Finance tips for all business sizes and sectors

Rick Spence 

Looking for a bank loan? A $500,000 equity infusion? Or would you like to crowdsource some cash off the Internet? A one-day financial forum staged by Enterprise Toronto last week offered fundraising tips for entrepreneurs of all sizes and sectors.

The No. 1 takeaway: Raising capital ain’t easy. On a panel representing the full spectrum of financial resources, the banker, community-fund manager, crowdfunding consultant, angel investor and venture capitalist all agreed that the biggest mistake prospective clients make is thinking the process will be easier than it is. Yes, these funders want to do business with you. But they have terms, standards, qualifications and limits you have to meet, and that will require preparation, analysis and clear thinking on your part.

But here’s the good news: if this process were easy, all your competitors could get funding, too. So be glad that growth capital is available only to people like you, with the smarts, vision and track record to earn it.

As keynote speaker Jacoline Loewen told the more than 100 forum attendees, the growth projections and marketing plans you prepare for funders’ scrutiny represent  essential thinking about your business. Even if you don’t score capital with every meeting, going through this process will strengthen your business and make you that much more attractive to the next lender or investor you meet.

Here are some key takeaways from the sessions I attended:

Keep up! There are new forms of financing coming on stream all the time, to address specific needs or market niches. For instance, this was the first time I had seen a financial panel that included microloans and crowdfunding — two new and very different sources of capital for those who have trouble raising conventional financing.

Can’t get a bank loan for your startup? Ontario’s Trillium Foundation bankrolls a number of community funds that provide low-cost microloans to qualifying entrepreneurs. (In general, you should own 51% of your business, it’s helpful to have taken some business courses, and you must use the loan to expand your business rather than pay off debt.) Panelist Michael Scotland of Toronto’s Access Community Capital Fund said first-time microloans are available for as much as $5,000, at interest rates just 1.5 percentage points above prime. (There’s also a 5% administration fee.) If you pay off your first loan, Access may provide subsequent loans up to $10,000.

Sweating over a business plan to impress your banker? Check first to see if he or she will read it. Alex Ciancio of TD Business Banking noted that most small-business lending decisions are based on your credit-worthiness — not your business plan. Taking good care of your personal credit history is one of the most important things you do to help your business.

Do you have collateral? Many entrepreneurs seeking bank loans are surprised to be offered interest rates three or four points over prime. That’s because most rate-related advertising refers to mortgages or credit lines, where borrowers put up their homes or other assets as security. Ciancio noted that lower-cost business loans are available if you have the collateral to secure them.

Look closer to home. Although no moms or dads were represented on the panel, several participants noted that love money — from family and friends — is often the best first step for entrepreneurs. “It’s usually the cheapest and most flexible money you will ever raise,”  Ciancio said.

Relatives and pals can also get in on crowdfunding. This is where you create a pitch on a crowdfunding website (such as Kickstarter or Indiegogo) asking people to support your business project, usually in return for receiving equivalent value in products or personal services. “This is a good place for family and friends to step up,” noted consultant Christopher Charlesworth of HiveWire. “If your mother won’t invest in you, why would anyone else?”

Crowdfunding capital isn’t free. You have to provide sufficient value to attract supporters (in Canada, crowd-sourced capital is not equity or debt, it’s essentially a donation). You also have to learn how to tell your story, Charlesworth says, because that’s what people invest in. Having amassed a database on North American crowdfunding activity, HiveWire has found the average crowdfunding project raises $7,000.

Tell a compelling story. Venture capital and angel money are for the few companies whose growth trajectory has the potential to give investors a return of 700% to 1,000%, in about five years. Once again, your challenge is getting the story right. VCs and angels receive many more proposals than they can fund, so a compelling Executive Summary is the best way to get their attention.

Again, cash comes with a catch. Several attendees asked why investors need “exits” within five or six years. Why can’t they just stay invested in good companies? Angel investor Gerard Buckley, CEO of Jaguar Capital, noted that “an investment isn’t a marriage, it’s just a relationship.” While several CEOs seemed concerned about their need to sell the company so that venture investors can get their exit, VC Bram Sugarman of OMERS Ventures said founders can stay on if they want. Although if their companies have had anywhere near the success they were hoping for, the founder probably won’t be able to raise enough cash to buy out the investor.
Still, it’s a nice problem to have.

