How to Extend Your Runway with a Finance and Accounting Playbook - Ascent Conference How to Extend Your Runway with a Finance and Accounting Playbook - Ascent Conference

How to Extend Your Runway with a Finance and Accounting Playbook

Marcus Wagner, Founder and CEO @ AcctTwo
Main Stage
Ascent Conference 2020

[00:00:05] Good morning, everybody. My name is Marcus Wagner and I’m the CEO and founder of AccTwo, and I’m grateful for the opportunity that you’ve given me today to speak to you and my colleagues tonight to develop a presentation for you called Extend Your Runway, which we believe will help you stay focused on the present and allow you to take positive steps to influence your future. And for purposes of this presentation, the lens that we’re going to be looking through will primarily be financial during today’s webinar. If you do have questions or comments, please plan to attend our roundtable session at 11:00 a.m. Eastern today right after this session where the workshop at one thirty PM Eastern and you can attend either one, sending an email to the address on the screen. And I’d be happy to have a conversation or answer any questions that you might have. Now, you’ll notice a baseball theme throughout the presentation. The underlying message we want to leave with everyone is that we should all be ready for our call up to the big leagues. The material that we cover today is intended to help you get ready for that call. And when we start out, everything looks perfect as it should. We’re bright eyed, optimistic, and we’re ready to change the world, but reality soon sets in. And from the beginning of time, that reality is a lot about overcoming financial challenges. It’s the key to survival for every business and as the expression goes, cash is king. This is particularly true for early stage companies. But it’s not just congest conjecture. As we all know, the data certainly supports this as well. And as difficult as the current crisis will make this, for many or most companies, navigating financial challenges is not new. But it’s certainly more pronounced and as I mentioned earlier, as leaders were relied on to address these types of challenges. So what can we do? I feel very strongly that one of the most important things we can do as leaders is make sure that our businesses have a playbook, one that allows us to operate at our collective best. And you take nothing else away from today. It should be this playbook to help us ensure we leave as little as possible to chance. Now, for me, these two quotes about Playbook’s summarize why they’re so important. Think about the relevance of these today. Now, would you all agree that having a play, regardless of its form, probably makes sense in business, too, and reflecting on Bill Walsh’s quote, how great would it be to have something like a playbook right now to help you perform better under the pressure of the situation? We’re all in a well thought out playbook is something that we can lean on. So how many of you have a playbook and is it written down or is it understood? Is it even practiced? And for those of you who do have a playbook, what is included in it? Does this list look good to you? My experience tells me that if you do have a playbook, it’s likely informal. And for me, this is evident, having spoken to and worked with hundreds of tech founders and CEOs and many founders tend to neglect one important component of their playbooks. They don’t really think too much early on about a playbook for accounting or invest enough in their accounting infrastructure. And that’s because they have little to no money and no customers. And so a spreadsheet or a monthly bank statement just seem fine. And that’s why finance and accounting is often an afterthought. So here’s the finance and accounting playbook that we operate under. And I think two things should stand out for you. No. One in general, each playbook, whether it’s for product management or sales or in this case accounting, should identify the five things in that area that you need to do exceptionally well. And number two, specifically for finance and accounting. I’m guessing these components aren’t what you expected to see when I use that term. The reason is that term finance and accounting doesn’t really accurately describe what finance and accounting departments actually do to help run and grow the business for most people. When I mention those words, people naturally think of bookkeeping or taxes, and those are certainly a subset of what finance and accounting is. A very small subset, actually. But the reality is, even though bookkeeping and taxes are the most commonly understood components, they actually had very little value to the business. They’re a necessary evil. There’s no prize for doing them exceptionally well, but there’s a penalty for doing them badly or not at all. One reason they don’t add much value is that they’re usually disconnected from the business. If I had to pick where they are in the playbook, I put bookkeeping and taxes in the timely reporting and analytics category, but again, a very small subset of what’s needed for the business to grow, excel and win. And it’s also critical to understand the importance of the underlying infrastructure. Many of you today sell supporting technology, but how many of you invest in it for yourself? Don’t overlook the importance of investing in a scalable infrastructure. All too often early on, we under invest and then we have to rip and replace it later. And this is disruptive and expensive. Scalable infrastructure is critical to the support of every playbook. Now, let’s talk a little bit more about proactive