At every growth stage, companies tend to accentuate the positive and project the best possible outcome for investors. But as any good business attorney knows, most investors also want to minimize risk by eliminating as many unknowns as possible. The best way to do that is by preparing solid financial records.
Here's a look at what should be a company's top financial priorities at each stage.
Planning a Successful Launch
Even small businesses need to raise funds to get off the ground. Determining how much money you need to get started — and who might be willing to provide it — is one of the most daunting aspects of starting a business. It's important that you secure enough financing not only to open the doors but also to sustain you through the startup phase.
As you prepare your financial projections, bear in mind the three things that will matter most to your investors (and their attorneys): assurance, risk and compliance. You might think your product or service is the greatest thing since sliced bread. But a prospective backer's enthusiasm will quickly go stale if they're not confident in your ability to look after their investment. That's why it's a good idea to enlist a bookkeeping services provider as well as an attorney. As noted in this article, you shouldn't even consider approaching investors until "you're thoroughly prepared to deliver a knock-out pitch and efficiently respond to diligence requests." (Emphasis added.)
Mergers are tricky. When two companies conclude they would be better off joining forces than competing with each other, they tend to do so more in the spirit of an arranged marriage than enthusiastic courtship. (And, in a merger and acquisition, in which one company effectively devours another, the negative connotation is unmistakable. As Investopedia points out, "For this reason, many acquiring companies refer to an acquisition as a merger even when it is clearly not.")
In any case, the goal of a merger is for each company to have a fair valuation of its assets before they are combined. This is such a complex process that it's difficult to offer any general advice beyond a blanket generalization to have one's financial ducks in a row. To quote the Journal of Accountancy, "Even experienced CPA/valuators may need to bring in an outside expert for longtime clients in order to avoid bias."
Again, it's difficult to offer a one-size-fits-all strategy because companies divest for different reasons, ranging from bankruptcy to sales offers that are so attractive they're impossible to refuse. In many cases, the divestiture is a partial one. If a company has multiple assets, it might determine it can bolster its financial health by selling those assets that are underperforming, particularly if they're not part of the core business.
The key is to execute a divestiture from a position of strength rather than out of desperation so you can get the best sale price. And the only way to do that is to make sure all off your bookkeeping and financial records are accurate and up to date. As Business Insider noted, "Spending the time to properly aggregate, interpret, and present a company's financial and business history and future projections is a crucial element of the sale process."
Actually, it's a crucial element of every process a company goes through in its lifecycle. That's why it pays to have good legal and bookkeeping services support alongside you every step of the way.