3 Ways To Reduce the Risk of Buying a Business

Deciding to grow your company by buying a business is one of the most exciting and positive developments that can happen to an emerging growth company—yet the risks of buying a business can be quite high. To keep such risks at a minimum, or at least minimize any negative impacts that may occur, you’ll want to be aware of the risks involved in mergers and acquisitions and what to do about them.

What Are the Risks of Buying a Business?

Past experiences of companies that have gone through the process of courting another company provide a long history of lessons learned—and opportunities for your business to make smart, informed steps on your pending M&A deal. Be aware going in that the other company may have more issues than you initially realize. The integration could be problematic and long-lasting. Some employees you were hoping to hold onto may jump ship if the transition period is protracted, if they feel they do not have a strong role in the newly formed company, or if transparency is lacking, among other factors.

So, is buying a business a high-risk investment? You may view it that way, as you take into account that your company’s reputation and valuation could take a hit from a busted M&A deal or ugly integration. However, these risks could be offset by the potential upside—whether the goal is to create a bigger, stronger company; to inorganically expand into new territory; or to acquire intellectual property needed for your company to succeed in the long run.

You’ll want to understand the risks involved in mergers and acquisitions, and the potential benefits going into any deal. Getting to know this new company, inside and out, will also be critical—you’ll need to be fully informed and fully prepared going into any negotiations with another company.

Be Strategic

What do you primarily want from the target company? Is this about IP, a new market, or key talent? You also want to understand the target company’s motivations—and their intentions moving forward. If you want to hold onto some of the leadership there, are they likely to stay, or do you get the sense that the owners are looking to cash out and move on with their lives?

For most entrepreneurs and executives, this is a rare transaction, and it’s not inherently obvious what questions you should be asking and the potential pitfalls you could fall into if you do not tread carefully. Experts in all areas of M&A transactions can play a critical role in helping your company think through its strategic goals and how this deal would tie into them, in addition to considering what the goals of the acquired company could be.

Get the Accounting Team on the Case

Early on, you’ll want to anticipate that, like most strategic moves, this is going to take up considerable time and effort—probably more than you realize. The accounting and finance team will need to put extra time toward tasks that could put their current skill sets to the limit. Among their responsibilities after the close will be determining the fair values of the target company’s assets and liabilities and “scrubbing” its closing balance sheet. They’ll also have to scrutinize the accounts receivable to be sure that all uncollectible accounts have been identified; fixed assets for fully depreciated items that still have value; outstanding debt to determine if interest rates are at current market rates; and contingent liabilities such as pending litigation.

Overwhelmed by this partial list of responsibilities? You’ll want to factor in the need for extra support and expertise before and during this time, to make sure all critical areas get the attention they require while your core accounting team is still able to cover their day-to-day responsibilities.

Keep Your Employees and the Target Company in the Loop

When it makes sense to do so, keep your employees informed about what’s happening and what they can expect. M&A deals fall through often, so it’s usually best to loop them in when the ink is drying, so to speak, on your agreement. But before that day arrives, you can already have a communication plan in place so that you can reassure employees about their employment status and their role in your new, larger company, and have answers ready for their many, many questions.

You’ll also need to prepare an integration plan well in advance, with the help of experts who have taken companies through such M&A transition periods successfully. You’ll want to form an integration team, which should include active executive involvement and a clear understanding of why the deal is happening, why it needs to be successful, and the expected value. No two companies are alike, and the differences between yours and the acquired company will quickly become apparent if you did not do your homework. Communicating clearly from here on out has the added benefit of making you aware of any snags (such as any pending departures of key personnel) as soon as possible.

Understanding the Risk Factors of Mergers and Acquisitions

Acquiring another company is an exciting prospect—it holds the potential for many opportunities for your business and your employees. When you have a full grasp of the risk factors of mergers and acquisitions, you will be preparing the team involved in the best way possible: with open eyes toward potential pitfalls as well as ways to avoid them.

The most efficient and effective way to be so aware and prepared is to partner with trusted advisors who understand the process from beginning to end (post-integration). They can point out all the risks and help you think through how to deal with them, all while keeping you on track toward the important goal in front of you—enhancing your emerging growth company. Could an M&A deal be in your near future? Start the preparation process by reaching out to a RoseRyan expert today.

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5 Tips for Successful Mergers And Acquisitions

Mergers and acquisitions often start with the best of intentions, whether the company owners are pursuing their exit strategy and want to sell, or a high-growth company is looking for an even bigger boost by joining forces with a company that has synergistic intellectual property, talent, or a hold on a particular geographic area. But not all deals can be used as examples of successful mergers and acquisitions. Here’s how to go into your next transactions with eyes wide open, to not only achieve your company’s latest strategic goal but to make it a successful one, from the day of the offer to a year after the integration and beyond.

