Tell it like it is

A while back I read an article about an entrepreneur on the horns of a dilemma. She was facing a big decision at her successful, venture-backed startup.

If I could remember the particulars I’d cite them, but what stood out to me was who she turned to for advice and why. After agonizing over the issue herself, she finally did the following: “I decided to ask the money people, because I knew they’d tell me the truth.”

Advisers who fall into the “money person” category — investment bankers, accountants, corporate finance experts to name a few — tend to be analytical types who enjoy using their specialized knowledge to solve complex problems. While they’re often invaluable resources, many come with a reputation for direct communication that is light on empathy. In other words, you may want to brace yourself before picking up the phone.

Talking to a money person may not be the easiest conversation you’ll have as a business owner, but there are times when you’ll want to put on a helmet and give one a call. Following are three.

One instance is in the face of a cash flow crisis. Dealing with a negative cash flow cycle may seem like a rookie mistake, but it happens so often that most entrepreneurs consider it a rite of passage. The culprit is sometimes obvious, like declining sales. Although it’s not uncommon to have a healthy topline and still struggle to pay the bills.

Negative cash flow can be symptomatic of a number of things — inventory management, eroding margins, undisciplined spending — although it is typically a management problem, not an operations problem. (Ouch.) This is the time to ask an experienced, consultative CPA to dig through your company’s financial statements and expose the problem, allowing you and your team to address it head on.

Raising capital can be another nail-biter for business owners. Selling too much equity to the wrong investor, or loading the balance sheet with debt, runs the risk of tearing down everything you’ve built. It takes an intrepid entrepreneur to go out and raise capital (read “Pour Your Heart Into It” by Starbucks founder, Howard Schultz for his harrowing journey).

In fact, many business owners cap growth at their business to avoid this step altogether. For those who forge ahead, be sure to enlist the help of a good CFO. Don’t worry about having a full-time CFO on salary. You can rent one on a part-time basis through an organization like B2B CFO, a regional accounting firm, or using a website like SpareHire.com. You’ll need someone who’s well-connected and can demystify things like cost of capital to steer your business in the right direction and avoid costly mistakes.

A third area where business owners need straight answers is exit planning. Similar to the startup phase, exiting a business often comes with unrealistic expectations attached. It takes a certain type of adviser to tell you that your ideal exit scenario — like installing an ESOP for employees, letting your kids run the business, or selling to an acquirer for big bucks — may not be the best option for your business or personal goals.

Most exit planning discussions start with a business valuation. This can be an area where you may not like what they hear, but it is a critical first step in the process and the foundation of any exit strategy. Contact an M&A adviser or investment banker well in advance of wanting to sell or exit your business. You’ll want to hear what they have to say sooner rather than later, allowing you time to position your business for the exit you want.

There’s an old saying in economics that goes something like this: You should always be willing to hear information about your finances and your health. You may not relish what the accountant has to say, but the consequences of not getting that information may be much worse.

Successful business owners embrace wading through difficult truths to get good information for their biggest decisions. As for the “money people,” don’t think of us as the bearers of bad news; more like providers of clarity.
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Editor’s note: Barbara Taylor is the co-founder of Allan Taylor & Co., a mergers and acquisition firm in Bentonville. The opinions expressed are those of the author.