In many companies, business appears to be performing well: revenue is growing, orders are being fulfilled, and operations are running at full speed. The real question, however, is not whether “the company is doing well”, but how transparently, sustainably and value-generatingly it operates. An investor, financing bank or potential buyer will not only look at current results, but also at the extent to which the company’s performance is measurable, predictable and properly substantiated.
From the perspective of company value, it is of key importance whether management has access to accurate, up-to-date and commercially meaningful financial data.
Conscious controlling is not an administrative burden, but a management tool that helps identify where real value is created within the company, where profit is leaking away, and what risks may jeopardize future growth.
Why is controlling a key factor in increasing company value?
Based on our experience, common shortcomings among Hungarian SMEs include delayed monthly closings, inconsistent management reporting, the absence of a contribution margin approach, and limited use of cash flow planning. In day-to-day operations, these problems can often still be managed; however, in a transaction, financing or investor situation, they become a direct disadvantage. If management is unable to respond quickly to incoming questions or documentation requests, this may lead to a loss of trust, a longer decision-making process, a weaker negotiating position and, ultimately, a lower company valuation.
Despite all this, many still regard controlling as a tool for large corporations, although its absence creates the greatest competitive disadvantage precisely for SMEs.
A well-functioning controlling system improves the quality of decision-making, makes operations more predictable and ensures more transparent communication with owners, financing partners and investors, thereby increasing company value.
The purpose of conscious controlling
1) It gives credibility to management
A well-functioning controlling system provides an accurate picture of what drives the company’s profitability and where material risks arise. For an investor, financing bank or potential buyer, it is not only the current result that matters, but also whether that result is transparent, sustainable and reliably substantiated.
2) It makes operations more transparent and manageable
Controlling helps ensure that the company’s financial and operational data are available according to a consistent logic and in a commercially meaningful format. As a result, problem areas, bottlenecks and intervention points can be identified more easily, making operations more manageable.
3) It supports planning and future decisions
Conscious controlling also supports well-founded future decision-making. It helps identify in time when the company deviates from its planned trajectory and supports the definition of the steps required to achieve the desired profit, revenue, growth rate or liquidity targets.
Where does controlling create real value?
- Revenue structure analysis: shows which products, customers and business lines create real value and which consume a disproportionately high level of resources.
- Pricing and contribution margin logic: makes it visible which activities generate actual profit and where margins are deteriorating.
- Cash flow planning: provides a more accurate picture of how the company’s cash-generating capacity is developing and where liquidity tensions may arise.
- Capacity and resource utilization: identifies points where value is trapped in operations or where organizational or process-level intervention is justified.
- Risk management: enables the timely identification of dependencies on key customers, key employees, a single supplier or a narrow business model.
Conscious controlling is particularly important in the following situations
1. Preparation for a company sale
During a transaction, in addition to reviewing historical figures, the buyer will also want to understand how clear and substantiated the company’s earnings-generating capacity is. An orderly controlling system accelerates the due diligence process, enhances management credibility and reduces the risk that identified shortcomings will put downward pressure on the valuation.
2. Bank financing
For banks, a key question is whether the company is capable of consistently generating the cash flow required for debt service. Structured reporting, forecasts and working capital control significantly improve the quality of financing negotiations.
3. Generational succession
For banks, a key question is whether the company is capable of consistently generating the cash flow required for debt service. Structured reporting, forecasts and working capital control significantly improve the quality of financing negotiations.
4. Start-up-type operation
For rapidly expanding companies, growth alone does not guarantee value creation. As volumes increase, margins may deteriorate, working capital requirements may rise, and the cash flow position may become more strained. A conscious controlling system is essential for identifying these issues in time.
5. Restructuring loss-making or difficult-to-monitor operations
If a company is loss-making or its financial operations are difficult to oversee, the first step in restructuring is not cost cutting, but understanding what actually lies behind the performance.
Our controlling support is built around the following areas:
- management reporting design and development
- structuring monthly closing and reporting processes
- financial planning and forecasting
- cash flow planning and working capital control
- profitability and contribution margin analyses
- investor and transaction readiness support
Conscious controlling – a practical example
At a Hungarian mid-sized company operating at several sites and engaged in both manufacturing and trading activities, revenue had been increasing year after year, yet the company was facing liquidity tensions more and more frequently. For management, it was not clear whether these were caused by temporary operational fluctuations or by a structural problem.
Management reporting was prepared late, did not show the profitability of individual business lines in sufficient detail, and cash flow planning failed to forecast financing pressure. As part of a controlling-focused restructuring, business-line-based reporting, more regular monthly closings, contribution margin calculations and rolling cash flow forecasts were introduced. As a result, management gained a more accurate view of which customers and product categories truly contributed to value creation, enabling the company to approach financing and investor negotiations in a more prepared manner.