How to Measure the Success of Mergers and Acquisitions

Before going into the transaction, you will want to lay out what your definition of success will be. Measures of M&A success can include revenue growth, client growth, and tangible exposure to new types of clients. It can also include an assessment of whether the company was able to hold onto key employees throughout the process, and was able to keep the core business running the entire time, without disruption.

M&A experts become valuable resources during this time, as they can share successful mergers and acquisitions examples and lessons learned so that you do not repeat mistakes that other companies have made. They can also fill in for the valuable members of your finance team who need to work on the details of the deal. And they can help by sharing strategies for successful mergers and acquisitions so that you can decide on the strategy that will best work for the size, complexity, maturity, and culture at your company.

How to Make Mergers and Acquisitions Successful

1.Be thorough in your search. The work begins with searching for potential acquirers or target companies. This is not the time to limit yourself to one scenario, as the search may reveal some surprising results and poke some holes in your assumptions. You’re looking for opportunities and, with some outside expertise, you should be able to find the right one.

2. Get to know each other, and prepare to be open with the other company. Once you find the right fit, maybe this is a temporary partnership—if you are taking over another company—or it’s the beginning of a long-term relationship. Either way, both companies will need to learn each other’s language and culture, while combining (or taking over) systems, people, roles, locations, and more.

“Due diligence” will be emphasized by the outside experts who help you with any M&A deal, but for various reasons, it’s not always carried out to its full extent, and target companies are not always prepared to share everything. If you’re being acquired, expect to share your historical financial statements, forecasts, and equity information, and more. By getting these indicators of your overall business performance in good shape ahead of time, your valuation should be closer to what you would hope it would be.

The courting phase of a merger or acquisition is not just about the transaction itself but what comes after—the ease and smoothness of the integration are often what will be looked upon to determine whether it was indeed a successful merger and acquisition.

3. Prepare, prepare, and prepare some more. We don’t usually like to repeat ourselves, but this is one of those times when it’s necessary. The timeline to transaction day will constantly be shrinking from here on out—but any prep work you can put into this will actually save you time in the long run and ensure you’re on track for becoming one of the successful mergers and acquisitions.

There are going to be issues that arise—whether it’s a company you’re acquiring getting cold feet, widespread economic issues that slow down M&A activity, or a financial problem that halts some progress on getting information. You want to have experts on your side who have significant experience, best practices, and successful mergers and acquisitions case studies to help guide you by helping you ask the right questions, assess the other company properly, and think through what you really want for this next iteration of your business.

 4. Communicate openly and honestly with all stakeholders. The early days of a merger or acquisition can be incredibly delicate, and some do not make it to the finish line. For that reason, communication can be limited at the beginning of the process, but you do want to be prepared for when you can share the information widely, not only with employees but with your clients and prospects.

In addition to getting the basic communications in order—like the press release announcing the deal—you could also have correspondence ready for when you are ready to move forward with the news. There will be a lot of questions from all stakeholders, and you want to be prepared to answer them thoughtfully. Proactiveness with your communication strategy will be your friend here.

5. Spend time on the “after” version of your company. What’s going to happen after the ink dries on the deal? Some details—such as whether your company’s employees will need to change their email addresses—do not need to be tackled right away, but you may have to switch over to a new payroll system on day one, and you might have considerations to make ahead of time if some significant roles overlap. It can be difficult to think ahead while you are in the thick of negotiations, but finance and accounting pros who have been involved in or have observed both successful and unsuccessful integrations can be a great help here.

Keys to Successful Mergers and Acquisitions

For most companies, it’s an infrequent occurrence to take on a merger or acquisition. Very likely, few people on your team have experience to know what to expect and to ask the right questions. Successful mergers and acquisitions require a certain level of experience, from those who have gone through a similar process or have come in during the integration period to pick up the pieces. So, before you embark on an M&A deal, reach out to RoseRyan, and we can help you stay ahead of issues as you pursue a successful merger or acquisition.

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5 Mistakes Entrepreneurs Make During M&A

Unfortunately, mistakes do happen in mergers and acquisitions, but the more common ones can be avoided—especially when you can lean on the experiences of companies that have successfully combined forces before you. By understanding the risks involved in mergers and acquisitions and preparing your company as much as possible for the changes ahead, you can, for the most part, avoid regrets and keep the focus on the new version of your company—rather than constantly having to look back at any mistakes made. 

Why Do Mergers and Acquisitions Fail?

Bad timing, misunderstandings, a change of heart, a most unwelcome surprise, a sudden change in the economy—a great many factors can contribute to mergers and acquisitions problems and ultimately failure.

Both the target company and the acquirer come to the M&A table with their own goals and perspective, which may not, in the long run, mesh. An acquiring company, for example, could have its eye on the target company’s intellectual property and not necessarily its employees. One company may be specifically looking to quash its competitor. Or both companies want to work together, but find over time that they will not be able to pull it off. 