Numbers Don't Lie; Interpretations Might

By: Gary Patterson

"A full 17% of respondents admitted that their CEO's had pressured them to misrepresent results at least once" per a 2002 Electronic Business article. How comfortable are you with the financial results used to manage your business?

 

This article will cover five major areas you might look at or have someone look for you to increase your ability to better know where you really are financially, to be able to sleep better at night. The more of these areas that may be a concern at your company, the more urgent a corporate physical may be.
1. Most companies do not accurately know their top ten customers.
2. Many companies have capitalized some item in the past, whose realizable value will become questionable.
3. Most companies do not know how they will be affected by profitability changes at their top ten customers.
4. Many companies have an asset that strategically they would be better off selling at a loss to pursue some new opportunity.
5. Many companies have painted an overly optimistic picture to a customer, vendor or financing source. 



Top ten customer profitability "I am starting to visit our top ten customers. If you find out who they are, please let me know." said the CEO. I have been asked different versions of that question by more than one corporate leader. A little talked about secret is that most companies do not accurately know their top ten customers. If you are willing to define that as the largest customers by revenue, maybe you know this top ten list. If you want to accurately know the ten most profitable customers, good luck. Changes in business, product changes and system incompatibilities often make this difficult to do without getting the right eight people in a room for a day. 

A past capitalized item will be questioned.Cisco wrote off two billion dollars of inventory several years ago. Many companies have capitalized some item in the past that will be questioned. Goodwill will be reviewed annually. All of us have read the horror stories of write-offs that in hindsight raise questions that often were not valid or even a factor when those assets originated. 

One of my favorites was a company that accidentally set up a sophisticated process that accidentally capitalized part of the write off to that asset in the current year additions to the capitalized asset. If you have reserves, allowances or estimates for loss, why not take a critical look at them at least once a year for downside risk. In more conservative days, the CFO would cover things like this when a year came in better than expected. 

Profitability change at the top ten customers.Those fortunate companies that accurately know the profitability of their top ten customers normally fail to cross the next hurdle of knowing with conviction how the fortunate company's top customers will be affected by profitability changes to those customers. There is a timeframe when top ten customers drop off the A list.
 
Having discussed how this affects the best performing companies, guess what that means for the companies who do not accurately know profitability of their top ten customers.

 

 
One very interesting exercise I helped on was to estimate the benefit our customer received from our service to see which customers were benefiting or losing money on being our customer. That produced some very interesting and unfortunately accurate estimates of customer retention.

Sell that asset and re deploy the money Has your financial department ever told you that the company has to keep losing money on branch or product because we can not admit to the financial loss the company would have to take if it disposed of the asset? I suggest a lesser version of this situation is failure to look at return on equity related to assets or departments. Many companies have one or more assets they would be better off selling at a loss and re investing in another opportunity. This can be particularly true when the executive bonuses are mainly a function of the dollar level of profitability, with limited influence on return on equity or similar measurements. For those of you who say their company has a mechanism that investment proposals meet threshold rates, how often does someone report back convincingly with what return the investment actually received? 


Painting an overly optimistic picture to outsiders Last but not least. How many companies have painted an overly optimistic picture to a customer, vendor, or financing source? If "forty four percent of Americans lie about their work history" per ADP Screening and Selection Services, might they stretch the truth a little while representing your company. The effects of this are really hard to quantify. When does puffery become misrepresentation? 

I have told CEO's and groups that Murphy's Law suggests your not knowing your company's real equity and risk areas will be a problem at the worst opportune time. Just take a look at all the items someone like me will ask for using a due diligence checklist, and follow up to see how well your company's rough spots would stay hidden. If you do not have such a list, contact me for an example of a standard list. What will you do next week to understand the soft areas and risk factors that all companies have to some degree? 

Author Bio
Gary Patterson is the author of "Numbers Don't Lie; Interpretations Might." He has helped numerous high growth companies enhance growth and profitability. Visit his site to see how you can get a free consultation www.FiscalDoctor.com or mail to Gary@FiscalDoctor.com

7 Slightly Crazy Ways To Build A Happy, Productive, And Transparent Company

By: Leo Widrich

Building a “normal” startup was never something that excited us much at Buffer. After all, if you go ahead and start your own company, you finally have the chance to put all your ideas for how to build a great company into practice.