planning. Proactive planning has three key elements as summarized as visualize, monitor and adjust. The first step in active planning is visualizing where you want to go and what it will take to get there. The analogy we like to use is around base camps when climbing a mountain like Mount Everest, which is a lot like getting going with the business. There are multiple base camps along the way, and it’s critically important to plan how to get to each one and consider multiple scenarios for you. These could just as easily be milestones. Take your plans for the year and break them down into milestones. What will you accomplish next month, next quarter? Next year? How much revenue, if any, do you plan to produce? And this is not simply a number. Start from the bottom up. What will you sell and to whom? What will each of your subscriptions include? Is your subscription bundled or do you have distinct modules? If you’re in the services business, how many hours will you of service you provide to each of your customers? You get the idea. So why is this important? Because with specific targets, you’re establishing specific goals that will drive the behavior needed to accomplish that goal. You’ll know exactly what is needed next. Consider what it’s going to take to accomplish those goals. This part of the exercise focuses on expenses. Again, work from the bottom up. What are your development costs? What are your drivers? The same goes for infrastructure. How do you sell your solution today when you add more salespeople or augment the sales process through technology? Do you need help from a lawyer? If you don’t have experience here, ask someone who does. You want to make sure you don’t miss anything. And these projections establish what’s commonly referred to as your budget. And when it gets updated, your forecast. Everyone needs to do this regularly, regardless of your size. So now you have your initial targets and you want to make sure your plans can adjust for the best case or the worst case scenario, maybe that’s covid. And just like getting to those base camps on your way to climbing Mount Everest, nothing is going to go exactly as planned. Weather forecasts change really fast. So the market conditions and product releases think about the impact that a bug or an unexpected loss of an employee or a huge customer order can have on your organization. Now, this is where the next step of proactive planning comes into play. We call it proactive planning because you should just make your plan and stop there. And I’m sure that’s shocking to all of you. Unfortunately, many organizations do just that. They simply don’t have the ability to keep up with the actual results. And we’re going to cover that in sound transaction management discussion. So, not surprisingly, the key aspect of proactive planning is monitoring your progress in real time, not at the end of the month or at the end of the quarter, but truly in real time, because each week really matters when it comes to making your goals. While you can use spreadsheet models to do your planning, they’re much less efficient when it comes to updating on a regular basis. And the more your business grows, the harder that becomes. So my message is, look at your business, the current level of activity and what’s expected. And if you can do what you want, I’m recommending here with what you’ve got, there’s no reason to change. But if you’re concerned, you won’t be able to scale. You need to jump on this as early as possible. As I mentioned early on, it’s much harder, more disruptive and more costly to rip and replace things later. So now we’re tracking Axle’s to our plan, and therefore we should be in a good position to make adjustments both financial and operational based on the actuals, this is our reforecast. As time goes on, we need to make adjustments to our forecast based on revised sales projections, product release dates, days, sales, outstanding data adjustments could be made to higher days, capital investments. When we want to talk to banks about a line of credit and frankly, all of our discretionary spending, does it have to increase or decrease? The sooner we can respond? That is, the more proactive we can be, the more impact it’ll have. A good the painful example is the impact the covid is having on many businesses. Do you see some sales pushing? You need to get out ahead of cutting expenses and the sooner you make those decisions, the more cash you can serve and the longer you extend your runway. So having implemented a proactive planning process has helped me and my team and act to immeasurably as it relates to looking at different scenarios related to the current business environment, we started the year with a plan. We monitor our progress and we’re in a much better position to adjust when and if needed. Now let’s explore the next element of the finance and accounting playbook, which is Sound Transaction Management Act two. When we refer to sound transaction management, we mean setting up the right chart of accounts, optimizing our processes like order to cash and procure to pay, and capturing all the relevant information in the right place. Just as we discuss sound transaction management, you’ll begin to notice that many of the elements of the playbook are actually dependent on one another, similar to a double play. The chart of accounts organizes one of your most valuable assets, your data, when set up correctly, this organization of data will help expose trends, issues and opportunities from your day to day operations. Because of this, a well-organized chart of accounts will make it easier for you to make better, faster