How to Avoid Common Mistakes in M&A

  1. Understand your exit strategy options. Ideally, you have a clear exit strategy going into a negotiation with another company, but that is not always realistic when the market changes and circumstances change so often. By understanding the pros and cons of your many exit strategy options, and preparing as much as you can for the scrutiny involved when another entity becomes interested in your company, you will be that much more prepared—and more likely to avoid mistakes in M&A. 
  1. Get your books in shape. Smaller companies all too often find out too late that they have major catching up to do if they do not have their books in good shape. The acquiring company will want to confirm all that you are telling them—and the only way to do that is through your financial information, including your historical financial statements, forecasts, and equity information. They’ll want to lean on the work you have done so far to understand where you are taking your company and what’s possible in the marketplace. As they dig deep, they may want to see how your historical budgets and forecasts lived up to your actual results. You don’t want them to be surprised or rightfully skeptical of the data you share with them. 
  1. Be ready to provide documents. The acquiring company will have a long, long list of documents they’ll want to see, and you’re better off having these documents at the ready, and in good shape, rather than scrambling. These include financial records, contracts, information about stock issuances, and employee-related items like stock options and 401(k) plans. You want the focus to be on the deal itself—and the future of your business—rather than “where is that document I asked for?” 
  1. Get the experts on the case. Expert accountants can bring a fresh perspective to your financial records and processes, to ensure you have proper documentation for these processes (some acquiring companies will ask to see this) while also laying the groundwork for a smoother transition as the company integrates with another and for when the auditors become involved. 
  1. Get to know your M&A partner. The importance of due diligence in mergers and acquisitions cannot be overstated. While the other company may be digging deep into your business, you will want to do the same and to keep the lines of communication open. Early on, be sure that they know your expectations and hopes for the deal. If a merger is imminent, spend time understanding the cultural differences of the two companies—this area often gets ignored but can greatly affect the success of the deal on the other side. 

Avoiding Problems Faced in Mergers and Acquisitions

The main way to avoid problems faced in mergers and acquisitions is to be prepared. M&A experts who have guided companies through the process take a proactive approach to help companies be ready with the information that will be requested, to ask the questions they may not realize they need asking, and to help them think about—throughout the process—what happens after the deal is done. Let RoseRyan be your trusted advisor through your company’s next strategic move. Reach out to one of our experts today.

 

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A Guide to Venture Capital Financing

When it’s time to loosen your startup’s bootstraps and look beyond angels to take your emerging growth company to the next level, one of the more obvious places to turn to is venture capital. Usually backed by a larger entity, compared to angel investors who act alone, venture capital financing can provide the much-needed boost to your fast-moving company—to move it beyond its regional limitations, to take on a new product line, or to hire more people who will help your company continue to innovate and bring great things to market. Here’s what you need to know about the stages of venture capital financing, venture capital funding rounds, and the process of venture capital funding.

What is venture capital financing, and how does it work? You may be wondering what type of financing is venture capital funding. Venture capital financing tends to be focused on smaller, young companies and their founders, and is provided by investors and financial institutions that are looking for potential and value before anyone else notices. In turn for being a fundraising source, the investors may get an equity stake in the company and may also provide advice or significant input on the direction of the company.

How can you prepare for venture capital as a source of finance? Finding the right investors for your company can come down to “who you know.” You’ll want to tap your network and trusted advisors for who they may recommend you meet with and what steps you should take next. One of the primary steps they’re likely to recommend is preparing your company for the scrutiny that’s ahead.

What will you be willing to agree to, in terms of an equity stake and control? Are your forecasts and financial statements ready for a close look by outsiders? How will you meet the higher expectations that are sure to come from your venture capital investors? Do you have the processes and systems in place to keep up with the new demands?

Anticipating the due diligence process for venture capitalists. The savviest of investors are armed with questions—and lots of them. As much as possible, you want to be ready by closing up any cracks in your financial foundation. Red flags to a potential investor would be a shortening cash runway, unpaid bills, and signs of inefficiencies within the finance team. They will want to know that the information you are sharing with them is accurate, particularly your financial statements, and that you’re able to show them the potential within your company’s future (assuming there is one).

At the same, you could also conduct your own due diligence on the investors interested in your company, as you are about to become intertwined partners. This is one of those situations where if you do not have much experience in this area, you may not know the right questions to ask. Trusted advisors who are very familiar with the process, particularly in the Silicon Valley area, will become an invaluable resource.

What are the different stages of VC funding rounds? After seed funding, the fundraising rounds that companies go through, on their journey toward an initial public offering or other exit strategy, are called Series A, Series B, and Series C funding rounds.

Preparing for the Stages of Venture Capital Financing

As you pursue the attention of venture capital firms and venture capitalists, you’ll first want to solidify your intentions going down this route. How will you use this capital infusion? How will this level of confidence and trust in your company translate into progress on your company’s growth goals? Is your company ready for the intense scrutiny, or would you be embarrassed to show your financial information at this point?

