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Financial Literacy for Raising Money

Financial Literacy for Raising Money 
The Questions You Need to Ask Yourself 

Mindy Barker | Barker Associates

As we continue to discuss increasing our financial literacy, we must also consider the ways in which a company increases its chances for securing money for growth. The list of possible ways to obtain money to finance the growth of a company is extensive, including multiple forms of debt and equity instruments. The question of which is right for you is dependent upon your particular situation and your level of understanding of each. In order to navigate through this scenario, we have come up with a list of questions you need to be able to answer to make the best decision for you and your company overall.  

Do you really need money for growth? 

While there are many professional organizations that make endless promises to help you raise capital for your business, and while they all sound tempting, you must first understand whether or not you actually need money for growth. Contrary to popular belief, you will not always answer this in the affirmative. If you decide your organization requires capital for growth, then begin the process by speaking to your trusted advisors about their opinion on your plans. This discovery process should happen with professionals you already have a relationship with and who know about your company. Think about your attorney, CPA, outsourced CFO, or someone in a similar situation who has previously advised you in these matters. Only after this discovery and pertinent conversations can you then move forward with first designing a strategy, and then executing that strategy in a way that does not allow the fund raising process to consume the C-suite and deteriorate the business itself. These results can occur whether you are a small start-up or a large organization.  

How do you know in which direction to go?  

If you’re the decision maker and have governance over an organization, the first step is to evaluate your ethics and check your ego at the door before you begin to have the necessary conversations. Raising capital has become so sensationalized that those with decision-making authority tend to think of fund raising as a necessity. However, that is not necessarily the case. While raising funds is a common impetus to growth, it isn’t for every company.  

Start by looking at the historical and projected financial information. Ensure the use of funds you expect to raise is clear, and that the financial strategy for growth is viable. This initial step will require that you have quality up-to-date financial information.  Click here to see my blog about the need for financial infrastructure. 

How do you know who to trust?  

Many entrepreneurs tell me about situations where a third party offers to help them raise capital, but charge them a percentage of what they raised. Keep in mind, if the person who made that statement is not a broker or investment banker, that arrangement could be illegal and cause issues as the company grows. My biggest piece of advice is to ask if the person if he or she has a license to effectuate this type of arrangement.   

The other issue is that some of the investment bankers have had a difficult time getting clients in the pandemic environment. As a result, they have started consulting to assist with cash flow and to provide themselves with additional companies to move into the investment banking sales funnel. The issue with this is that these companies are signing up to be with the investment banker before they even know if that is the right fit for them or not.   

As a true professional, both of these instances are painful to witness. Before executing a contract or providing a deposit to anyone to assist with fund raising, proceed with caution. Make sure their culture and track record are consistent with your goals and strategy.  If you have partners that have different goals and ethics, it could be catastrophic to the organization.  Do your homework to make sure it is the right partner from the outset! 

Do you need debt, equity, or a combination of the two?  

Banks are conservative, and it is difficult for any size corporation to secure debt these days.  This form of capital is, of course, cheaper than equity overall as you do not have to give up ownership and the interest rates are currently so low. 

Equity partners can potentially have in-depth experience with the industry you are in and can actually help you build a larger and more robust entity. The saying is, “You can have a smaller piece of a big pie and actually have more value than a larger piece of a small pie.” If you do your homework and make sure your equity partner is aligned with your values and the right fit overall for your company, you can accomplish this goal.  

In a scenario with a combination of convertible preferred stock, it provides the investor with a liquidation preference. In the event a few unlucky events happen, this could mean the common stock investors could wind up with nothing in the end, which is exactly what happened when BlackBerry liquidated.  In that case, the company emphasized to employees that they should buy in while they could. When they were granted stock, they had to pay the taxes at the value at the time, and then when they sold the stock, it was, at time, at 1% of the value on which they paid the taxes. So, that could mean they were granted stock worth $45 per share, paid the taxes on it at their rate, let’s say 20% or $9, then they sold it for $.40, which was all the cash they received for that share, despite the taxes they paid. If they had a number of shares, that is a lot of money wasted. 

In the situation with a SAFE combination, there is a debt instrument that converts to equity at the next round of investment. This is a great instrument when companies are at an early stage and the discussion over valuation is difficult. When valuations increase quickly for successful companies, this can actually turn into an uncomfortable conversation that can hold up an exit transaction under certain circumstances.   