and more informed decisions to move your business forward. It’s the foundation for delivering all of the reporting you need in order to run your business. So the time that you spend evaluating your chart of accounts will typically be among the most worthwhile time you spend on this aspect of your business, and the information collected in the chart of accounts has evolved dramatically in baseball teams used to focus on the basic statistics of each player, the number of games played, number of that. That’s the number of hits literally the back of a baseball card, which is a very one dimensional view of the businesses back then were no different. They focused on revenue, expenses and income. But today, baseball and businesses are taking a multidimensional view to make real time predictions. And this is highly dependent on the data that gets collected. Baseball has evolved from looking at basic stats on the back of a baseball card to a detailed stat book to cloud enabled predictive analytics. And so your business should be no different. The key is tracking the data to drive the analytics. And this is all about how you set up your chart of accounts, moved from tracking revenue, expenses and income in a one dimensional model to a multi dimensional model where you’re combining financial and operational measurements to give you the data you need to feed your analytic tools. And no, this is not just for larger companies. The same tools are available for early stage companies as well. And I’m going to pause here to share that. You shouldn’t feel alone in bringing this capability to your organization. In fact, I believe very strongly that the future of finance and accounting is letting the experts do this for you. You should be focusing on your core competencies and let someone else do the things we’re talking about here. 30 years ago, no one would have thought about another organization running their payroll or even their H.R. activities. Today, almost no organizations were on their payroll, and many smaller organizations use a PTO to help with the administrative aspects of H.R.. So why should it be any different for accounting? But if you want to get started on your own, here are five simple steps that we used to create a robust chart of accounts. Number one, begin with the end in mind, which is what reporting do you need number to identify the data that you need to manage your business. For example, if you’re a SaaS company, things like customer acquisition, cost of churn or EMRAH. Number three, identify the data sources and the capture processes. This is the next step that I’m going to talk about today. Number four, choose the right system or provider that can support how you want to track your data. And not all are created equal and finally build in future flexibility. You don’t want a rigid structure that can’t adapt to changing needs of your business. So if you’d like to learn more about this, you can send me an email to the address on your screen. And I’d be happy to send you a copy of the white paper that we wrote called The Art of the Chart that I think will really help you out. The next aspect of sound transaction management is optimizing your business processes like order to cash and procure to pay. For example, in a well-designed order to cash process, we keep costs down by eliminating duplicate effort. The information from sales is seamlessly integrated with accounting to capture all the information that you need about a new customer and their contracts done right. Accounting literally doesn’t have to touch anything. And the beauty is we’re capturing data in real time at each step along the process from entering the lead and creating the opportunity to converting the opportunity to an order and pushing it over to the accounting system. So the key concept I want you to take away from this slide is you should focus on implementing integrated automated processes and systems, integrating the functional areas like sales and finance, and ensuring you’re capturing all the data needed to provide decision support once and at the source, avoiding silos, a manual or duplicate data entry which will create value and drive efficiency for the business. So now you set up a great chart of accounts, and by the way, it’s aligned with the way you organize your budget that I discuss in the under the proactive planning discussion and you establish integrated automated order to cash and procure to pay processors. So now you need to make sure you’re capturing the information in the right place and not in a handmade spreadsheet like this scorecard that’s going to be of limited value as very few people will be able to see it. Even if you share it on Google Docs, it’s unlikely to be updated on a regular basis. So what we mean by the right place actually has two means No. One in the right system and number two on every line of every transaction. And these actually go hand in hand because only the right system will let you track the right detail on every transaction. So what I mean by that, as an example, when you enter a new order, you should be able to provide as much detail about that order as possible, not just the quantity and the price and the description. You need to be able to easily track the customer, the industry, the region there in the type of product or service, the sales rep, et cetera. And this shouldn’t necessarily mean you have to enter all this information manually. For example, the system should know that a particular customer is associated with a certain industry in a certain region. So keep in mind, this also means having a mechanism in place for making sure items are coded