The economy continues to bump along with little growth. However, this stagnation can mean that the acquisition of teams or businesses is completed more cost effectively – our clients are seeing opportunities.
The assessment of value should include a view regarding the viability of the target's business plan. The need for robust models is particularly acute at a time when economic conditions are difficult. Many spreadsheets evolve over time without well-structured design, no integrity checks and are poorly documented. Making a relatively simple change can often take a long time, result in errors and/or have unexpected consequences.
Building the model
The development of business plan models should normally include the following steps.
- Familiarisation – review of any relevant available and/or existing data.
- Kick-off meeting – agreement regarding new model inputs, outputs, calculations, potential model sensitivities and a project timetable.
- Model outline – design of an agreement regarding structure for input, processing and output sheets.
- Model preparation – detailed model development, including internal integrity checks, outline documentation and initial checks using test data.
- Acceptance testing – model handover for review and detailed testing; appropriate amendments and then final version of the model.
Case studies
Overseas portfolio projections
This AIM-listed company managed a portfolio of 26,000 property units primarily in Germany. A team from Smith & Williamson developed an integrated financial model using data from several different sources which enabled a consortium of banks to assess viability and covenant compliance for various different scenarios.
Onerous lease obligations
This private company managed out onerous property leases for various quoted entities. Smith & Williamson was responsible for building a model which projected the amount and timing of future receipt/payment transactions for each leased unit, and then determined the net present value for the portfolio as a whole.
PFI template
This clearing bank needed to assess the initial viability of various PFI health projects. Smith & Williamson built a template to assist this evaluation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.