There he was, putting in his pitch to some savvy business entrepreneurs, for them to invest in his business and then came the question…
“So how much equity do you have in your business already Ryan?” asks the Shark.
“What do you mean?” said Ryan (I am calling him Ryan to protect his real name)
“Simple question, how much do you have in your business, what does it say in your balance sheet Ryan?” said one of the Sharks.
“You would have to speak to my accountant on that, she looks after all of that” responded Ryan as he started to tap dance.
Camera pans back to the Shark for a close up to capture awkward facial expression, cut back to Ryan for close up on sweat beads forming, cut back to the other Sharks, blood is now in the water. Now cut to commercial break!
Well reality television can be cruel as it is aimed for suckers like me to watch, so we have to give Ryan credit for his courage to go on the show in the first place. Also what he was offering to the market appeared quite interesting and looked like it had potential, particularly from the initial enthusiasm from the Sharks. However, Ryan did not have a more rounded view and understanding of his business particular in respect to the financials.
This comes back to the importance of having the right support and being commercial when you are setting up or running a business.
You are the entrepreneur, the visionary, the creative talent, the networker who gave birth to this business, but you are also ultimately accountable for the business’s financial control.
Sure, I get you are not an accountant, but as I often say to my clients, you need to have a basic understanding and familiarity. If like Ryan, you had the opportunity to pitch your business to potential investors, would you not want to be on top of your numbers?
So perhaps sometimes it’s useful to see what happens in large established companies, particular at the annual shareholders meeting, or annual profit announcements.
Who do you see standing to the side of the CEO in these forums?
Well typically it is the CFO or Financial Controller. Now in these meetings the CEO will provide the overview and broad achievements and objectives going forward, but in most situations the CEO allows the CFO to provide the detail on the numbers. Also you can bet they have rehearsed their presentation beforehand, as there is a lot at stake. Any negative sentiment will push the share price down, or positive sentiment pushing it up.
Investors seek leadership, growth and consistency.
Coming back to Ryan, what advice would you had given him in preparation for his pitch? Perhaps for next time hopefully?
What about if you are in a similar situation as Ryan, what should you do?
Maybe having a the detailed financial understanding of your business is just not your strong suite. Also, being a startup or small micro based business, you of course do not have the same resources available like an established company does.
So what can you do?
Well the first thing is recognising your strengths – what you are good at and what is an area where you are not as strong as you should be? Also, you should appreciate the need of having strong financial capability in your business – even from the start.
So hence, there could be a gap between what you have now and what you need, would you agree?
That is why you need to identify “partners” that can provide this necessary commercial support.
Do you have an accountant that can provide this? Have they bought in to your vision and can also ask the necessary questions to keep you grounded?
They may not have a financial stake in your business, only that you are one of their clients, but that does not matter – it’s their financial acumen that you are seeking.
However, to reinforce an earlier point, you are still accountable OK? You have not relinquished your accountability for financial control. You have delegated the task, but not the accountability for the task – is that clear?
Now let’s go back to Ryan. If we could go back in time and re-set the scene like this…
Ryan is preparing for his pitch with his accountant Susan. Susan who knows Ryan’s vision and supports it, has prepared all the relevant financial numbers, projections and scenarios and even on simple charts for a visual representation. They have also agreed between them that Susan participates in the pitch as Ryan’s financial advisor. They have agreed as to who would present what and when.
Lights, action, camera, cue Ryan…
“Thank you for allowing us to present an opportunity for you to invest in the xyz business. We are excited to be here, to tell you our story and importantly vision for the future – and it’s an awesome one!”
“When starting a business, it is critical to form the right partnerships early and Susan is here as my financial advisor.”
“One of the things I first recognised, is my strength is in creativity and relationships and not financials, but of course this is a critical area, that’s why I have Susan here as well, to provide any further detailed explanation that I may not initially be able to answer and to demonstrate my approach to business is bringing in the right people at the right time.”
“Hence it is time to take the business up to the next level and that is why we are here talking to you today…”
Well maybe not exactly to the script, but do you think it possible Ryan’s demeanour would now be different and although difficult questions were still to come from the Sharks, he had at least positioned himself and the back-up with Susan present, if he indeed needed it?
Nothing of course is easy but in my view a combination of hard work, discipline, being strategic and recognising your own short comings will place you in a much better position than probably 80% of you peers.