Adding certainty to investment decisions

NTG audits: easing access to financial backing

After the global financial market crisis, the economic framework has shifted worldwide. Hard times have hit the real economy, now making it all the more important to ensure business is supplied with fresh capital – to keep healthy companies up and running, but especially to support small and medium-sized companies. As well as providing a useful tool to estimate credit risk, NTG audits should always be called on to assess the potential of technology, markets and patents.

The German network for market and technology audits (NTG) was established on behalf of the German Giro and Savings Bank Association (DSGV). Members of the German savings bank organization have already been able to use the NTG to assess financial backing options since 1996. Since 2005, it has been open to all clients. It is based on a modular auditing system only available through the Mannheim-based Steinbeis Transfer Center for Technology Evaluation and Innovation Consulting (TIB). The TIB uses the audit to assess the market and technology-based opportunities and threats of products and technology and the feasibility of introduction.

Financing fledgling, small and medium-sized business, or technological innovations, is a major risk to financial backers who normally have little security to speak of. The decision to provide investment therefore has to be carefully weighed up and covered for. Under such circumstances, the backer and the borrower can call on the network for market and technology audits, or NTG, at the Steinbeis TIB Transfer Center.

The TIB audit system is based on a variety of groups of questions, which can be used on a pick and mix basis to match customer requirements. Thus, an audit could take the form of a short assessment of a funding proposal to an all-encompassing market, customer and competition analysis. There is also the option of evaluating technological trade mark rights. The TIB Transfer Center can call on a pool of 1300 experts to work on any given project from the Steinbeis Network, Fraunhofer Institutes, universities and consulting engineers. As the network is continually expanding and renewing itself, expertise can be provided on completely new topics.

To show how the NTG audit system works in practice, take the example of a mediumsized family-run automotive supplier with 50 employees, specialized in the manufacture of intelligent braking systems for trucks. Following a dip in market demand for commercial vehicles, company turnover slumped severely, forcing the company to turn to new areas of business. To develop a braking system for cars and enter the market, the company needs around five million euros.

Discussions with potential investors lead nowhere; the owner-manager is typically told that investments are much too risky at the moment and the technological standard of the braking system is difficult to assess. The firm’s financial advisor at the bank says that backing could be provided if the company were to provide a thorough and impartial expert report. The owner-manager then invites the TIB Steinbeis Transfer Center to write an audit. A suitable expert is called in to supervise the entire auditing process. The manager of the automotive supplier is given the completed report, which is subsequently forwarded to the potential backer.

The auditor’s expertise helps everyone involved in the process as it clearly highlights weak links in previous planning. The recommendations make it possible to adjust planning. The financial advisor at the bank can now use the impartial audit as a carefully considered assessment of the investment project. In the end, this medium-sized enterprise did indeed receive the funding it required.

According to a study carried out by banking group KFW in February 2010, businesses are likely to find credit tight this year. This is partly caused by a surge in demand for credit because of the increased level of production and investment activity. In contrast, banks are being more hesitant, given the number of defaulters on loans and growing restrictions on the issuing of credit. As a result, competition among companies for increasingly scarce funding will intensify.

The NTG audit system offered by the Steinbeis TIB Transfer Center makes it easier to assess investment risks and eliminate weaknesses in business plans earlier in the process, thus paving the way for financial backing.

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