The 5 Things Every Company Must Do When Seeking Capital
In my practice working with startup and growing companies, the first and most important question I am invariably asked is: How do we get financing and on what terms? Since being undercapitalized is the death knell for startups and not a good thing for any company, it is an issue which needs prompt solving. As any realtor will tell you, when selling a house it needs to be “dressed for sale.” Fix the leak in the bathroom, patch the roof, add two coats of paint, replace the dead azalea and be sure the pictures on the internet show off the home to its best advantage. Now you are ready for the market. When dealing with the financial markets, advice from onetime Giants football coach Bill Parcells comes to mind: “When you get to the end zone, look like you have been there before.”
So how do we get ready to “sell” the company to a lender, angel investor, private equity company and even to an IPO underwriter? The principles are the same. You need to make sure your “house” is in top shape first, by examining and preparing the following:
1. Financial Statements. Have accountants or sophisticated financial professionals prepare them. Don’t try this at home kids. Always be sure the figures are mathematically accurate, based upon factually correct assumptions, cross foot, and contain a balance sheet, income statement and statement of cash flow. Financial statements come in three varieties: Compilation, Review and Audit. “Compilation” is a gathering of financial information supplied by the company and put in a proper accounting format. It is not certified by an accountant and is the least reliable (and least expensive) variety. “Review” has critical evaluations of the clients’ numbers to confirm a level of accuracy more than compilations. “Audit” has the financial evaluations which provide for accuracy greater than reviews and confirms accounts with the outside world of customers, vendors and creditors. In financing, it is worth the investment to get a review or audit. With startups, compilations work only for so long, and with commercial lenders, as opposed to angel investors, audit is required by Federal regulators.
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