This month I have been learning a lot about business finance. I believe it is one of the most important things to learn, especially if you are an entrepreneur and plan on launching a business. The entrepreneur or business owner doesn’t have to particularly be the designated accountant or financial analyst for their business, but they should know how to read financial statements in order to make wise business decisions.
The ability to read financial statements and project future growth is detrimental to the life or even start of a business. If you need funding from investors or lenders, you need to know how to talk to them and present exactly why and how your business is going to be successful. If you cannot prove this or have some off-the-wall projections, you are not going to get very far.
I had the opportunity to interview an investor the other day and he gave me some very good insight to this exact concept. I asked him what key business plan and financial attributes he looked for and deemed most important for investing consideration.
#1. Have a business plan – Obviously, many people have great ideas that are unique or innovative, but it is important to keep some key concepts in mind. First, without the plan laid out on paper, stakeholders are not going to put much confidence or faith into your idea. Second, the plan shows that you have done a substantial amount of research to know whether or not your idea is even feasible. And last, the plan is a very useful tool. It allows you to follow your original plan, reevaluate, make changes if and when necessary, and execute new plans.
#2. Understand your market – Your market plan goes into your overall business plan. It should show that you know the market you are getting into or have at least done research on it. Many entrepreneurs have no experience in a certain industry or market, but they have found a need or a problem within it. Problems are what entrepreneurs look for. We call them opportunities. Great intuition comes into play here, but so do creativity, uniqueness, and practicality. Take the music industry, for instance. Most of us know how the digital format of music completely affected the incomes for musicians, artists, songwriters, labels, etc. Did anyone predict this to happen? Unless you’re a psychic, probably not; but it’s practically the role an entrepreneur has to take when trying to read the market and predict the future. Trends are important things to have a heightened awareness about.
#3. Exit strategy – So you have this amazing plan, how do you plan on getting out of it? Your business can be extremely successful, and that’s great, but what are you going to do with it in the end? This pertains to several scenarios. For example, maybe you have a successful business for 40+ years; however, the time comes when you want or need to retire. Are you going to sell the business? Or are you going to hand it down to family or other confidantes? Either way a succession plan needs to be in place. Or what if the financial projections you had in the beginning didn’t turn out as planned? As many business plans do. What are you going to do with a business if it fails?
To wrap it up here, it is important to keep your emotions in check. We all have them and it can be tough to control them. People get very attached to the ideas or motives they have, especially when it comes to business or money. We can use the new popular show, ABC’s Shark Tank, for an example. The show brings in a plethora of people with dreams, hopes, and ideas—some are good, some are…not so good. The one’s that come prepared, know the value of their business, and what exactly they are willing to let go, are usually the ones who come out successful. Others can get very emotional and miss out on opportunities. And the sharks (investors) play off of this. Emotions drive decisions. Being able to control them and make wise decisions is usually an acquired behavior. A good thing to do: Step away, reflect, and come back with a better solution.