What can we learn from more than 150 projects?

Over the past few years, the Grant Thornton Hungary team has completed more than 150 financial due diligence projects across a wide range of industries, including manufacturing, energy, trade, logistics, healthcare, IT and services. The vast majority of the companies we reviewed were SMEs. This has given us considerable insight into how their financial information systems work and which common shortcomings make it difficult to understand how they create value.

Understanding where value is created

Financial due diligence is one of the most interesting and, at the same time, most complex parts of transaction advisory. In a short period of intensive work, we need to identify how and where a business creates value. The key to success is to think like an owner and identify the risks that could threaten the company’s ability to create value.

The most common obstacles to financial transparency

When assessing a target company from a financial perspective, the due diligence team relies heavily on the company’s own reporting system and management’s view of the business. In practice, however, we encounter a number of obstacles that make it difficult to interpret the data accurately:

• Revenue is not attributed to products, product groups or customers.
• Gross margin can only be calculated approximately, using allocations.
• Volume data and key performance indicators (KPIs) are missing.
• The cost of products and services is not known accurately.
• Plans lack sufficient detail, so meaningful conclusions cannot be drawn from plan-versus-actual comparisons.

These problems almost always have the same root cause: the absence of a controlling function. Without an appropriate data structure and reporting system, a company’s operations cannot be made transparent, measurable and assessable.

The turning point: towards data-driven operations

Often, a planned transaction is the turning point at which a company realises that good decisions require good data. The need for structured financial and non-financial data available in a timely manner then becomes particularly urgent.

However, this need is relevant beyond transactions. For any company seeking to grow or operate more efficiently, it is essential that a lack of information within the organisation does not limit its leaders’ ability to make decisions.

Why is controlling absent from many SMEs?

In our experience, the problem has three main causes:

• “I have it all in my head” – the illusion of informal management. Many owner-managers believe they know exactly how much each product earns and therefore see no need for controlling. At best, this may be true for a few customers or products; the overall picture is rarely accurate.
• Lack of knowledge and data. Many indicators beyond profitability could support decision-making, but they often remain unexplored. If people at different levels of the organisation cannot access the data, this hinders both strategic planning and day-to-day operational decisions.
• Lack of resources. Many small businesses cannot afford a dedicated controller. In medium-sized companies, controlling is often limited to producing reports, leaving no time to analyse and explain the results.

How can these problems be addressed?

Awareness and education can address the first two problems. Many leaders do not realise that controlling is more than an administrative task: it is a key part of strategic management. A well-designed system can show which products, customers or activities create the most value and where changes may be needed.

For companies facing resource constraints, outsourced controlling can provide a flexible and cost-effective alternative. It is often an ideal solution for a small business. In a medium-sized company, the aim is to enable controllers to spend their time analysing relationships and supporting decisions, rather than producing data.

Modern digital tools – automated reporting, dashboards and data visualisation solutions – now make it possible to produce reports quickly and reliably without manual intervention.

How can Grant Thornton help?

Grant Thornton Hungary’s outsourcing services include controlling solutions that:

• work independently of the systems used,
• can be fully tailored to the client’s needs,
• and support management decisions at every level of the organisation.

Whether the task is to introduce a new system, review existing practices or support day-to-day operations, our aim is to help our clients’ businesses do more than operate – we want to help them operate measurably well.