A recent start-up lacked financial management at a critical period as activity was beginning to ramp up. The plan had been allowed to drift from the original proposal, with unintended consequences. The investors were anxious to bring increased discipline and rigour to the process through a revised Business Plan and the implementation of budgetary control and cash management.
The incumbent CFO had resigned shortly following the start-up. The finance function had experienced a high level of churn as a result of poor staff selection and lack of leadership, but worst of all the Business Plan had been allowed to drift from a technology “proof of concept” to a more fully developed brand development and distribution model, but without any consideration given to funding! Tensions were rising between management and investors as the reality of the situation became more clear. A substantial pre-launch marketing budget had not been controlled and funds were urgently needed to ensure that finance was in place to support the critical approval of a multi-million dollar manufacturing contract in China.
To urgently ascertain details of changes to the plan in order to determine the impact on profit, funding, and additional resource requirements. In a rapidly moving launch phase, time was critical. It became clear that the lack of control in the earlier phase of development had resulted in misdirected activity and expenditure, and that the funding requirement had now significantly increased.
The review process identified that important areas had been overlooked, in particular the sales resource required to manage the distribution partners, and the allocation of market development funds (general practise with distributors). On the other hand, significant funding had already been applied to traditional brand development rather than supporting a critical digital marketing campaign and the purchase of POS displays. A further issue was that the management team had not recognised the implications of the manufacturing and heavy inventory purchases now proposed. Despite the apparent profitability indicated by the plan, the high volume of inventory required (to achieve a viable unit cost), relatively low margins, and extended credit offered to channel distribution partners meant that there was now a much increased working capital requirement.
Through close collaboration with the CEO and COO, the Business Plan was updated, and the financial projections revised.
Armed with a more rigorous plan, funding and resources were allocated. Following a successful launch in late 2015, the unique technology offered by this business was successfully show cased, and by December 2016 an offer was closed with a leading US wearable technology company. Despite considerable volatility in this niche sector, the investors (private equity and VC) achieved a very satisfactory outcome.
Case Study: Steve Smith (Click here to see his profile)