Money is everywhere! Banks, investment firms, and alternative lenders are getting incredibly creative with their marketing tactics to find companies to purchase and invest in. CEOs and Founders can become exuberant and confident they are the next best thing since Uber – Unicorn status is right around the corner in this market. They are a rock star!
These conversations often lead to discussions about high valuations, partnerships, and mentorship from the investment firm to help you grow exponentially. It seems that a glorious relationship is in the development stage.
Then what happens next …
Investment firms and banks are run by people with whom you develop a trusting relationship. Keep yourself centered, this friendly relationship that is developing is about business. Your business is held accountable by some sort of governance. Lenders and investors must follow certain processes and procedures prior to sending you the money. For this relationship to succeed, each partner must meet certain parameters in building the foundation, specifically those related to your financials.
Here is the harsh reality. A number of these deals go poof, up in smoke due, to the inability to provide the bank or investor with the right due diligence information. I met with a CPA firm today to discuss ways we can work together. One of the partners said he has seen more entrepreneurial growth company and private equity firm deals fall apart lately due to lack of infrastructure. The business may appear to be solid, with a great growth trajectory yielding nice margins. The list of substantiating documentation is long, and the money people require you back up your claims with evidence such as:
- Customer records,
- Accrual basis financials that are, at a minimum up to par for a quality of earnings report, if not an audit,
- Analytics of any one-off revenue-producing events that may have caused a spike one month,
- Employee records, with signed copies of employment agreements,
- Organized stock ledgers with all warrants, stock options and stock equivalents available.
Business owners who can produce this information are Rock Stars.
Failure to produce these documents means that a deal with a lot of potential may quickly go up in smoke. Poof.
After the “poof” it hits you – while preparing for the due diligence process, sales may have dropped, employees got wind of the potential sale and left the company. You are faced with building your company back up. The cost of not having the right reporting infrastructure and losing the deal will seem enormous at this point.
Selling your business may not even be on your radar but consider this. What if someone approached you with an incredible price you would have never imagined, contingent on the due diligence process yielding favorable results? If presented with this opportunity, would your company be ready?
The way you look at your company financials for strategic decision-making is the same way that a buyer would look at them. By operating your business like it is going to sell tomorrow, you are more likely to be making informed decisions using timely, accurate data. If you aren’t making informed decisions from your financial data, go ahead and get the kerosene and light the match, because it will all go up in smoke one way or the other.
Barker Associates can help you be a Rock Star and achieve financial clarity of your company’s position. By working with us, you will know what the numbers say to potential buyers. Call or contact us to make sure you are ready. firstname.lastname@example.org or 904.394.2913
During an especially stressful day, I decided a Whole Foods Green smoothie was just the thing to help relieve the cortisol I felt building in my system. Their green smoothie is one of my favorite drinks, I can just feel the goodness going down. I ran into Whole Foods, straight to the juice/smoothie counter. There was no one there and I eventually noted a sign that said the juice bar had been moved to the coffee bar – on the other side of the store. I hiked all the way across the store, walked up to the coffee bar and ordered my smoothie. The barista who was working the counter had the unfortunate duty to tell me they no longer had smoothies – a self-serve juice bar – but no more smoothies.
By now my cortisol level was probably off the charts, as I walked away, announcing to shoppers on the juice bar aisle, “Well it looks like Whole Foods has gone to ‘The Man.’ How could Amazon and Jeff Bezos determine that their delicious smoothies had to go away. That was one of my favorite things at Whole Foods!”
Who is “The Man”?
For those who grew up in the post-‘60’s era, “The Man” is slang, often derogatory, that may refer to the government or other authority in a position of power. Resisting The Man’s way of doing things was (probably still is) considered being a nonconformist. When I hear people say, “I am not working for The Man,” my interpretation is that they all want to be entrepreneurs, not stuck behind a desk complying with rules.
Later that day, when I had calmed down a bit, I realized that my annual expenditure of 3-4 Whole Food green smoothies probably did not warrant keeping smoothies in the product offering; the personnel required to man the bar and maintain the low customer demand was probably not cost effective.
Wait a minute! Does that make me the smoothie crusher? Putting on my Financial Strategist hat, I thought about the clients I help analyze revenue and costs to determine if they are making money on product lines; and if not, help them strategically determine what changes can help make the business more profitable and increase the enterprise value.
If you are making decisions about finances based on very short-term needs, like making payroll or paying bills without the right financial information and analysis, you could have unprofitable green smoothies throughout your organization and not be aware of it. Continuing to offer green smoothies at a loss is a strategic decision you should make based on facts. At times it is warranted.
Business professionals in both the corporate and non-profit world often move out of that world to get away from “The Man.” They feel worn out from the suppression an employee feels trying to make a difference in the face of bureaucracy. They have the desire to impact society by providing great products and services for all. Their exuberance can lead to unprofitable (or unsustainable) business products, programs, and lines of business that persist for years if the leader does not respect the need for quality financial information and commit the infrastructure to get it. And to take that one step further, leaders must also invest the time to analyze the information and make strategic decisions.