With the help of trusted advisors who will quickly get to know your company, you can confidently figure out what goals are realistic and what strategic moves will get you there. In addition to their strategic perspective, they can become a part of your team as they help you clean up your operations—so that you can be proud of the information you’re about to share with potential investors because you will be able to stand by its veracity.

Is VC funding on your near-term agenda? Start the process by having a conversation with RoseRyan today. We can help you prepare your company to become “investor ready,” and we can expand your network of contacts and partners.

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5 Ways to Improve Your Company’s Financial Strength

A company’s ability to scale and reach its growth goals is heavily dependent on its financial health. Will your company be able to pay the bills three months from now? What are your revenue projections three years from today? Are you confidently hiring new employees, or are you concerned about growing the team too quickly? When a company is financially healthy, these answers are easier to come by and realistic.

Companies that could be financially healthier face the risk of running out of funds, burning out employees, losing out on strategic opportunities, and being disappointed when trying to meet customer and/or investor demand. Being financially healthy means having a clear financial picture so that you can confidently take action when appropriate.

How Do I Improve My Company’s Financial Strength?

Pre-revenue companies or companies that are not flush with cash at the moment can be financially healthy—if they are aware of their current financial situation and what they need to do to improve it. An inward assessment, guided by finance experts, is the first step toward the financial health of the company and starting the process of how to improve its financial health. These other tips can help too:

1. Know the roadblocks: Watch out for inefficiencies

If multiple people are caught up in mundane matters rather than their core responsibilities, that’s one of many signs that inefficiencies could be hampering the company’s progress. When a company has the right systems and processes in place—that fit with its size and complexity—much of leadership’s focus can be put onto moving the company forward. Leadership would have reliable, timely information to base their decisions—otherwise they may be bogged down by wondering if they can trust the information they’re viewing. When they are fully informed, they have context and insights around the financial data to speed up their decision-making process.

2. Aim for increased visibility, to avoid unnecessary problems.

If the finance function is overwhelmed or being slowed down by technology that has not kept up with the company’s pace of growth, there’s likely a lack of visibility into what’s really going on in the business. In the near term, this means the company may not realistically know if it can make good on its financial obligations. It could be missing out on opportunities to improve its margins and achieve healthy financial ratios. At a larger level, a fuzzy view of the current state of affairs and the path forward hinders the company from making choices that can improve its way of operating and taking smart steps toward growth.

3. Invest in technology that will improve efficiency and productivity.

The company may have started out with a system that worked for a while, perhaps for the first bookkeeper and accountant on staff, but it’s long overgrown being able to rely on Excel spreadsheets or the basic capabilities of QuickBooks. Strengthen the technological backbone with a tech stack of integrated applications that cut back on manual entries (and all the risks that come with that practice) and keep all the areas of finance—including invoicing and payroll—running more smoothly.

An outside perspective from outsourced accounting and finance experts can make the process of selecting and implementing tech solutions seamless. They have used a variety of software at a range of companies and can recommend the mix that could best work at your company, without the bias of “this is how we have always done things.” They can also provide training to ease the transition period.

4. Manage cash flow effectively to ensure you have enough funds available when needed.

The importance of cash flow cannot be overstated (cash is king after all!) yet it’s often a problematic area as emerging growth companies work toward putting themselves on more solid footing. When improving the financial health of the company focuses on improving visibility, this will greatly help with the ability of the company to fully see its incurred expenses. Otherwise, there’s the risk of spending more or sooner than you should. Being able to consistently produce reliable budgets and forecasts, and a cash flow statement, will make it so that the company can minimize such surprises. Companies also need a robust collections process and adequate cash reserves. If these are a current weakness, finance experts can introduce improvements to get the company on the right track, so that missed payments are no longer a common concern.

5. Bring in or know how to access finance experts who understand your business.

When you are in the thick of running the business or simply trying to focus on your day job, the problematic issues or weaknesses within the company that can be affecting its financial health may not be obvious. An expert, objective view can help to pinpoint where improvements can be made, and then help you implement changes so that you can soon focus on the core work at hand. Your company will be financially stronger as a result and able to take advantage of strategic opportunities.

Determining the Financial Health of a Company

The critical areas affecting your company’s financial health can be quickly revealed through a financial health assessment. RoseRyan’s Rapid Assessment for Emerging Growth assesses 16 essential areas, from growth plans and competitive concerns to processes and systems, to financial obligations. It’s a starting point toward strengthening the company’s financial health.

Sign up for your rapid assessment with RoseRyan today. After a dialogue with us, you’ll have an insightful report on areas of your finances and operations that could use some sprucing up—and a baseline to see how far you can take your company.

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How Can I Spot Weaknesses in My Business Before It’s Too Late?

