By Richard Cohen and Matthias PaVon of ACIRI Consulting
The entrepreneurial spirit necessary to start an early-stage company often results in the entrepreneur taking on too many roles and responsibilities. Under ideal circumstances, a company would have access to a full “C-suite” (CEO, COO, and/or CFO) with experience in capital markets, running both public and private companies, running start-ups, systems implementation, and data analysis.
It’s critical that management of a developing company know what resources it needs (i.e. cash, manpower, etc.), when each is required, and how to measure them properly. Revenue, the driver of growth, without proper management and operational feedback is not the path to profitability.
How can an early-stage company access this sort of team right away?
Partnering is the answer. Obviously, financial constraints can preclude the hiring of full-time, top-level executive-suite talent for a developing company. The already dedicated, more-than-full-time multitasking entrepreneurs need equally dedicated partners for certain functions and insight in the areas of data analysis, financial modeling, valuation, and capital development.
ACIRI Consulting was formed specifically to benefit early-stage companies. By partnering our 50 years of experience and interest in growth-stage companies on an “as needed” basis, our clients have access to the skills and knowledge they normally would not be able to afford until their companies were much further along in their development
How can a company assess its particular needs?
ACIRI starts by raising certain key questions with management, questions that need to be addressed at all stages of a company’s growth:
- Exactly what type of help would benefit the company the most?
- What resources does the company have on hand?
- Is management spending its time on real and actionable issues that will have the greatest effect on the success of the business?
- Can management tell the company’s investors where their capital has been spent and how it will be deployed going forward?
- What is the company’s next value inflection point and does it have the resources to get there?
- Does management know who actually owns the company? The issuance of complex financial instruments (including preferred, convertible stock and debt) often makes answering this fundamental question difficult. If the company has convertible instruments, how do various conversion scenarios potentially change the ownership structure?
- How does a company structure future financing to ensure the alignment of the interests of all the various principals?
Modeling the company.
A critical initial step in addressing many of these questions is the development of a detailed “bottom up” cash flow model that incorporates all the major variables that drive the business. The majority of “models” developed for early stage-companies provide little to no benefit to the company itself or their investors.
A real cash-flow model serves as one of the best ways to measure the performance of a business. A good model, accompanied by experienced analysis, can result in operational changes that have a significant positive effect on the company’s bottom line. It should also determine how much capital will be needed going forward and at what time it should be raised. ACIRI Consulting has specific experience assisting clients with a detailed cash-flow model that can result in the client needing less capital than originally anticipated and giving up less equity.
Financial controls and accounting systems.
A new company should also develop financial controls and accounting systems. All interested parties (i.e. management, shareholders, and members of the board) should be comfortable that capital in a business is being deployed for the purpose for which it was raised. ACIRI can develop the systems to capture information and report it to interested parties.
Ongoing steps to maximize investor confidence and profitability.
Once a company has a cash flow model, accounting systems, and financial controls, the business should be monitored on a continual basis. Management and its advisers need to look at the factors driving a business, update the company’s models to reflect actual performance and make changes when necessary resulting in:
- increased investor confidence
- the highlighting and remedying of potential problems earlier
- a higher probability that the financial plan is being executed
The ACIRI Approach
We believe a good working relationship is built on the basis of mutual trust and respect. After ACIRI has an understanding of the company’s goals, we will suggest a path going forward. We practice what we preach about company efficiency and if we believe that a company would not benefit from ACIRI’s services, we will say so. We want companies to succeed and we offer our best advice to help companies do so.
The future is more knowable than most people believe. Following the proper steps on an outsourced basis, where financial constraints are the focus, is a way to achieve this goal. In a majority of cases, having the services of ACIRI makes a company a more attractive investment. The company gets the benefit of real hands-on experience, credentials recognized by the market place and the proper preparation for the next stage in its development.