correctly, at least those that aren’t coded automatically. What mechanism are you going to have in place for ensuring that? Again, I go back to my statement earlier about considering outsourcing this part of your business. So hopefully you can see how important sound transaction management is to your business that ensures you collect the data in the right place to make good decisions and even more importantly, creates an opportunity to be as predictive as possible as opposed to reactive at the same time allowing you to provide value to your customers and your stakeholders. So now let’s talk about responsible cash management. You often hear the expression cash is king, and that’s with good reason. When we think of responsible cash management, we actually like to focus on three things. No. One, knowing your cash requirements every day of every week of every month. Number two, having a strategy to develop a reserve as soon as practicable, especially if you don’t have funding. And number three, understanding the underlying requirements to get a loan or line of credit. And while this might seem obvious to many on today’s webinar, it’s critical to understand that being profitable or generating income because of the rules of accounting doesn’t necessarily mean you’ll always have cash available to pay your bills. Cash has everything to do with the timing of when you receive and make payments, and those may not always line up with when you can recognize revenue or expenses. So this discussion about knowing your cash requirements builds on the topic that we covered earlier proactive planning and sound transaction management. From a proactive planning perspective, we know we need to start off by having a plan in place for what we anticipate our revenue and our expenses to be over time, and that this plan should have the ability to look at best case and worst case scenarios. And a good financial planner can then take that forecast and convert this into cash flow requirements and a cash flow forecast. So how do you prepare a cash flow forecast? Number one, you start with your cash balance and your accounts receivable and accounts payable sub ledgers. Those are the tools you need to schedule out the estimated inflows from customers and outflows to vendors by week. And this is generally done over the next 13 weeks on a rolling basis, which is essentially the next 90 days. The use assumptions about your day sales outstanding and when you’re going to pay your vendors based on prior experience. And I highly recommend you do customer and vendor specific estimates, then you need to add in your payroll and bonuses and other employee related compensation, because that’s usually a company’s largest expense and it’s not an AP or a third layer and other recurring costs and future payables, things like rent, things like utilities, insurance premiums. Don’t forget the seasonality that’s associated with that. Having sound transaction management and an efficient order to cash process can help you minimize your day sales outstanding because you get your bills out on time and you have a good mechanism in place for tracking the status payments. And the same is true for your procure to pay process because it will help optimize your day’s purchase outstanding and control your cash outflows. So there’s four tips that I want to give you so you can know your cash requirements. The first one is preparing that 13 rolling 13 week rolling cash forecast that I just described. And if you want a tool that will help you do this, send me an email and I’ll send you a template to help you get started. Number two, you need to understand your working capital. Working capital is just your cash, plus your short term assets like accounts receivable, minus your accounts payable and other short term liabilities like accrued expenses. When your cash balance is what your cash balance tells you is how much cash you have on hand today. Working capital is actually going to tell you what will happen to your cash in the next 90 days or so absent any new sales, new expenses that aren’t already on your balance sheet and of course, things like payroll costs that you don’t normally accrue for. And this is because all those short term assets and liabilities will get converted to cash in the next three months or so. Again, if you email me, I can send you a template for calculating your working capital. Number three, make sure you always use your book balance, which is the balance in your accounting system and not your bank balance, which is the balance in your bank statement or online when forecasting your cash, your book balance is going to reflect things like checks that you’ve written that haven’t cleared the bank yet. So it gives you a fuller picture. And finally, make sure you consider the seasonality. For example, in my business, we use Salesforce, which is one of our larger vendor expenses, and that bill comes due every year in February, along with several other recurring subscriptions. So although we recognize that expense over 12 months, all that cash goes out in one month. So you need to plan for that. So the idea of developing and maintaining a cash reserve is probably something that many business haven’t had to think about much lately, because in the last 10 years we’ve had this unprecedented economic growth and venture capitalists and private equity firms have been raising a lot of cash from investors. Banks have been very willing to lend. So net net cash was either being produced by growing businesses or available to them with a good story and good potential. Now, what we’re experiencing is having a strategy for developing and