Just as with our previous financial literacy articles, it’s not just about improving your financial knowledge of the present, but about strengthening that knowledge to predict a brighter future, especially as it pertains to the growth of your company. If you would like to discuss various growth strategies and what makes the most sense for your business, or if you have other specific areas of concern, please click here to schedule a 30-minute free consultation. NOTE: beginning May 1, 2021 consultations will no longer be free. 

Can You Really Afford Not to Understand Your Budget?

Can You Really Afford Not to Understand Your Budget? 
Get Off the Financial Treadmill with a Budget and Move Forward 

Mindy Barker | Barker Associates

Last week, we kicked off our series on increasing our financial knowledge and the tools needed to educate ourselves in observance of Financial Literacy Month. This week, we are starting with one of the basics – the process and tool without which a business could easily crumble. We’re talking about the importance not only of developing a budget, but developing your thorough understanding of the numbers behind it. At its most fundamental basis, understanding finance is, in fact, about mastering the business’s budget. Without it, there is no control over spending. And without control over spending, it is difficult (if not impossible) to plan for the future. And without a plan, how can a business reach its objectives or achieve its goals? Simply, it can’t. 

There is only so far an incredible idea, enthusiasm, and optimism can take you in business. Without a carefully prepared budget, based on accurate information, you could be out of business before you begin, whether you are the owner of a small start-up or the finance manager of a large corporation. Absent clear direction, potholes surface all around you – revenue, expenditures, cash flow, strategic goals. A well-planned budget can pave the road for a smooth ride to financial longevity and success. 

Numbers are Black and White; No Smoke and Mirrors Needed 

Have you ever been in a financial meeting with someone who is at best unprepared and at worst clueless as to what the meeting is about? I have, and it is frustrating, to say the least. This is never more apparent than when someone is attempting a smoke and mirrors show, trying to distract you from their lack of knowledge. And, all you really want to ask is, “What do the numbers say? They’re black and white! There’s no need for all the gray.”  

The issue often boils down to them either not having a budget at all, or having one with no understanding of how it came together or functions. It’s not a matter of a specific document. It’s a matter of understanding the implications of the numbers represented on that document. Absent that understanding, the person cannot communicate expectations and goals, set organizational objectives, assess or measure performance against those goals, gain insights, or allocate resources appropriately or strategically.  

So, How Exactly Can a Budget Help? 

Most people understand the essence of a budget – it is a financial plan that estimates revenue and expenses over a specified period of time, including cash flow, revenue, and expenses. But they do not understand where the numbers come from or the true benefits of understanding them.  The ability of a business owner or manager to quickly identify available capital and expenditures, and anticipate future revenue is crucial to ensuring that resources are there when needed.  

With a budget, a business can control its finances, ensure it can fund its current commitments, all well as future projects, and enable it to meet its objectives with decisions based on facts, not assumptions. Armed with this information, the owner or manager can concentrate on cash flow, reduce expenditures, and increase profits. It also allows him or her to speak to the organization’s accountant, key stakeholders, or potential investors confidently and accurately about the business’s overall financial health.

There are numerous benefits of budgeting. For example, budgets: 

  • Provide revenue and expenditure estimates. 
  • Restrict spending. 
  • Highlight the strengths and weaknesses of the business. 
  • Help set realistic expectations when planning out future years. 
  • Minimize budget to actual variances. 
  • Ensure money is allocated to appropriately support strategic objectives. 
  • Ensure that the team involved in preparing them can effectively communicate with finance and accounting professionals, key stakeholders, and investors. 
  • Help share the business’s vision with other team members. 
  • Provide a tool to measure performance, comparing it to prior time periods and anticipating future ones. 
  • Help ensure that a team has the resources needed to achieve its goals.  

Running a business without a budget is like running on a treadmill – you are always working, but not going anywhere. If that feels like you, it’s time to hop off what keeps you moving, yet remaining in one place, and actually start moving forward. Remember, the budget process should be well planned out, informed, and include all of the responsible parties. It’s not just about improving your financial knowledge of the present, but about strengthening that knowledge to predict a brighter future. If you would like to discuss your budget and how to ensure it is working efficiently for you, or if you have other specific areas of concern, please click here to schedule a 30-minute free consultation.

