free to concentrate on growth and innovation, and not number-crunching.

Darren Cran is COO of AccountsIQ

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