maintaining a cash reserve is critical. It helps us weather the unexpected to just think about the empty stadiums like in this picture. What are both clubs doing with potentially no games being played or no ticket revenue, no advertising revenue, et cetera? Obviously, hopefully they have some good cash reserves on hand. So what are some strategies for developing a good reserve, a rule of thumb? And one way to manage your cash reserves is to have a target working capital amount equal to some number of months of payroll and other recurring monthly expenses. So at my company, we try to have a minimum of three to four months of payroll in our working capital. But every business is different. We need to figure out what the right level of working capital and cash reserves are for your business businesses that have a high cash burn rate. In other words, there is still developing stage companies and their expenses exceed their revenues are going to have to have a lot more reserve on hand than three to four months. And while it’s always good to develop a reserve on your own, this is also a good time to talk about the role of a loan or line of credit. I see this picture, this is not a place where any one of us wants to be the man in this picture is the owner of a baseball team that needed bridge loans and was forced to sell shares in his team to cover expenses. So as best you can. You need to stay in control. Getting a loan is a lot easier when you’re in good financial standing. That means having positive cash flow or enough to not only cover your operations, but also service the debt you may need to accelerate your growth. The first thing I recommend doing is talking to your banker about getting a line of credit. Now, even if you don’t currently need one, as I said, the best time to apply for a loan is when you don’t need one. And the great thing about lines of credit is that you can always just use them when you need them. And they’re there to cover the seasonal or short term effects on cash. Is the timing of payments and cash flows varies from month to month. Think of them as a rainy day fund when you’re short on cash. You simply instruct the bank to put more cash in your account from your line up to the credit limit, obviously. And when you get to a point where you no longer need it, you can simply pay the balance back down, saving you interest expense. You shouldn’t use your line of credit as a source of growth capital, though it should be looked at as a short term tool to manage short term fluctuations in cash flow. So another thing to consider is getting financing by applying for a term loan, which is where you borrow a fixed amount of money and then pay for it gradually, usually monthly over time. This can be a great source of growth capital because it’s a longer term loan for making longer term investments in your company. Your banker will help you through the process of applying for a line of credit or loan. A great place to start could be the SBA lending program. And the bank is going to require you to provide financial statements and possibly your budget versus actuals and maybe your projections and forecasts for the rest of the year. If you’ve done a good job with proactive planning and sound transaction management, that won’t be a challenge for you. So now let’s move to timely reporting and analytics, the world of reporting and analytics has changed across every industry in baseball. We’ve gone from checking the box scores the next day and the morning papers to seeing realtime graphical stats updated while we’re watching the game and the type of stats being used to manage. The team, as I mentioned earlier, has expanded from UNIVARIATE. In other words, the back of the baseball card stats to multivariable that literally tie all the data together. For example, how a certain pitcher performs against a certain batter in a certain ballpark with a certain count. Another example is that a couple of years ago, when you ordered a pizza Domino’s, about the only thing you knew was that it would be there in 30 minutes or less. Now, at the Domino’s, you can literally track the progress of your order in real time from when you place the order through every aspect of the process up to the delivery. And that app even shows the store’s rating and gives the customer the opportunity to provide their own. So when you think about your business, even if you’re just getting started, this is what you should be aiming for or even expecting. Don’t compromise. You shouldn’t wait until the end of the month to figure out how you’re doing and you should have the granular level of reporting needed to manage your business. So when we talk about timely reporting and analytics, we mean identifying what performance metrics and reports are needed to manage the organization, avoiding the use of spreadsheets and eliminating the idea of the month end close. So the easiest thing to do is not recreate the wheel in most industries, their standard metrics that are used by almost everyone. So if you’re a subscription based business, like many people on the call today, the standard measurements include things like annual contract value or AKB committed monthly recurring revenue or EMRAH customer acquisition costs or. And of course, churn things like that. So while we say identify performance metrics, I can just as easily say familiarize yourself with the metrics that are relevant to your business. Therefore, for everyone, it’s important to choose a CFO or a fractional CFO or an outsourced accounting provider. That is what I like to call vertically aware. And that means they need to understand the metrics for your industry segment. While every organization may have its own unique things like that, you want to measure, for the most part, key performance indicators are already known. So why recreate the wheel if you have time tested metrics already? For example, if you’re a fast company, it’s now expected that you’ll have a dashboard with all the information you and your investors need to manage and oversee the business. And as I mentioned previously, this is a good time to remind everyone that if you set up your chart of accounts right from the beginning with the right level of detail and the ability to track both financial and statistical information, getting the kind of information that’s shown on the screen shouldn’t require any additional effort. And this is where our next important recommendation comes in. Like most advice, it’s easier to give out than it is to follow. But as most of you have experienced, trying to report metrics from an Excel spreadsheet is a real challenge. The issues are well documented, right? Manually intensive. It’s error prone, but it is everyone’s go to tool. And so this also goes with my advice a minute ago. Don’t recreate the wheel. Excel, by its nature, is starting with a blank slate and there’s a fair amount of work involved in getting everything set up. And even if you can get a hold of a template with the metrics you want, one of the biggest issues with Excel is not its capability because it has tremendous calculation and reporting on the biggest issues that it goes against the very goal of this session, which is timely reporting and analytics. If you use Excel by its nature, it means your data is likely out of date. So our goal is for you to get real time metrics. Remember this dashboard that I showed before? Every one of these metrics is updated in real time. As soon as a transaction gets entered in the accounting system. This dashboard will change. And while you could create something like this in Excel, unless your spreadsheet is connected directly to the database of the accounting software, your dashboard is going to be based on old data. And the same should be true for the analytics that you want to be performed. It should be based on the most current data. Think about the power of having something like this when you’re asking being asked questions by your board, by your bank, by another stakeholder, or you’re asking questions yourself. Think about the value that this ability brings when it comes to making decisions. Which products are most profitable? Why is that? Which locations are producing the most revenue, etc.. So let’s switch to the last thing for you to be thinking about when it comes to timely reporting and analytics. And that’s eliminating the month and clothes for as long as there’s been accrual accounting. The best method for getting an accurate picture of your business. There’s there’s been the need to close the books. And as we stand right now, the best companies close their books every month. But there’s still those that wait for the end of a quarter and still others that wait until the end of the year. So please don’t fall into one of those two categories. For those of you new to accounting, the month and close is done to keep financial data organized, ensure all the transactions for the period were accounted for correctly. And this process helps ensure you have accurate financials. But here’s the problem. According to Ventana Research, companies that use a manual process like spreadsheets throughout the closed process can take an average of eight point two days to close their books. And that’s actually even pretty good compared to many companies that I’ve seen. So you’re in a situation where you don’t know how much how well you did last month until you’re twenty five percent into the next month. And that delays decisions are constant decisions to be made without up to date information. The shorter we can compress the time it takes to close, ultimately eliminating the need altogether. Some day, the better information you’ll have to manage your business. So how do you do that? Automate as much data entry as possible, develop a strategy that allows you to integrate as many applications as possible, like your CRM and the accounting system so you can eliminate manual data entry and lag. Another example would be AP automation to allow for invoice entry. This is definitely a more future looking objective. So the playbook, but it is in sight. I don’t expect for anyone to implement a continuous close today. But your goal should be to have it be as short as possible by staying on top of every transaction. Now, let’s finally move to the last piece of the playbook, funding and exit readiness. So the first question to ask yourself is, do you have a good track record when you go in front of potential investors? How important is the track record or how is the track record measured, raising money or selling your company to always start by putting yourself in the shoes of the investor or the potential buyer? Will your business look like the one they will want to invest in? And here’s some things to consider. Has outperformance been consistent over time or is it all over the map? What positive successes can you point to that you’ve been able to demonstrate consistently over time, consistently increasing bookings year over year, consistent profitability. How is your business been performing versus budget or plan? Remember, we started with proactive planning. Investors and buyers will want to know that when you put a plan or forecast in front of them, they can have some confidence that you’re going to hit your numbers. And if you aren’t performing