How to Avoid Driving Down the Interstate Blindfolded

How to Avoid Driving Down the Interstate Blindfolded 
Our Kick-Off to National Financial Literacy Month  

Mindy Barker | Barker Associates

April is National Financial Literacy Month, and I personally cannot think of a better time to discuss the importance of understanding financials. You don’t have to be the CEO of a Fortune 500 company to have a healthy grasp on your numbers. In fact, I sincerely hope that many others do. Financial literacy is important whether it’s for yourself and your family, as the owner of a small business, as a non-profit director, or in any capacity where you have some control over money coming in and money going out. This month presents a timely opportunity to review and upgrade not only your financials, but equally as important, your financial knowledge. 

First, some history. National Financial Literacy Month had its beginnings over twenty years ago, and has since evolved into a month-long observance. The idea of dedicating a month to this topic has broad support – the House and Senate have issued joint resolutions in support of National Financial Literacy Month, and the U.S. Department of Education promotes its observance. 

What is Financial Literacy and How Does it Affect Business? 

According to Investopedia.com, “financial literacy” is the “ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” And unless the business you’ve started or are otherwise running is a financial services firm, accounting, budgets, and numbers may not be your strong suit. That’s okay – they’re not a lot of people’s favorite things either (we are a select few)!  

Yet, understanding your business’s finances, including cash flow, profit and loss statements, balance sheets, and budgets, is essential to understanding the overall health of your business. In fact, according to a study by U.S. Bank, as reported in Business Insider, 82% of small businesses fail because of cash flow problems. That’s why every for-profit and non-profit organization owner, officer, and director should prioritize financial literacy in their continuing education. And it’s also why we’re going to help you do just that. 

For the next few weeks, we are going to observe National Financial Literacy Month in the best way we know how. You can expect our own version of financial tutorials right here in our blog. We will talk about everything from the terms you need to know to common misconceptions to why it’s so important to review some basic concepts, such as EBITDA (Earnings Before Interest Taxes Depreciation and Amortization), Working Capital (Cash and other Current Assets less Current Liabilities), Aged Accounts Receivable, and many more. 

Where Do You Stand? 

For this week, let’s start with some basics. Take this financial literacy quiz to see if you’re on the right path to financial brilliance, or if maybe you have some brushing up to do.   

1. Do you have a financial professional on staff? 

Having the expertise of a CPA or internal (or outsourced) CFO can save you time and money in the long run. 

2. How often do you forego infrastructure development to save money?  

Saving money is, of course, important, but so are efficiencies.   

3. Do you have an annual budget?  

Navigating the fiscal year without a budget is just like driving down the interstate blindfolded! By reviewing past revenue and expense flows to forecast future income and expenses you can create a budget to see clearly where you are going. 

4. If yes, do you monitor actual vs. budget?  

The annual budget is a living, breathing document, meant to be part of your monthly financial review process – planned versus actual expenses. It’s okay to make periodic adjustments, a process that helps you know if the company goals are on track. 

5. Do you firm grasp on your profit and loss statement and balance sheet? 

Both documents are crucial, but each provides its own benefits. A balance sheet provides a snapshot as to how effectively a company’s resources are used. A profit and loss (P&L) statement provides a summary of the company’s revenue and expenses incurred during a specific period of time. 

6. Is your G/L infrastructure meeting the need?  

If your monthly financial reporting: (a) is either non-existent or (b) is not helping you run your business, consider a review and restructuring of your GL. Make it work for you – not the other way around. 


How many “Yeses” did you score on the Financial Brilliance Meter?
0 – 1 – Financial Dunce 

2 – 3 – Financial Aptitude 

4 or more – You are on the road to Financial Brilliance! 

No matter where you scored, we’ve got you covered. Stay tuned for the best ways to increase your financial literacy this month, so that a perfect score is waiting for you the next time you take the quiz. And if you scored perfectly now, congratulations! But, as you know, as a leader, professional, and human being, there is always room for growth. 

If you need additional assistance, we’re only a phone call or email away. Barker Associates has extensive experience working with organizations to better understand their financials and help them drive into their future blindfold-free. Use this link to my calendar to choose the best time for your free 30-minute financial analysis consultation.