Last month, we held a fantastic webinar with the CEOs of Fundera, TSheets, LivePlan and ZenPayroll. These 4 successful entrepreneurs had an incredible amount of insight to share about managing business finances. If you were unable to make the webinar live, you will want to check out the recording below.
There were so many great questions from the webinar audience that the CEOs weren’t able to address. So, we wanted to make sure all attendees got their questions answered. Here’s a list of a few questions left unanswered from the webinar. Consider these “bonus tips” to tune-up your small business finances.
1. As a recent startup and a one-person band, what do you recommend focusing on first? Finance, marketing, sales, etc.
From Sabrina Parsons, CEO of LivePlan:
As a recent startup, we’re going to assume you have a forecast and a business plan in place. If you don’t, this is definitely where you should start. If you’ve got both of these things, then you need to focus on how you’re going to bring in sales. You need to focus on your business model, on who you’re selling to, and you need to start trying to sell right away.
“Should I spend a lot of time, money and energy on marketing?” is the ultimate chicken and egg question. If you do this and you focus just on marketing to one audience, and then nothing happens, you might conclude that your idea hasn’t worked. Truth is, you may simply have been targeting the wrong market.
If you can make sales happen first, you’ll have a better idea of whom to market to. First bring revenue in the door. Figure out how to sell something and then use that knowledge to help inform whether your assumed target market is actually who is buying your product and or service. After you validate that people will buy from you, and you understand who those people are, you can start spending time and energy on marketing.
2. What are the pros and cons of a bank loan vs. an investment for equity?
From Jared Hecht, CEO of Fundera:
Here is a chart for the pros and cons of each:
3. How do you go about finding people that can educate a business owner on financial planning?
The first thing you should do is find an accountant that offers strategic advisory and proactive advising services. Most traditional accountants will just do your taxes and your books and they won’t offer financial planning as a service. If this is important to, you need to find an accountant that does. An accountant will be comfortable with financial statements, and making sure you books are done correctly, but the right accountant will offer CFO for fire services that will help you be strategic about your financial planning. Make sure that when you work with an accountant, or you are choosing an accountant, you ask whether they will help you with financial planning, strategic forecasts, budgets and cash flow forecasts.
Another great place to turn for advice is an SBDC office or your local SCORE chapter. The people that work in SBDCs can be great resources, although it’s worth remembering that not all advisors and counselors are as well-versed on financial planning and strategic financials as others. SCORE volunteers – an acronym for Service Corps of Retired Executives – may have very diverse backgrounds. If your primary concern is related to financials, you might consider looking for someone who was once a CFO rather than a CEO or a COO. That said, the latter may be just as able to help.
And finally, never to be underestimated, is word of mouth. If you want to know what others are doing, talk to business owners within your community. Find out who they’re using to help them plan and track.
4. Do you have any recommendations for balancing owner distributions (required for personal expenses) and cash to be left in the company?
From Matt Rissell, CEO of TSheets:
My recommendation is to keep the business’s books squeaky clean! Do not mix personal expenses with the business at-all-whatsoever. Especially, in the case of multiple partners or investors. Pay yourself(s) well, just like you would a top employee that is working their face off to build the company and if there is money leftover at the end of the year, distribute according to ownership and your governing documents (articles of incorporation, etc.).
5. What do you consider the best measure of a company’s value / potential on a pro forma basis (or historical basis) – Net Profit, Pre-Tax Cash, or After-Tax Cash?
Honestly, there is NOT a good answer here. None. There are more ways to evaluate a business than there are to skin a cat…We don’t like cats in Idaho :). From 3.5x Annual net profit + assets, to 10x top-line revenue for SaaS, to $1B valuation based on no revenue with 30 million users (Instagram) – much of which depends on the type of business and it’s business model. If you’re looking for a valuation to sell, a few things that I have found helpful…One, don’t seek advice from a “small business broker”. Two, don’t seek advice from your normal business “banker” (however, these folks can be a fantastic referral source for potential acquirers of small/local businesses). Three, DO seek advice from Entrepreneurs that HAVE sold their company successfully. Fourth, DO get advice from a VC and/or Investment Banker (if the transaction is large enough).
6. What general return levels are professional investors looking for in viable startups – and on what basis is that determined (i.e. Pre-Tax Cash, After-Tax Cash, etc.)
Most professional investors (i.e. venture capitalists) are well aware that they participate in a risky asset class. Not every investment is expected to generate a return. Fred Wilson, one of the most respected and successful venture capitalists out there, has an excellent blog post that highlights his expectations on returns of his investments. He says:
“Our target batting average is “1/3, 1/3, 1/3″ which means that we expect to lose our entire investment on 1/3 of our investments, we expect to get our money back (or maybe make a small return) on 1/3 of our investments, and we expect to generate the bulk of our returns on 1/3 of our investments.”
Stellar advice from stellar entrepreneurs. If you still have question that hasn’t been answered from the webinar, please reach out to each respective company on Twitter: