Shark Tank's Mr. Wonderful, Kevin O'Leary, says the biggest mistake entrepreneurs make during his nine plus years on the show is not knowing their numbers. “When you don’t know your numbers, you tend to get killed. You’ve got to come in there understanding your business model.”
I have seen horrible ideas in a pitch that includes fancy materials and a strong command of the numbers, and even though the profit might never work out – investors still push hard to figure out a way to get the deal
done. Alternatively, a fantastic idea that obviously could work, tied to a poor presentation and questions about sloppy accounting, will die at the table nearly 100% of the time.
There are plenty of ways to get ready for an investor pitch, with numerous articles and blog posts about how to tell your story in a compelling way. However, “knowing the numbers” requires having a reliable basis to draw
upon. It requires a system that must be set up long before an idea is ready to be pitched.
Ideally from the very beginning, and often years before the need to raise capital, entrepreneurs should focus on maintaining clean and organized corporate records. The books need to be straightforward and accessible. I have never seen someone invest money or acquire a business without performing rigorous due diligence. If your books are a mess, the numbers are less believable, and so are you.
This begs the question of why so many start-ups choose to view accounting as a necessary evil, and limit the burden by going the DIY route or having a relative keep the books. At most, they will take the cheapest route
possible, falsely believing the finance function is simply a cost center. Do you really want to trust your cheapest option when it comes to ensuring that your employees are paid properly? How about when your tax return is audited? Ultimately, do you trust the cheapest option when you have finally persuaded an investor to listen to you for 90 seconds but you have not seen a P&L in months? The investor surely doesn’t.
Savvy business owners view accounting as the language of their business and listen to what to numbers are
telling them. Of course, this means investing in a professional bookkeeper, either in-house or outsourcing. Your financial records should guide all of your business decisions, such as when to hire more staff, seek a loan, or invest in equipment or inventory. But your decisions will only be as good as the information you have. If your books are chaotic, or if you see that you're consistently falling behind on your record-keeping, it's time to bring in a professional bookkeeper.
David S. Burnett, CPA | firstname.lastname@example.org