Keep your project tight and ready to raise money.

At Projects RH, we think it’s important for companies to be able to get new money from sources other than current shareholders. We believe you should be paper-ready and have the right mindset.

We realize that while most founders do not excel in routine administration, it is critical that they ensure certain files are kept up to date. When we work with clients, we do recommend that they prepare monthly accounts using a bookkeeper, as they will not be diverted. These accounts should be maintained in spreadsheets which allow for the business to be revalued based on various factors.

• Annual Recurring Revenue
• Sales
• Profit before tax, interest, depreciation, and amortization
• Unit operating costs (less new development expense)
• Supplementary sales (“Will there be fries with that?”)
• Funds allocated to assets including intellectual property.

The path that grows your business.

For each of our clients, we pre-agree on a pathway to an IPO or a trade sale that sees the profit multiple rise as the business matures. As many of our clients are tech or resource companies, we build a path into their model so that every month, the business increases in value due to growing sales and maturity.

Projects RH also asks our clients to have weekly management team meetings and record key events from:

• CEO
• COO
• CTO
• Sales
• HR
• Accounts

Good reporting is essential.

We also encourage that reports be prepared for monthly board meetings, even if they are not happening every month. Good reporting on a timely basis will pay off!

In addition, we recommend a monthly shareholder update that is limited to one page. We strongly advise that an independent individual should be assigned this task to ensure that it is completed properly. This update is an excellent way to showcase the company’s progress in a step-by-step manner.

A good example

Many companies need to keep copies of meeting records for compliance with licenses or quality systems. One of our clients has a small executive team, about 40 team members across two nations, and a lot of work done from home. Key people send weekly reports which are reviewed at the weekly management meeting.

With these materials we at least quarterly updated:

• The financial model
• The information memorandum, and
• The teaser

Have you mowed the grass?

At Projects RH, we firmly believe that companies should always be ready, willing, and able to raise new capital and accept that it does not always come from existing shareholders. You need to be prepared and have the right culture.

I call this ‘mowing the grass’ – we must always keep the business shipshape and ready to raise money and deal with greater opportunities. At Projects RH, we know that you will never know when that wonderful call will come, and unless you have process discipline, when someone knocks on the door, you will not be ready.

I have heard many CEOs say, ‘Do we really need management meetings on Mondays?’ Board meetings remind people of the burn rate and the ongoing need to raise money. Our answer is always, ‘Yes’.

Most entrepreneurs understand that there will be a point in the life of their company when an investor or competitor will knock on the door and say, ‘We want to buy your company. How much do you think it’s worth?’ or ‘We like your company, and we want to buy it. Our offer is…’ The CEO, whatever the title, needs to know the amount and the reason behind it.

When you get the call.

This is a time to remain calm and understand what your business is really worth and what your duty is to your shareholders. In some countries, if you’re a listed company or a public company, you may need to guide or find the market or at least tell shareholders.

At this time, hopefully, the Founder / CEO has with him an experienced board member or two and an experienced adviser.  

When the knock comes on the door, are you ready to have due diligence performed on the company? If you have followed the processes identified above and have been assisted by good advisors, you are ready to entertain the offer. There is no need to accept the first offer, but you do need to know what an independent party thinks of you.

Beware of the fishermen

If you are at a point where the company has created significant value, then it may be that you should look at the offer. Always be careful not to give too much away as the party may be on a fishing expedition, as occurred with one of our clients this year.

Based on the financial model you have prepared, executives and the board should have a reasonable view of what the company is worth, at least on paper.

Cut the lawn & trim the edges.

Armed with the above information and aided by your professional advisors, you need to discuss with the investor a fairly aggressive timetable for them to make a binding offer. If they require more than three months, it will be hard to believe that they are serious. Be mindful that they do have the money to settle a bid, and do not be afraid to ask for proof of funds. With the materials you have produced, you will be able to argue with the bidder for the true value of the company.

None of this would be possible unless you had not cut the lawn and could quickly trim the edges.

Paul Raftery, CEO Projects RH, based in Sydney.