A financially troubled company faces obvious signs of potential failure—such as phone calls from service providers asking for overdue payments, high employee turnover, or rapidly declining sales taking a hit to the bottom line. Often, the underlying issues that led to such overt problems can take a while to rise to the surface—and could have been preventable. By questioning whether you are aware of potential business weaknesses at your emerging growth company, you could get ahead of them.

Becoming More Aware of Problems—and Being Proactive

A smart question to ask: What is the best way to identify business weaknesses? Sometimes, you may be so caught up in your core responsibilities that a weakness or emerging risk within the company may be overlooked. This is where finance consultants can really help companies get ahead of issues as they know exactly the right questions to ask; they’ve seen pretty much every scenario at the many companies they’ve supported and advised, and their fresh perspective can shed light on an issue that may not be so clear to you or your team.

They may recommend taking a close look at the state of the financial operations, to ensure that your company can keep tabs on any weaknesses and address them head on. The problem could be that your business is not set up to sense how the business is really doing. Your accounting systems may be outdated. Processes may not have kept up with the pace of growth. You may have lost touch on the true cost of goods sold. These factors and many more can interfere with your ability to see the business weaknesses interwoven in your financial operations. 

Addressing Problems Head On

What are the signs that your business is in trouble and may be headed for failure? By enhancing the visibility into the business, and closing in on information that better help you understand what’s going on under the financial hood, you can get a better handle on potential problems or foresee them going forward.

Do you have the right systems and processes in place to not only produce reliable, timely financial information but to glean insights from it? Do you track pertinent metrics that can help you measure the health of your business? You want to be able to quickly spot anomalies and be able to implement changes when necessary. If the finance function struggles to close the books every month, for instance, you won’t be able to confidently rely on the information you are receiving—or confidently make decisions based on it. 

The Importance of Identifying Strengths and Weaknesses in Business

How can you correct problems before it’s too late? For emerging growth companies, we recommend taking the RoseRyan Rapid Assessment to better sense the financial health of the business. This is similar in some ways to a SWOT analysis of a company or a SWOT analysis of a business. An evaluation of 16 fundamental areas of finance and operations can reveal whether your understanding of the business is accurate and uncover any gaps that could be preventing you from growing and scaling the business. Once you see where the problems are, then a plan can be put into motion for improvements. You may find that not everything can be tackled at once. Finance consultants can help you prioritize.

Common Mistakes and How to Correct Them

What are some of the biggest mistakes businesses make in financial matters? One of the biggest is a loose grip on cash flow. If your company hasn’t been accurately tracking incurred expenses, or if the collection process is pretty lax, you could face the risk of cash flow issues taking the company on a downward spiral.

Companies that respect the mantra “cash is king” and that properly tend to their finance function, by understanding where the expertise gaps have opened up and knowing when to bring in more senior level skills, such as a part-time controller, can set themselves up to avoid serious, unexpected problems. A robust finance function, which can be a combination of outsourced finance and accounting experts in addition to steady, full-time employees, will bring visibility into what is happening today and the possibilities for tomorrow. They can help manage the risks facing the business and prepare it for potential issues, and help make swift changes when conditions change.

When You Need Help Finding the Trouble Spots

An outside expert perspective can help pinpoint the trouble spots before they become too big a deal (such as breaching debt covenants or running out of cash). RoseRyan’s Emerging Growth Solution provides a multi-layered approach to venture-backed startups so that common financial issues are proactively addressed, the realistic potential of the company becomes clearer, and strategic goals are backed by up-to-date, reliable information.

Your emerging growth company could be on the right track—or it could use some expert help to re-right itself. Take the Rapid Assessment for Emerging Growth to reveal the finance trouble spots at your company to understand what’s hindering your growth strategy. Reach out to RoseRyan today.

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What Angel Investors Look for in a Startup

What do angel investors look for in a startup? The savviest among them are not just seeking an exciting new company—they will want to see what’s behind the curtain before they part ways with their personal capital. Here are some of angel investors’ main interests in startups and how you can set up your emerging growth company to meet their expectations.

1. A passionate and committed team.

Smart investors know that a great idea for a company can only go so far—it’s the people behind that idea that matter. In the early days of a startup, everyone working at the company plays a critical, prominent part in its success. Angel investors for startups typically want to know if they can trust what the founders are saying, that these entrepreneurs have surrounded themselves with talented people, and that those people will want to stick around to see the potential of what the startup can do.

2. A marketable product or service.

Do people want what you are making or about to offer? Angel investors will want reassurance that you actually know your market—and that such a market exists. This is where you can show off that you’ve done your homework—and if you haven’t, then prepare for some snubs from angel investors for startups.

What’s your competition? What differentiates your offering from the rest? What level of interest or need is there in your type of device, technology, app, or drug? How much of the market share is your company looking to capture?

These are par-for-the-course questions that are going to come up, so it’s best to have the answers at the ready ahead of time. What real data points can you share in addition to trustworthy projections? Here’s where experts who understand your industry and the language of investors can be especially helpful. It’s in your interest, as well as that of the angel investors looking at your startup, to understand the real truth and numbers behind your market, as of today and in the future.

3. Scalability—the potential to grow the company.

Perhaps your emerging growth company looks like a solid bet today, but what about tomorrow? How are you planning to grow the company over the next three to five years? And how can you do this without overspending or over hiring? How will you know you are making the right decisions along the way? Developing a scalable business is one of the toughest aspects of running a business and requires a careful look at your finances and plans.

Angel investors for startups aren’t likely to expect you to have all the answers but to have some ideas. What you say can indicate how well you know your company and its potential. Finance pros who have helped companies like yours scale can help you think this through, so that you can prepare to scale your company in a sustainable way.

4. Dependability.

What angel investors look for in a startup is whether they can count on the people in charge. Do you stand by your word? Angel investors want to work with people they can trust, and your responsiveness to their inquiries can add to their confidence. Under promising and over delivering can take you far when dealing with investors. 

5. Understanding of your company’s finances.

Angel investors are well aware of startups’ high failure rate. They’ll want to not only understand your company’s current financial situation but gauge how well you understand it. Where is the money going? How will you put their money to good use? As you seek out angel investing for your startup, you may need to gain a better understanding of your exact fundraising needs, from an outside perspective.

Experts who have prepared companies to become “investor ready” can assess your financial operations and whether the information you are looking over is reliable or whether some changes to processes and systems would be worthwhile at this time. They can help guide you on the type of metrics you should be prioritizing at this point in your business lifecycle.

How Do Angel Investors Value Pre-Revenue startups?

Angel investors tend to follow a particular valuation method or one they have devised as they consider a variety of factors, such as the management team, the potential market of your product/service, and EBITDA (earnings before interest, taxes, deprecation, and amortization).

If the founder and/or CEO needs help communicating with potential angel investors and helping them understand what’s possible, finance consultants can fill a critical role by helping to develop data-packed, easy-to-understand pitch decks and conversation points.

What are angel investors looking for? Every investor is different and will have their own risk tolerance and level of interest in your type of company. To prepare your company for a variety of investors you are likely to encounter and to anticipate the type of information they will expect, your trusted finance advisors can get your company ready.

As an entrepreneur, the promise of your company is obvious to you, but may not be to investors. By supporting you on the business side, we can help bring the information within your company to the forefront while helping you close in on your many goals. We can help with the things you don’t know that you don’t know. Learn more about how we support emerging growth companies, and tell our team about your latest challenge.

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Some of the Most Important Key Financial Ratios for Startups

What’s your idea of success? If you are financially inclined like us, your answer likely focuses on a few key numbers. Financial ratios for startups can help you gauge how your company is truly doing, in terms of current performance and in terms of your ultimate goals. Are you paying attention to the right financial ratios for startup companies? Here’s a guide to help you determine which metrics your emerging growth company should pay close attention to on a regular basis.

Determining Healthy Financial Ratios

When first getting to know a startup, our financial advisory consultants may start with the very question of “What are your KPIs?” Your key performance indicators—if you have determined them—can help us get a sense of what’s most important to the leadership team and how you determine whether the company is tracking in the right direction. In some cases, your KPIs or other metrics being viewed could be fine-tuned or narrowed, and in all cases, these figures should be shared widely with the company for those who will be held accountable to results.

As a financial analysis for startups is undertaken, it may become clear that the key ratios that have been so prominent in your day-to-day should shift. It may turn out that there are other metrics that could better help you align expectations and goals among the various people or organizations in your startup.

How to Determine the Right Financial Ratios for Startups

To determine the right ratios for your company, consider what others in your industry are doing, what your ultimate goals are at this moment, and how some of the metrics you currently review tie into that (or do not). Finance advisory consultants can help you by sharing their experience at companies similar to yours while also weighing in to help you narrow down your KPIs.

One of our top recommendations would be to choose SMART objectives: These objectives should be specific, measurable, achievable, relevant, and have a time component tied to them (everyone needs a deadline!). Because of the specificity of these objectives, they will be able to be followed both by the people working toward the objectives and those who are ultimately accountable for ensuring the objectives are achieved. Relevancy and achievability ensure that the goals can actually happen in a reasonable time frame.

Ultimately, such measurements help to put everyone on the team in alignment—formulating these objectives gets everyone thinking about the top goals of the company and their role in helping to achieve those goals. These goals may change as the company evolves and its priorities evolve.

One of the Hottest Financial Ratios for Startup Companies

Particularly in the technology industry, recurring revenue has become an important metric. This figure indicates a company’s stability, by providing insight into the company’s revenue stream and how it has thus far set itself up for success through its existing client base. While there are no guarantees that recurring revenue predictions will hold true, the recurring revenue model, which often includes monthly or annual subscriptions, has become popular with both companies and investors.

Other Important Financial Ratios for Startups

What matters most to your startup in terms of financial ratios will depend, of course, on its unique makeup, industry, culture, future prospects, market, and the interests of the leadership team. Here are few of the most important key financial ratios that startups pay particular attention to:

  • Gross margins: Expert cost accountants can help you properly calculate and understand this figure, which indicates the profitability of your products.
  • Operating income: How does your income from operations (revenue minus cost of goods and sold and operating expenses) today compare to the past, your budget, and your forecast?
  • Profit margin: Is your company making money? Looking at revenue figures alone can muddy this answer.

What the Ratios Mean for Your Business

Is your company focused on the right metrics? How can you better align the expectations of your various stakeholders with the company’s strategic goals? A fresh, expert perspective can help your company prioritize financial ratios and determine how key objectives can be met and presented. Reach out to RoseRyan today to find out how we can help your startup work toward and track the progress of your latest goals.

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Finance and Accounting Business Process Outsourcing Service

Has your fast-growing company fallen behind on its finances? Is the team overwhelmed? You may be on the hunt for accounting BPO (business process outsourcing) or help with financial reporting outsourcing and more. Here is what to keep in mind during your search for the right service provider for your emerging growth company’s expanding needs.

What Is Finance and Accounting Business Process Outsourcing (FAO BPO)?

A company can bring in finance and accounting business process outsourcing at any point in their growth lifecycle. It’s often explored early on if the company needs finance and accounting support that’s highly efficient and does not require a full-time person or team just yet. Some companies may choose to have a part-time bookkeeper in the early growth stages, or they may find that they could outsource the entire finance function and expand the skillset of the team as their growth progresses. Or they may be looking for financial reporting outsourcing in particular. Services that typically fall under the FAO BPO or finance BPO umbrella can include bookkeeping, accounts payable and receivable, and account reconciliations and expand to include more involved finance responsibilities like the monthly close process and preparing the company for an audit.

You may be wondering, Can I outsource financial reporting? Any function within the finance and accounting team can be outsourced. Ideally, you are able to find a BPO accounting company that can help you with current needs, help the team scale with your expanding growth, and connect you with a higher level of skills as your needs progress.

An interpretation of BPO accounting can vary depending on the accounting BPO companies you are researching. While some may not actively promote their BPO accounting services, it may be something they are doing for their existing clients and may be the first type of service they offer to an emerging growth company.

The Benefits of FAO BPO

The most immediate benefit of FAO BPO and the reason why many companies begin looking into how accounting BPO companies can help them is the efficiency factor. The company will be covering your accounting needs only when there is work to be done. Compare this to the risk of trying to find an accountant you can hire on a full-time basis who can do it all: our industry, like many, faces a talent crunch and very few finance and accounting experts have the breadth of experience and expertise to fill every need as an individual.

Also, you may find that a seasoned individual may not want to do the more repetitive tasks involved in accounting while a more junior person may not be ready to take on a larger project that your company needs, such as readying the company for an audit. With an FAO BPO company, you are able to tap a wide range of expertise, and the experts you need can respond when necessary. There are no wasted hours—by outsourcing, you will be able to scale the finance team while minimizing the human capital risk that can be challenging to gauge when your company is experiencing rapid growth.

How Does FAO BPO Work?

When starting out with an FAO BPO provider, the company can fulfill your most immediate, obvious needs while also getting to the core issues underlying your financial operations. A rapid assessment can reveal where there may be critical gaps that need closing along with any hindrances to your growth goals.

For the most immediate needs, an accountant can get your books in order, develop a workable monthly close process, and introduce other efficiencies that will make your overall finance function run more smoothly while providing your company with more timely, more actionable financial information.

It may be revealed that what your company needs at this stage is a more layered approach, where every layer of your finance function is addressed by an interim finance and accounting team, potentially led by an interim CFO or controller. This is what differentiates RoseRyan from FAO BPO providers—we can raise the level of expertise that your company can tap into, but only when it’s needed.

How to Choose the Right FAO BPO Provider

When should I outsource my accounting? Consider outsourcing accounting if your existing finance team (or sole finance employee) is overwhelmed; leadership outside of finance is spending more time on financial issues than their day job; you anticipate growth or are pursuing a growth plan that will require a higher level of skills or capacity of the finance team; and if you are not confident in the financial data you are currently receiving or you lack insights into what it all means.

Choosing the right FAO BPO provider involves doing some research and ideally finding a company that can grow with you. You can limit the amount of time and energy involved in securing the right service provider by considering this criteria.

Also ask the right questions of a potential FAO BPO provider. The range and level of services vary greatly from FAO BPO provider to FAO BPO provider. Some may be very small operations that only provide bookkeeping services and will need to refer you to another company when your needs expand.

A FAO BPO Provider That Will Grow With You

When emerging growth companies have shown their potential to achieve greatness, RoseRyan has become a valuable resource, by helping them build their finance foundation, providing them with financial reporting services, and streamline their financial operations. And when the time is right, emerging growth companies will have access to CFO-level expertise to seek additional funding or pursue an acquisition or other strategic change. For fast-growing companies, the finance function can be a flexible operation, whose level of expertise will fluctuate with the company’s growth trajectory.

Is it time to explore your options for outsourcing some or all of your growing companies’ finance and accounting needs? Reach out to RoseRyan today to find out how our team can help yours.

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Benefits of Outsourcing Accounting Services

The benefits of outsourcing accounting is a popular topic when a company starts looking into building up its finance function, but not all the benefits are immediately obvious. We will go over the clear advantages of outsourcing accounting services in addition to the lesser known but equally beneficial reasons to look into an outsource accountant or an entire team for your emerging growth company’s finance and accounting needs.

Get Access to a Full Range of Accounting Expertise, in a Highly Efficient Way

This is one of the benefits of outsourcing accounting functions that becomes clearer as time goes on. Early on, a company may start out by outsourcing bookkeeping services, perhaps to someone who works part-time or someone who is part of a staffing agency. But soon, the accounting needs will multiply as invoices and bills pile up, and visibility into the business becomes murkier as the company hires more people, the number of transactions increase, and the company has a pressing need to pay more attention to its future by coming up with practical budgets, forecasts, and strategic plans for the years ahead.

As for the benefits of accounting outsourcing, an accounting firm of consultants can provide you a full range of finance expertise, by helping you build out the finance function and fill in the gaps as they open up.

Gain Efficiencies by Outsourcing Your Accounting Services

You would not have to take on the burden or uncertainty of hiring and training full-timers for your finance function when you decide to outsource your accounting services. Your accounting services firm can fill in all the layers of your finance function—from day-to-day accounting through the high-level strategic input of a CFO—but only when your company needs such expertise. If only a few hours a week are needed for one or more roles, you would only have to cover those hours—and not take on the risk of paying someone for more hours than they have work to do.

At the same time, by working with a consulting firm that gets to know your business and looks out for your company’s best interest at all times, you will be alerted when either more time or a higher level of service would be needed. A tailored approach will include awareness of your company’s current needs while also working closely with you to figure out what works in terms of outsourced accounting service under current budget restraints and expectations at this moment in time.

Streamline Your Financial Reporting Processes

Smaller accounting teams of fast-growing companies understandably become overwhelmed as the company continues to get bigger. What can get lost in the day-to-day grind is the need to step back and put processes in place that can actually alleviate some of the stress, open up some team members to work on new projects, and lead the team to produce more reliable, more timely financial information and insights. One of the key benefits of outsourcing accounting functions is exactly this—a streamlined, smoother running finance function.

Reduce the Risk of Mistakes

Often, the most pressing need of a startup looking into help through outsourced accounting is the introduction of an accelerated monthly close process. Without it, a company is often stuck with outdated and inaccurate financial information that could lead to poorly informed decision-making. This also leaves the finance team in a cycle of stress and a higher likelihood of errors. More up-to-date, accurate information gives more senior leaders more confidence in the team.

Another of the benefits of outsourcing accounting is the creation of a full tech stack, to get the finance function away from manual processes and reduce the errors that come from that.

Free Up Valuable Resources to Focus on More Strategic Matters

Being a part of a startup is wonderful and exciting when everyone has multiple roles to play—however, that practice can take away from a growing business if one person is pulled away too often to focus on areas beyond their core job or expertise. To break the CEO or ther senior leaders from getting bogged down by financial challenges, a multilayered approach to the finance function, through an outsourced accounting service—which can include senior-level financial expertise—can ensure that everyone sticks to what they know best.

Benefits of Outsourcing Accounting Services When Choosing One Firm to Help Your Business

What are the advantages of outsourcing accounting services? If you are looking for the benefits of outsourcing accounting functions, you likely have an immediate need for support and expertise. As you consider your options for an outsourced accounting service, give considerations to the potential needs of your company over the long term. By choosing a finance and accounting consulting firm that can fulfill various needs over time, you will not have to go through this process again. These consultants, when the time is right, can help you streamline your accounting processes, build up your finance function, and also advise you and support you as you grow your business.

After all, accounting is about more than recording how your business has performed. It’s also the start of understanding the why’s behind that business performance and what past numbers can tell you about the company’s future, and guide you toward understanding what’s possible for your company and what your options are. If those options are not palatable, what needs to change to turn your hopes or vision into reality? A fully layered finance function can help you understand the many possibilities and the ways to achieve them.

How do I outsource accounting work? Companies have a multitude of options today when it comes to outsourcing accounting. Consulting companies like RoseRyan make it possible to start out slowly while ensuring that you will have access to the breadth of expertise you will need exactly when you need it. Ready to outsource your accounting and to learn how RoseRyan can help you? Reach out to us today.

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