Corporate Finance Strategy
Isthmus Partners works with various SMEs from new ventures looking for start-up capital to medium sized enterprises with strong cash flows.
Medium-sized Enterprises (MEs) – USD 3-25 million EBITDA
MEs, just like large corporations, need to ensure the alignment of their corporate finance strategy to their general business strategy. They have less access to financing alternatives than large companies and many MEs have constraints such as:
- Tightly knit shareholders who want to avoid equity dilution
- Lack of clear separation between company assets and owner assets
- No clear delimitations between owners and management
- Issues with succession in family businesses
The above constraints can be a drag on the growth of companies, which require capital to expand, and can lead to unstable balance sheets that cannot support the company’s business strategy.
MEs can benefit from the application of the same analyses and tools with which large corporations manage their corporate finance strategy. Isthmus Partners can provide Financial Due Diligence (FDD) services for SMEs. We analyze the company's business information with the prism of a principal financier and we help management and owners understand how banks, private equity and potential acquirers will look and value the company. We can provide financial modeling services that will enable assessment of different alternatives and their expected impact on the company’s finances.
Isthmus Partners provides consulting services on preparing information summaries for prospective investors, lenders or acquirers of an ME and during negotiation and execution. If an internal review is required, we will prepare a report for management and/or owners with full disclosure of the results of our financial due diligence and a thorough list of recommendations. Guidance to the management team, including hands-on training in corporate financial spreadsheet modeling, can also be provided.
Small-sized Enterprises (SEs) – Existing companies with up to USD 3 million EBITDA.
Small companies typically look for expansion capital or for a new owner to buyout current owners to take a company to the next level. Investors are likely to be High Net Worth Individuals (HNWIs).In today's environment, expansion financing for an equity stake in a company with atleast three years' track record is the preferred opportunity for HNWIs, while acquisitions are rare.
SEs usually have very variable cash flows; therefore our financial due diligence concentrates the main drivers of cash flow: revenues, current and future customers, accounts receivable,debt, creditors and other claimants, and capex requirements. We also look at the management teams's capabilities, the market for the product or service offered and potential growth opportunities. This data will be synthesized in a financial model, which will be used to provide recommendations, and sensitivity and scenario analyses.
Isthmus Partners has worked with a number of entrepreneurs starting enterprises in different sectors such as e-commerce, geothermal energy and aquaponics. We support new ventures providing advice on how to set up operations, market penetration, information technology and websites, corporate reporting and incorporation.
To ensure successful start-ups we look at the market to understand its potential size and how open it is to a new product or service, the track record of management, the strength of the idea, and how the new venture will be implemented.
For entrepreneurs without a track record, seed financing is currently difficult to obtain from investors, it should be procured from friends and family. Entrepreneurs are expected by investors to develop an idea before looking for start-up financing beyond seed financing, and entrepreneurs are unlikely to be paid a salary until the venture can prove that the intended product or service is viable – that it can be produced and that there is demand for it. In our experience the next biggest obstacle to obtaining financing is poor record keeping - even for start-ups investors demand quality reporting in order to have confidence that their funds will be well invested. With viable products or services and good reporting the probability that a start-up will have a successful capital raising is greatly enhanced.