Most founders and CEOs are certain their business is a good investment and that others should see it that way. Unfortunately, that is not the case in a high number of instances when we dive deeper into the aspects of a company.
We each have a unique set of characteristics that drives us and puts us in situations where we are comfortable. Every time we make a choice to put ourselves in a situation and stay in it, something about that situation is working for us. Solid self-awareness and emotional intelligence help us make choices in life that work for all aspects of our lives and align with our relationship with money and our core values. A culture is developed around that. In business, the governance over this culture is ultimately driven by the purpose of the investors, shareholders, or founder(s). They determine the “Why” of the organization.
The culture and purpose of an organization can be several things.
It can be a hobby, and you are okay with not making any money. I know many business owners who have built a lifestyle company that provides enough cash to pay their bills; they may also run all personal expenses through the company. They are examples of “Lifers.” This practice is great if they happily accept the annual income they produce and do not have any desire to sell the company one day.
Entrepreneurs who are aware they need to build Enterprise Value will focus on establishing and monitoring metrics with the understanding they are building a business that can survive in the ecosystem of the investor world. They do not commingle their personal and business expenses. They listen to experts and focus on the important aspect of building a business. They may not take a salary from the business in the early years, opting instead to reinvest in the business and build a loyal customer base and revenue.
The problem arises when the Lifer wants to raise money from or sell the business to an investor – which really means they want the investor to fund their lifestyle.
Which Are You?
Before you get ready to pitch to investors, evaluate which type of business owner you are and if pitching to investors is the right thing for you. Do not waste your time and energy if it is not.
Read Chapter 2 in Pitching to Win: Strategies for Success to get more insight and a self-evaluation to find out which one you are.
I am excited to announce the publication of my new book Pitching to Win: Strategies for Success! During my more 30 years of experience as a CFO and financial strategist, I have come across many businesses who do not understand the concept of financial readiness. This is particularly important if they are attempting to ready a company for investors. Pitching to Win is a practical how-to guide for entrepreneurs that details how to get a business infrastructure-ready and how to create pitch materials. I am passionate about creating financial clarity to enable businesses to focus on the big picture. This book allows me to share my passion and expertise with a wider audience.
I could not have written this book without my former colleagues and Barker & Associates clients over the years who have provided me with a wealth of experiences and examples which you see throughout the pages of Pitching to Win. I am also grateful for the Jacksonville Women’s Business Center (JWBC) and the Athena PowerLink program, which has given me invaluable experience working with fellow entrepreneurs. Pitching to Win is currently available for download as an e-book on Amazon.com, and it will also be available in hard copy soon through Amazon.
Get the details and inspiration behind the book here on the website Book page.
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
Have you ever prepared for your workout but realized you had not done laundry, so you had no clean clothes or you could not find your tennis shoes? Were you still motivated to go for the run after you did your laundry and found your shoes? Many of us would have lost interest due to the time delay. The same concept applies to a deal. Time kills deals when too much of it passes.
Start with the end in mind. Every business owner should begin building their business with the idea of seeking investors or selling in the future, which means laying your due diligence foundation.
Have at hand the 7 due diligence essentials. Investors will ask for them – do you know what they are? Do you have then available at all times, are you solidly prepared for due diligence, are you in a position to secure investment? Email me at email@example.com to get the list.
Then get your due diligence folder ready and keep it current.
What do making your bed and pitching to potential investors have in common? According to Admiral William McRaven, in his book, Make Your Bed (available at Amazon.com), it’s the simple steps, taken each day, that achieve great results.
To better link these two seemingly unrelated activities, consider this: Chief Executive and Financial Officers may feel overwhelmed by the need to focus on daily tasks and raising capital. But by executing a simple task, such as making your bed each day, the tone is set for the rest of the day’s attitude and accomplishments.
Combine the responsibilities of a C level position with the priorities of kicking off a new year, and CEOs and CFOs may lack the required focus to also prepare to meet with potential investors. I suggest you personally implement one to two simple habits successfully, then move on to other new habits. The success of achieving even simple changes will reinforce your mindset for success.
Last October I offered advice on finding the right investor for entrepreneurial businesses. Today I am writing about trusted advisors (the theme for March) – the investor is a special kind of trusted advisor.
As with any business relationship, finding the right fit with your investor is the first step in a long and successful association. This may sound like dating advice, as there are many similarities. For example, identifying potential investors through word-of-mouth or introductions from mutual friends has a better chance of success than selecting the first name your search engine delivers.
But don’t stop there, ask your acquaintance why they recommend this or that one. Understanding your goals is critical with whomever you choose to ask for money.
With potential candidates on your list, think of a few “speed dating” questions to narrow it down. You should know yourself well enough to already know which questions/answers are deal-breakers. What do I mean by that? Let’s say you want a silent investor who is hands-off. Ask how they work with their current clients – hands-on, hands-off or somewhere in the middle.
Other filtering questions might include: who are some of their other clients (besides your referring friend); are they local; in which industries do they specialize? Are they a solo investor or in a group? What type of client do they prefer – are you that client?
By doing your due diligence you have reduced the risk of having to break up with your new investor sooner than planned.
One of your goals in securing an investor should be that once they have reached their goal with your business, they stick around as your #trustedadvisor. You just may need them again when your successful business is ready to rise to the next level of success!
Building trust takes time and an investment from both parties. At the end of a successful pitch to gain an investor, the trust clock with that investor starts ticking. You both must deliver now on the promises made during the courtship; nothing builds trust quicker than doing what you said you would do. And when you follow through, the role of trusted advisor just naturally evolves.
At Mindy Barker & Associates we help entrepreneurial businesses prepare for meeting with investors to pitch their business and obtain funding. If you think you need an investor, but don’t know where to start, contact me at firstname.lastname@example.org to set up a no-obligation 30 minute discovery call to discuss how we can help.
My final word of advice: this process should begin the minute you start a business – not when you need the money. If you are trying to raise money at a time you are getting ready to lose money – you lose leverage.
I am often asked how to find the right investor to invest in an entrepreneurial business. The question often comes from an entrepreneur who is about to run out of money and wants me to introduce them to someone that is going to write them a check by the end of the week. For the investor/entrepreneur relationship to work effectively, a relationship of trust and understanding has to be cultivated during the pitch and due diligence process.
How prepared are you to ask investors for funding?
Would you ask a friend of yours on Monday to introduce you to a spouse you can marry on Saturday? I hope not! So why would you think an investor relationship would work that way? The message you are sending is essentially, “I’m a poor planner and waited until I was in trouble to take action.” Not a good way to start a relationship involving asking for money, is it?
Getting ready to find an investor begins long before you think you will need the money. Preparations include thinking through how to build a business that investors will want to invest in, that they can identify with. You have to maintain credible data on your financials and your potential client base so that each time you meet with an investor you can definitely and consistently communicate your position.
How confident are you that if the right investor comes along, you are prepared with accurate historical and projected financials? Can you show the investor you have thorough knowledge of the financials, cash flow, burn rate, use of proceeds and return on investment? You have to know your product inside and out as well as the financial numbers behind it. You will get drilled on it when you meet with investors and it will feel like the worst spelling bee you ever participated in if you are not prepared. Do you feel confident?
If the answer is, “Not confident…” make the investment in your business to prepare. Let’s schedule some time together to dive in to gain financial clarity and understanding. Let’s talk. Contact me at email@example.com to set up a no-obligation 30 minute discovery call to see how we might work together to prepare you to meet with potential investors.