10/09/2021 – Tokeportal’s own content
In the previous episode of our mini interview series Éva Vitkóczi was introduced, and now Gyula Szabó, our 5th mentor, answers our questions. Gyula is a corporate finance expert, who’s been working as a Senior Internal Auditor at MGV Ltd. With his offers in finance and business questions, he contributes to the smooth and effective operation of the company. He has a wide range of experiences in the financial sector, his specialities include financial planning, calculating returns, identifying and analysing market and operational risks.
Indeed, I have been working in audit and finance for the last 20 years. Internal audit is all about understanding how a company operates, so we can identify operational, financial, IT, legal and even strategic risks. In short I would say, “scouting the skeletons in the closet”, letting management know that they are there and quantify the impact if they fall out. It’s truly a very complex task, I think an internal auditor has the same level of knowledge and insight into the company as the senior management. In practice, in the course of thoroughly prepared interviews with key people in the company we go through the operations, objectives, strategy, development plans, possible resource constraints, to ‘scan’ the given area and thus get to know the process, the risks involved and the control environment, which ensure that the risks are managed properly and that the company does not ‘fall over’ because of them. For example, how valid, well-founded and consistent the necessarily included estimates in a business plan are. Whether there is overexposure to a particular customer, supplier or a key person, whether the management is aware of this and has plans to deal with an adverse outcome (e.g. a key supplier significantly reducing the input required for the activity, or whether there is too much knowledge or expertise accumulated of a key person who, if he left the company, then ’life would stop’, etc.).
Basically, the purpose of the audit is similar for all companies, but of course the emphases are different. In a large company, which is strictly regulated and highly automated, for example the reliable operation of systems can be a key issue, while in a smaller company, for instance, the problems associated with growth are the most important (e.g. whether the management can handle the operations, resources and governance when “business really begin to pick up”).
In my opinion, it is almost a natural process that people pass on the knowledge and experience they have accumulated over the years to those, who have “the” idea and spend years of their lives on it, but they do not necessarily have the experience or the necessary distance and insight (because they live in it) that can help the start-up to be successful. So after a short search I found Tokeportal and was immediately attracted by the concept of crowdfunding and mentoring role, which is an integral part of it. It seems to me that the success of crowdfunding is almost inevitable, as the examples of the neighbour countries also (Czech Republic, Baltic States) show it. Just as the rise in the oil price is not stopping at the border, I am convinced that crowdfunding will become a part of the everyday life of capital markets in the near future. That’s why I took a hand in the Las Vegan’s campaign myself, because it is a simple, direct investment tool to invest in a promising startup company at an early stage.
- Perhaps, the most common is the overestimation of the planned expansion duration, i.e. the rate of growth is not realistic at the rate they have planned. I’m not saying that the targets can’t be met, just that they will not be achieved in 5 years, but only in 8 years. Obviously, an established plan is based on industry benchmarks, but I think it’s hard to find a good benchmark that can be applied as a whole in the startup world. Obviously, it helps to have a pessimistic/realistic/optimistic scenario and a sensitivity analysis, which shows the impact of the variable on the key indicators (profit, return, equity, etc.), so that you can see „what fits and what doesn’t”.
- It can occur that the “drivers” are not recognized or managed adequately, i.e. what inputs the expense items depend on, or what controls them. For example, a cost is set at a fixed rate, but in fact it increases as the trade grows. Or there may be a jump after a volume, so the change is not simply linear.
- In the case of foreign exchange items, the inclusion of exchange rate risk is missing sometimes, if the extent of the exposure is material, it should be addressed. It is important to see the quantified measures.
- The inadequate accounting of liquidity buffers in the case of tight liquidity management or emergency, e. when we don’t know how to deal with a liquidity emergency (the rise of the credit limits, the management of receivables, the rescheduling of the payments).
- It seems obvious, but as the financial plan of startups is prepared in excel (so not in integrated systems), there may be formula errors and inconsistencies, which can be spotted by well-defined cross-checks, basically by common sense.
- If the startup has several products/services, it can be worth doing a product-level profitability calculation, which of course requires the costs to be allocated to the given product/service in accordance with some methods, including the overheads too. By this, the profitability of each product will become visible, which can help in the future allocation of the resources.