A few months back, we finally put the first ideas for the Buffer culture into words: You can see what we came up with in the above slideshow.

Of course, culture is much more than just a slideshow. Since we first started working on Buffer two years ago, we have been searching for the best process to make working every day as enjoyable and impactful as possible.

Here are the 7 top things we’ve been experimenting with and implementing: 

Free Jawbone UP for everyone
 What we’ve recently started is to give everyone that starts out at Buffer a Jawbone UP wristband. The band allows you to seamlessly track your sleep, your daily steps, nutrition and much more. Here is a screenshot of the Buffer team’s sleep habits: 

Why try this? 
One of our key values at Buffer is to work smarter, not harder. Together with an immense focus on personal improvement, giving everyone a chance to improve their sleep patterns seemed like a no-brainer. A few weeks in, this has already had an incredible effect. Browsing through everyone’s sleep patterns and discussing how to get more deep sleep over our virtual water coolers has an amazing effect on productivity. 

Open Salaries 

Something that was definitely very scary for us to do was to make all salaries public within the company. We created a formula to calculate everybody’s salaries and then went ahead to add it to our wiki page for everyone to see. 

Why try this? 
There are two key reasons we did this. The first and foremost is to truly commit to our value of transparency. Here is what Joel sent to everyone in the team in the announcement email:

“I truly believe that transparency breeds trust, that's one of the key reasons for this adjustment.”

The second element was that it made hiring new people for our team a lot easier and yes, you guessed it, more transparent. In fact, we could tell people how much they would earn, before we got into any details. We just ran through the formula and came up with the number.

The goal here is to eventually make all salaries and the formula publicly available. 

Free Kindle books for all 
Everyone on the Buffer team can grab any Kindle book they want, for free, at any time. There are no questions asked, you just drop the link to Amazon into a form field and you will get it on your Kindle device minutes later. Here are a few books I snatched up recently: 

Why try this? 
If you browse through the above slideshow, you will see that another one of our core values is “Have a focus on self improvement." And what could suit this better than reading books? So far dozens of books have been grabbed by our team. This is a great way to encourage learning for the team and quickly upped my daily reading amount. 

Open Equity 
It is one thing to have salaries made completely public throughout the company. Going the extra step to make equity completely open to everyone in the company was next. We created another formula that determines how much equity each new person on the team will get and why everyone on the team received what they did. This was definitely also nerve-racking, and yet, today it feels like one of the best decisions we’ve made. 

Why try this? 
I’m not exactly sure why, but making equity public felt like going beyond salaries in terms of transparency. Combining both salary and equity really made us put all our cards on the table. I believe this creates an amazing bond for the team. And as we plan on making all equity completely public, we hope to truly make the step towards an “open company.” 

The daily personal improvement 
At Buffer, we are using an amazing productivity app called IDoneThis, where everyone logs what they've accomplished and how they are working to improve. Glancing over recent examples for improvements, these stick out:

- “4th day streak of 6am rising.”

- “Back to 10 minutes of daily meditation consistently.”

- “Need to do some Pilates. Walking all the steps but still missing planned exercise.” 

Why try this? 
A daily log is a widely used tool in many companies. The element of “what am I working on to improve myself" is something that has always been a core part of what we do at Buffer. Because all improvements are shared company-wide, it is a great way to get encouragement and find a habit. On top of this, it’s an awesome opportunity to learn new skills. For example, I've picked up coding, in part because of this daily log. 

Great support for a free product 
This is something a lot of people called us crazy for doing. We are doing our best to provide amazing support for a product that is free for 98% of users. In fact, out of our 10-person team, about a third of us do full-time customer support work.

Why try this? 
Giving great customer support for something that’s free is great, precisely because it is crazy. No one else does it, and it allows you to truly create a “wow” effect. No one expects to get a response, so whenever people do get one, they are over the moon and spread the word as far as they can. Customer support is the new marketing department. 

Managing a remote team: The daily pair call 
The last idea that we’ve implemented recently is the daily pair call. Most startups use a daily standup to sync up on everything in the morning or evening. With a lot of our employees being in different time zones, that quickly became impossible. Instead, for each week, two people on our staff are paired up and have their own one-on-one calls. In these calls the two paired-up people talk about challenges, daily improvements, and what we are working on.

