• GrowthBuilders

Financial controls - what investors are looking for

Updated: Jul 23

Strong financial governance, or the way a company collects, manages, monitors and controls financial information, is not just the preserve of big businesses with large in-house finance teams, it is a fundamental requirement for making sound strategic decisions and securing investment.

Investors want to see strong financial management

For companies looking to grow and secure Series A and upwards investment, it could be the difference between a ‘yes’ or a ‘no’ decision. A survey of 760 institutional investors, commissioned by cloud accounting software company BlackLine, in November 2019 found that:

  • Nearly all (95%) investors surveyed either strongly agreed or agreed that clear evidence of good financial management was key to their decision making process; and

  • Near real-time oversight of a company's financial data was also important with 95% of investors saying they need this to make well-informed decisions about a company.

In fact, financial governance is so important that BlackLine found that less than 1% of the investors surveyed would still invest in a company with poor financial controls without taking some form of corrective action first.

So, what are the red flags that investors look out for:

  • An increased risk of error (or fraud) through poor controls, procedures or separation of duties;

  • Adjustments to filed accounts or management information that often contain errors;

  • Consistently late filings; and

  • No evidence of long-term financial planning.

With advances in cloud accounting and technological innovation, particularly through automation, there is now no excuse for poor visibility of financial performance. Near-time reporting is now an investor expectation that all founders will need to meet.

At GrowthBuilders, we work with our clients to assess financial governance across six key strands:

  • Data;

  • Technology;

  • Processes;

  • People;

  • Risk monitoring; and

  • Stakeholder reporting.

It is essential that any effective financial governance framework provides for:

  • Effective controls to prevent and detect fraud;

  • Efficient processing to reduce cost;

  • Insight for management and investors; and

  • Effective stakeholder management to engender investor confidence.

Find out more about how we can get your financial governance investor ready with our Financial Controls Health-check.