Respect the Need for Financial Infrastructure
I have gotten over the loss of my green smoothie and will persevere through the change. What about you? Could you be a leader with unprofitable green smoothies, leading your organization to a negative cash flow abyss that will be difficult to dig out of? Respect the need for financial infrastructure and take the time to analyze it.
Barker Associates can facilitate a review of your product lines, current financial infrastructure and processes to determine the next steps for your organization. Be “The Man” in the positive sense, by using timely, reliable financial information to think strategically and move your organization forward.
Entrepreneurial growth companies, nonprofit agencies, and governmental organizations are all becoming alike in one way – they are seeking capital to carry forward their mission; however, they also compete for the same pool of high net worth individuals, venture capitalists, and private investors.
From this evolution comes the new challenge for each American – to step up and grasp their responsibility in this new world. To take responsibility, we all must accept the impact of this change: no longer can social and business issues can be addressed separately when funding involves the same pool of resources.
Entrepreneurial growth companies are led by individuals who have left the corporate environment to start a new venture, in part to do good for the community. They are social-minded, routinely volunteer or get involved in nonprofits one way or another. Generally, these entrepreneurs are seeking capital to push forward and provide the product or service they are selling.
On the flip side, nonprofit organizations are beginning to realize that they have to perform as social entrepreneurs, seeking funds from donors as if they were investors. Historically they have sought funds from governmental entities through grants; however, this avenue is becoming increasingly difficult to pursue, as the governmental entities do not have enough money to fund the nonprofits. Governments struggle to hire and maintain employees and provide services to the community so elected officials can remain in good favor and get reelected. The constraint of human and monetary resources leads to a direct hit to the nonprofit world.
For example, nonprofits struggle when they have multiple grant managers within the same governmental organization with a different interpretation of the impact of the grant guidelines. The result is that nonprofits find themselves funding services they expected to be reimbursed from the government, only to learn that they must raise the funds from donors to maintain sustainability because of misinterpretation of the rules.
In both the nonprofit and the entrepreneurial growth companies one of the major funding sources – the high net worth individuals and donors – are more insistent on monitoring outcomes for promised results from their investments. Both types of organizations must have the right infrastructure and process to capture metrics that support the promised result.
If you are a for-profit business professional reading this post, consider serving on a nonprofit Board or Finance committee. Learn more about the differences between for-profit and non-profit financials by participating in my free webinar, Financial Stress or Success, Which is your Nonprofit? then with your new-found knowledge, go out and volunteer.
Working in a professional environment is overwhelming – there is always too much work to do and not enough time or resources to get it all done. It is easy to convince yourself if you do one more task, your to-do list will look better in the morning. That one thing can turn into a couple of hours of work that robs you of time with your family, practicing self-care or participating in other activities that build a healthy body and spirit. Working overtime to get through your work to-do list may seem like the right thing to do, but in the long run, failure to pay yourself with personal time erodes mind, body, and spirit.
I’m not making this up. According to a recent CDC study, on average, only 28.8% of working men and a dismal 20.9% of working women meet the guidelines for aerobic and muscle-strengthening activities. Of note is that, in general, Southeastern states were consistently rated “below average” in study categories.
Balanced professionals have learned how to set a weekly goal to pay themselves first. They succeed because they are very intentional about maintaining the discipline to do it.
To get started, make a list of the things that energize you and make you a healthy person. Here are some options:
- Talk a walk outside
- Attend a new gym class to do a workout you’ve never done
- Practice yoga
- Read a book you’ve heard recommended
- Schedule a special dinner with your family
- Dare to take a roller coaster ride
Then take that list and turn it into your commitment to yourself – your Personal Payday reminder. Make an appointment on your calendar for each goal you set. Block off that time and hold it sacred.
As a business professional, you are looked up to by employees and family as a role model of success. What message are you sending? Time and money are the same thing when you are building a business or a professional career. Paying yourself with an investment in health is essential to long-term success.
A CFO has the financial birds-eye-view to develop forward-looking strategic thinking; they understand different cash management policies to help through challenging times; they help prepare a company for both the known and unknown or unexpected financial obligations, using strategies that make sense for the circumstances.
Do you launch bleeding-edge products? If so, you understand it’s not just about product design, sales, and marketing – the CFO is the team member you need to help with the financial aspect of a new product, such as how to price it, is it making money, should we discontinue an old product.
Want to offer new employee benefits? How much will that idea cost over time?
Considering expansion to a new city, or buying up a competitor? Where do you start?
These are areas where the CFO provides financial strategy and leadership throughout the process.
So, what was your question again – why do you need a CFO? That’s why.
Barker Associates, CFO Strategists, works with entrepreneurial growth companies, established corporations and nonprofits to develop positive cash flow and increase the value of your company. We can be contacted at email@example.com or 904.728.2920.