Why try this? 
The pairings are completely random and involve each team member. People that might not talk that often with each other get a chance to do so. An engineer, say, may get paired up with a support person. It’s also a great way to get daily face time in, which we couldn’t do otherwise.

Those are some of the ideas that are the key at Buffer for creating and maintaining our culture. The feedback so far has been amazing. I’d love to hear any thoughts you have on the above ideas, and what's worked well inside your own company.

Numbers Don't Lie; Interpretations Might

By: Gary Patterson

"A full 17% of respondents admitted that their CEO's had pressured them to misrepresent results at least once" per a 2002 Electronic Business article. How comfortable are you with the financial results used to manage your business?

 

This article will cover five major areas you might look at or have someone look for you to increase your ability to better know where you really are financially, to be able to sleep better at night. The more of these areas that may be a concern at your company, the more urgent a corporate physical may be.
1. Most companies do not accurately know their top ten customers.
2. Many companies have capitalized some item in the past, whose realizable value will become questionable.
3. Most companies do not know how they will be affected by profitability changes at their top ten customers.
4. Many companies have an asset that strategically they would be better off selling at a loss to pursue some new opportunity.
5. Many companies have painted an overly optimistic picture to a customer, vendor or financing source. 



Top ten customer profitability "I am starting to visit our top ten customers. If you find out who they are, please let me know." said the CEO. I have been asked different versions of that question by more than one corporate leader. A little talked about secret is that most companies do not accurately know their top ten customers. If you are willing to define that as the largest customers by revenue, maybe you know this top ten list. If you want to accurately know the ten most profitable customers, good luck. Changes in business, product changes and system incompatibilities often make this difficult to do without getting the right eight people in a room for a day. 

A past capitalized item will be questioned.Cisco wrote off two billion dollars of inventory several years ago. Many companies have capitalized some item in the past that will be questioned. Goodwill will be reviewed annually. All of us have read the horror stories of write-offs that in hindsight raise questions that often were not valid or even a factor when those assets originated. 

One of my favorites was a company that accidentally set up a sophisticated process that accidentally capitalized part of the write off to that asset in the current year additions to the capitalized asset. If you have reserves, allowances or estimates for loss, why not take a critical look at them at least once a year for downside risk. In more conservative days, the CFO would cover things like this when a year came in better than expected. 

Profitability change at the top ten customers.Those fortunate companies that accurately know the profitability of their top ten customers normally fail to cross the next hurdle of knowing with conviction how the fortunate company's top customers will be affected by profitability changes to those customers. There is a timeframe when top ten customers drop off the A list.
 
Having discussed how this affects the best performing companies, guess what that means for the companies who do not accurately know profitability of their top ten customers.

 
One very interesting exercise I helped on was to estimate the benefit our customer received from our service to see which customers were benefiting or losing money on being our customer. That produced some very interesting and unfortunately accurate estimates of customer retention.

Sell that asset and re deploy the money Has your financial department ever told you that the company has to keep losing money on branch or product because we can not admit to the financial loss the company would have to take if it disposed of the asset? I suggest a lesser version of this situation is failure to look at return on equity related to assets or departments. Many companies have one or more assets they would be better off selling at a loss and re investing in another opportunity. This can be particularly true when the executive bonuses are mainly a function of the dollar level of profitability, with limited influence on return on equity or similar measurements. For those of you who say their company has a mechanism that investment proposals meet threshold rates, how often does someone report back convincingly with what return the investment actually received? 


Painting an overly optimistic picture to outsiders Last but not least. How many companies have painted an overly optimistic picture to a customer, vendor, or financing source? If "forty four percent of Americans lie about their work history" per ADP Screening and Selection Services, might they stretch the truth a little while representing your company. The effects of this are really hard to quantify. When does puffery become misrepresentation? 

I have told CEO's and groups that Murphy's Law suggests your not knowing your company's real equity and risk areas will be a problem at the worst opportune time. Just take a look at all the items someone like me will ask for using a due diligence checklist, and follow up to see how well your company's rough spots would stay hidden. If you do not have such a list, contact me for an example of a standard list. What will you do next week to understand the soft areas and risk factors that all companies have to some degree? 

Author Bio
Gary Patterson is the author of "Numbers Don't Lie; Interpretations Might." He has helped numerous high growth companies enhance growth and profitability. Visit his site to see how you can get a free consultation www.FiscalDoctor.com or mail to Gary@FiscalDoctor.com