Hiring a Finance Consultant
Finance consultants -they say- do not have a crystal ball. But they do have the next best thing: financial projections, financial goals, and tools to report both.
Their expertise is most visible when they identify the precise areas that require review, adjustments, or a whole project to get everything on track.
The Diagnosis
The first step in a consultant's process is a diagnosis. You do not know what you are solving for until you identify the issues. You also do not know what you are reporting for until you have a goal. Sometimes the root problem is hard to find there are symptoms but no clear path as to what is causing the problem.
By digging deep into the company's financial statements, goals, and strategy, they can discover what the underlying issues are and provide a solution. This involves a deep understanding of financial metrics, industry trends, and regulatory environments. By identifying the root causes of financial problems, consultants can then provide a tailored solutions to address the core issues.
Tools and Resources
Once the diagnosis is complete, a finance consultants will employ a wide range of tools and techniques to address the identified problems. These may include:
Financial modeling: creating a detailed projection of future financial performance to assess the impact of different strategies or decisions. Financial models can be used to make a business case (e.g., leasing equipment instead of buying it), raise capital, and provide an overview of expected financial performance.
Valuation analysis: determining the intrinsic value of a company or its assets to support mergers, acquisitions, or divestitures. The valuation can be used as a starting point from which further analysis can take place. In some cases, valuation analysis is used as a tool to identify decisions that add the most value to a company.
Risk management: identifying and mitigating potential risks that could impact a company's financial stability. Managing risk goes side by side with managing finance: there’s risks that finance can identify ahead of time (e.g., liquidity, solvency, operational) that can contribute to making better goals inside an organization.
Capital structure optimization: determining the optimal mix of debt and equity financing to minimize the cost of capital. The process of finding the right balance can get philosophical, but the point is to always direct the company towards the mix the provides the most value.
Mergers and acquisitions: advising on the strategic rationale, valuation, and negotiation of mergers and acquisitions. Linked to the valuation analysis, finance can support the initiation of a transaction by analyzing potential improvements in the numbers arising from increased sales, synergies, reduced staff, and accessing new markets.
Restructuring: developing plans to reorganize a company's financial affairs, often in response to distress or underperformance. This is also known as a “turn around” service, where the finance department identifies areas of improvement using finance as a roadmap and then produces plan of improvement across a company’s department heads.
Expected Results
After the diagnosis work is complete and the tools have been used to identify root problems, results ensue (mind you: sometimes there are no results). Here are some examples:
Improving profitability: consultants may identify opportunities to reduce costs, increase revenues, or improve pricing strategies.
Strengthening financial position: they might recommend strategies to improve cash flow from operations, reduce debt, or enhance liquidity via debt or equity.
Optimizing capital allocation: consultants can help companies allocate their resources to the most promising growth opportunities (i.e., projects with better expected returns).
Mitigating risks: they can develop strategies to manage risks such as market fluctuations, credit risk, or operational risks; all of which allow the company to navigate through different economic cycles.
Facilitating growth: Consultants can advise on expansion strategies, mergers and acquisitions, or joint ventures.
Case Study from A Retailer
Imagine a struggling retailer facing declining sales, rising costs, and increasing competition. A corporate finance consultant might conduct a thorough analysis to identify the root causes and identify the problem or problems. They might discover that the retailer's product mix is inadequate for the market, its pricing strategy is not competitive, and its marketing efforts are yielding any results.
Based on these findings, the consultant could recommend a series of actions to improve the retailer's financial performance. These might include:
Updating the product line with trendy and in-demand items and playing with the product mix a bit to include “anchor,” “best-sellers, and “loss leader” products.
Implementing a more aggressive pricing strategy to attract customers, which could drive traffic to the store, especially if the right pricing is placed on the “anchors.”
Increasing marketing spending to enhance brand awareness and drive sales, or even changing their current marketing strategy and vendors.
Negotiating better terms with suppliers to reduce costs, which might include selling on consignment, getting better payment terms, or getting discounts based on volume.
Exploring opportunities to expand into new markets or customer segments.
All of these should be summarized around a common goal and vision, like “improving the financial health of the company through increased sales and profitability.” By implementing these recommendations, the retailer could significantly improve its financial health and regain its competitive position.
Conclusion
Corporate finance consultants’ expertise in diagnosis, analysis, and strategy development is essential for businesses seeking to achieve sustainable growth and financial success. By partnering with a qualified corporate finance consultant, companies can gain the insights and guidance needed to navigate the complexities of the modern business landscape.