at your ultimate target in certain key areas, can you at least demonstrate a positive and consistent trend for two businesses that have the same gross profit when they start an equity raise? The one that can show that their margins have been improving every year for the past three years will generally get a higher valuation than the one that can’t. Another element of your track record is the background of your management team. Your business leaders have the key functions in the key functions that have the pedigree and the experience in their roles that are going to help you increase the likelihood of success. The next point about funding and exit readiness is whether or not you’re ready to hit it out of the park. Are you ready at this point? Is all about preparation, starting and conducting an effective equity raise a trade sale with a ton of work. You’ll be asked a ton of questions and be requested to provide a ton of information. The last thing you want to have happen is to fumble or stumble during a critical part of the process. I’ve seen and heard horror stories of deals being delayed, valuations being significantly reduced, or even deals being abandoned because the founder or the management team weren’t able to provide the data completely accurately or in a timely manner. One thing you can do to get ready is start acting like you’re an equity raise process before you’re actually doing one. And that means setting up a data room which is shared on a shared online file structure that allows you to keep all your key information that would be looked at by an investor and to allow them to have access to it. Ultimately, before you start your raise or sale. Establish this data room and by the way, Dropbox or SharePoint or something like that is fine to create a folder structure that makes sense. Usually you’ll have different folders for things like corporate documents, finance and accounting taxes, legal contracts, customer contracts, and then start populating that data room with all the documents and data you can get your hand on. This is going to help you figure out what you have, what you don’t have and what you need to go find and create in order to be ready when it’s the real deal. You’ll also want to pull your investor presentation together early. You’ll find this document can take a long time with many iterations to get right. This is a document that sells the value of your company to potential investors or buyers. So in addition to putting the about US information about who you are and what you do, et cetera, you really want to highlight what makes you special, why you think you’re a valuable company. This could be things like proprietary technology, industry, leading net promoter scores, great unit economics, etc.. What I’ve learned is the more times you practice this presentation and the more real investors you present it to, the more you learn and the better it gets as you refine it. Finally, before you’re ready to hit it out of the park, talk to your advisors and find out about the most common gotchas that can cause deals to go south. These are things like failure to file your taxes and the required jurisdictions. One very common pitfall is failure to recognize you should have been collecting and remitting sales tax in various states or counties. That would be something a buyer investor might have to pay for down the road. So they’ll definitely perform their due diligence on you. And if there’s something like that to be found, trust me, they will find it. If you know about something you’ve been avoiding or procrastinating, take care of it before you start your race. Detonate the landmines now before you end up stepping on one later. And finally, investors want to know if your numbers are reliable. Are they accurate as part of your due diligence process?

[00:35:30] They’re going to hire accounting and tax experts to come in and check them to make sure. And when they find errors or irregularities in your numbers, it’s going to cause them concern and it could damage the value of your deal with potentially kill it altogether. One of the most common forms of financial due diligence that an investor or buyer will perform is called a quality of earnings review or two of the type of issue I described as the kind of thing that is generally discovered in of the review.

[00:35:59] So here’s my recommendation. If a buyer is going to do a quality of earnings review, why not hire your own professional to do it first? You can do that. That way you find out the same issues before the buyer or investor, and you have time to fix them so they don’t become a stumbling block. When the seller performs their own Q&A or other form of due diligence on themselves in preparation for a capital raise for sale, it’s called sell side due diligence as opposed to buyside due diligence. Most founders who’ve done it are going to tell you it’s worth way more than you pay for it in the form of a successful raise or exit that went smoothly with maximum enterprise value. So I hope this finance and accounting playbook has been helpful is just a way of thinking about finance and accounting and how it should work to support you in your goals for your business. If you have any questions, please attend the roundtable session. That’s at 11. Fifteen Eastern. Coming up here in a few minutes or the workshop at one thirty PM Eastern. And again, if you can’t attend either one, send me an email to the address on the screen and I’d be more than happy to have a conversation or answer any questions you might have then. Thanks for listening. I appreciate it.

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