—by Chuck McLane at CBIZ MHM, LLC
As you grow your business, new opportunities and risks may emerge. You need to be aware of key areas that any investor will want to examine before they put money into your organization. An experienced business advisor can help you maximize your benefits and minimize the liabilities. They can point to areas of focus that will add credibility and ultimately value to your business.
Even if it’s not in “The Plan” today, you should be prepared for that unsolicited call from a competitor or from a financial buyer, such as a private equity firm or other investor group. Whatever the cause, you should think ahead about the potential disruptions associated with any type of transaction involving outside investment so you are ready to act. Looking at the following five areas of focus can help you define your objectives, identify your risks and value drivers, and obtain the right investment that benefits both you and the company.
Surround yourself with key team members who will stay laser-focused on the long-term objectives of the company. Once identified, include key employees involved in the operation of the business in your planning meetings. The team should brainstorm on potential types of investment and possible outcomes. Determine how these outcomes will impact the key team members.
Investors will want an in-depth look at your past, present and future financial performance. Be prepared to discuss your present and future cash flows and projections. You will need to identify add-backs and other unique events that have impacted your historical performance. Investors are highly interested in key customers or vendors as well as the market size and your current position within the market.
Make sure you value your business objectively. The type of investor you seek for your business will dictate which value points you highlight during the negotiations. Think about what the investor would want from the investment. Consider the value of key customers, trademarks, copyrights, processes or other intellectual property. You will need to know how your business stacks up against the competition in terms of financial metrics. Also, consider key strategic partnerships and property.
Evaluate alternative investment structures. There are many different types of structure for investments. Consider which type of investment makes the most sense. Be sure to evaluate all potential avenues for the investment in order to ensure that the option selected makes the most sense for your business. When considering the structure of the investment, consider tax implications to both the business and the investor. Structuring the investment as either debt or equity can have both tax impacts as well as leadership impacts.
When it comes to your plan, be aware of the three R’s: Rework, Retool, Repeat. The key to taking on any type of investment is being nimble. The plan you start with is rarely the plan that gets executed. Communicate with your assembled team as frequently as possible. Be prepared to change the plan, retool the objectives and execute a new plan in a fluid deal environment.
Knowing about the five key areas above, will help you to properly prepare for and evaluate future investor opportunities for your company.
Chuck McLane is Senior Managing Director, CBIZ MHM, LLC – Phoenix, AZ. He specializes in Business Consulting, Group Health and Welfare, and Transaction Advisory. He is an advocate for Invest Southwest.
CBIZ MHM, LLC is a proud sponsor of Invest Southwest.