If you are trying to raise capital, you don’t have to be a financier, but you and your executive team do have to know your business.
Know what the money you are seeking is going to be used for, and most important, know how you are going to make money.
While it certainly helps if you know the difference between equity and debt, you don’t have to know what a PIK Convert is or what the five-year IRR on cash basis is forecasted to be. However, you’d better know your gross and net margins, what your inventory turns are if there is a product and COGS (cost of goods sold).
Know what the debt is or will be and how you are going to cover the debt service if and when you have a bad quarter or two. Know about rent, personnel costs, needed capital expenditures and all the other key numbers of your company.
There might be some detail questions, such as what method of depreciation the company uses, that you don’t know. Just say your accountant has that answer, and you will ask and get back with the answer.
Just the facts
Your potential investors want you — not just your professionals — to know the answers to questions about your core business operations. Your professionals are not part of your permanent management team. They are your hired guns.
You engage them to advise you in areas not core to your company’s operations or part of your expertise. Your professionals prepare a business plan, write a contract and advise on taxes, but they do not run your company.
During a presentation, they may smooth out a rough spot or remind you of a skipped point, but they are an adjunct to you. They are not the people being questioned and evaluated.
On your toes
Go into your presentation prepared and rehearsed. Learn the probable questions and know the answers and numbers. Spend time reviewing your historical numbers and projections. If you don’t know your own business’s past, current or projected future, who else is expected to?
Don’t forget that the investors are putting money into your business, with business being the operative word. They expect you to run the business extremely well so they can make a lot of money. It is vital for them to see a capable, knowledgeable and well-versed management team.
On occasion, it is acceptable to say that you don’t have an answer but will find out and get back with it in timely manner. Whatever you do, don’t guess.
If questions concerning the terms of the deal come up, feel at ease in referring those to your professionals. As an entrepreneur, you are not required or even expected to know a deal’s financial intricacies.
Your capital source probably doesn’t know how to write computer code, design a circuit board or merchandise clothing. They are experts in what they do and they expect you to be expert in what you do.
Your professionals can play a very important role in getting the deal done, but it is you who has to have the expertise and the answers about your company and its plans. Erwin Bruder ([email protected]) is president of The Gordian Organization, which provides business planning and structuring services to start-up and growing companies. He can be reached at (216) 292-2271.