CEO Advisor Newsletter™
Summer 2008
Practical Advice to Accelerate Growth and Profits

In This Issue

The 5 Biggest Mistakes in Raising Startup/Early Stage Capital

7 Key Points for Successfully Selling Your Business

Client Testimonial

Words of Wisdom

CEO Advisor, Inc. - Member of Accredited Organizations


 

The 5 Biggest Mistakes in Raising Startup/Early Stage Capital
Stacks of Money

The business landscape is littered with would-be entrepreneurs who've stumbled in their search for startup/early stage capital. Those who pass the test frequently have unacceptable strings attached to the funding. Many deals that close come back to bite the CEO or business owner in the form of onerous debt, inequities, loss of control or worse. Many financing efforts fail because of avoidable mistakes that are made in pitching potential investors or lenders, structuring the agreement or managing the money once the deal is done. Steering clear of these missteps can increase your chances of success, both in obtaining startup/early stage funds and keeping the money flowing. Be sure to avoid these mistakes:
  • Management, Management, Management. Without the management team, your funding efforts will likely result in failure. It's not enough to convince potential backers that you've invented the next must-have product or service. You also need a team that can generate the revenues to repay a bank loan, reach milestones, or provide an exit strategy for a VC or angel investor. The greatest sports team in the world still needs great coaches and a support team. The same principal applies in business. Showing that you have top-notch management and even outside experts, like a business coach who can supply professional guidance is essential to finding a funding source.
  • Inadequate Business Plan. There is nothing worse than going into a money meeting unprepared. If you haven't put the time and energy into writing a comprehensive business plan complete with information, such as a business description, financial projections and a competitive market analysis, the people with the cash won't put the time into evaluating your proposal.
  • Not Asking For Enough Money. In a recent U.S. Bank study of reasons for small business failure, 79% cited starting out with too little money as one of the causes of their collapse. That's often because entrepreneurs typically don't realize that they should forecast their cash needs based on their worst-case scenario instead of the best-case scenario.
  • Failing To Get The Proper Legal Agreements. This is arguably more important than a prenuptial agreement for a couple with significant individual assets. Every lender or investor eventually will need his/her money back, and a legal document covering everything from the terms to the timing can avoid the kind of acrimony just described.
  • Poor Cash Flow Management. Too many owners of new businesses burn through their seed money too quickly and fail to reach cash flow-positive status in a timely manner. Some factors, such as late product deliveries and economic downturns may be beyond one's control. Financial forecasting and budgetary controls are critical.
  • There are other pitfalls to avoid, so seek experienced, professional help to take your business to the next level. CEO Advisor, Inc. specializes in Strategic Business Planning and Funding. Contact us today for a no cost, no obligation discussion on how to achieve your business goals.




    Greetings!

    Our mission is to provide CEOs and business owners of small to mid-size companies the needed focus and expertise, coupled with hands-on advice to grow your business. To take your business to the next level, contact Mark Hartsell, MBA, President at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.


  • 7 Key Points for Successfully Selling Your Business
  • Handshake

    Selling your business is a major consideration, especially after many years of long hours and hard work. Receiving the proper coaching on the sale process, maximizing the sale price and getting the deal done are critical, and are comprised of hundreds of small steps. Here are some important tips:

  • Manage Expectations and Be Prepared For Due Diligence. Understand the other party's position. This is key in your negotiations with the buyer and successfully getting through the due diligence process. Consider their alternatives. What are your alternatives? When qualifying a buyer, do your research and consider the merits of bringing in additional potential buyers. In all cases, prepare for the due diligence process by starting six or more months prior to selling in order to make a deal work in your favor. Most importantly, have your financials, accounting and customer contracts in impeccable order.
  • Structure the Sale to Protect Your Business. Confidentiality agreements are important, but there are other practical strategies you can use in parallel. Carefully qualify who you engage with - only deal with acquirers you determine are serious. You should only release information about your business that would be appropriate as part of the sale process. You can always provide additional information, as needed. It helps both sides if information provided is organized, easy to understand, simple to interpret and supports the objectives of the sale process.
  • Get to the Offer Stage Quickly. Whether buying or selling a business, a well drafted offer letter is critical and provides a platform from which to proceed. It's in no one's interest to put a huge amount of effort and resources into a business sale before both parties can see an offer that represents a good probability of closing.
  • Business Valuation. Understand the fine print. Make sure both sides understand the details and protections of any initial offer. Both buyer and seller need to understand exactly how the offer is made up (cash, assets, stock, deferred compensation, earn out). Both sides also need to understand the details of any protections around working capital, the treatment of surplus cash and balance sheet items.
  • Hit Your Targets Along the Way. It is helpful for all sides if the business for sale has a record of hitting, and continues to hit, its targets. Not managing to hit targets at a key point in the sale process has to be the most common reason for business sales floundering. Your business isn't sold until the closing occurs and you never want to create concern or cause your buyer to walk.
  • Determine Your Role in the Future. Negotiate your role and compensation fairly early on in the process before you are too deeply vested in time and resources. Far too often acquiring companies will push this off until it is too late for you to strike a favorable deal for yourself. A key part of the process is understanding the other side's hot buttons, and structuring relationships so that both sides have incentives to deliver after the business sale is completed.
  • Keep the Sale Process on Track. The process of selling a business can absorb more time and resources than it should, resulting in high costs and you being distracted from your business. Be very clear early on how the selling process should unfold and make sure you are delivering on your side. The process of selling a business can, itself, represent the initial steps in a trust building exercise which helps as you enter legal negotiations. Keep on timelines and don't abandon them at any point. Instill deadlines, if needed, and lock in a closing date as soon as the due diligence process is complete.
  • In our next CEO Advisor Newsletter, we will present some ideas on determining the selling price. CEO Advisor, Inc. provides management advisory services, including mergers, sales and acquisitions, to CEOs of small and mid-size companies. We address your specific needs with hands-on action, not just analysis. Contact us today for a free consultation.

  • Client Testimonial
  • "I am feeling more confident with everything now that you are involved. Furthermore, often times I feel like I am going at this all on my own. Getting you involved, Mark, has recharged me in many ways! Greatly appreciated on my side. I look forward to our future meetings."
    President/CEO

  • Words of Wisdom
  • "Think there is something more important than believing? Action! The world is full of dreamers, there aren't enough who will move ahead and begin to take concrete steps to actualize their vision."
                                            - Clement Stone

  • CEO Advisor, Inc. - Member of Accredited Organizations

    • Tech Coast Venture Network
    • Technology Council
    • OC Venture Group
    • Institute for Independent Business



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