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New ImageBiggsKofford, one of the leading certified public accounting and business consulting firms in Colorado, announced today the promotion of Austin Buckett, ACA, to Director. Buckett joins Chris Blees, Kurt Kofford, Greg Gandy, Greg Papineau, Michael McDevitt and Deborah Helton on the team of Directors.

Before joining the BiggsKofford team, Buckett gained over 11 years of accounting experience working with clients in a variety of industries. He specializes in mergers, acquisitions, transactional support services and financial consulting. Graduating from Alton College in Hampshire, England, he holds an Association of Chartered Accountants designation and is a Certified Merger & Acquisition Advisor.

Buckett joined BiggsKofford in 2005 and worked as a mergers and acquisitions supervisor for the certified public accounting firm. In 2006, he was promoted to Manager and continued to dedicate his hard work and leadership skills to the firm.

“Austin consistently looks for ways to add value to our clients and to help them,” said Chris Blees, Managing Partner. “His experience has moved the firm and our clients forward, which is a great asset for everyone.”

Founded in 1982, Colorado Springs-based BiggsKofford currently employs more than 25 professionals. BiggsKofford offers integrated business solutions, including tax, accounting, merger and acquisitions consulting, business valuation and litigation support.

BiggsKofford has expanded its services to meet the changing needs of over 500 business owners and entrepreneurs in Colorado’s Front Range.

Media, contact Jenn Watton at (719) 579-9090 for more information.

Deborah Helton

Deborah Helton

Director

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Austin Buckett

Austin Buckett

Manager

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What would you say if I could get you a 500 percent return on your money over the next two years with little to no risk?  Sound too good to be true?  Unfortunately, it is but that doesn’t stop thousands of investors in losing money in bad investments every year.

Early-stage investment in companies used to be reserved for the wealthy industry players, however in recent years it has become more common for mainstream investors to find early-stage investment opportunities.  As a result, we are seeing more clients come to us for advice on investing in small privately held companies ranging from startups to existing businesses.  The potential upsides from these investments can be very large and can become very intriguing for investors looking to outperform the public markets.  However, in most cases the rewards still do not represent the risks being undertaken in a private investment. Remember, while private investments may have become easier to find, the underlying risks of those investments has not changed.

While there are stories of massive returns on small investments, they are few and far between and usually the result of good timing and excellent execution.  But if an investment opportunity is touting great returns from the get-go then the likelihood is it’s either a scam (think Pyramid, Ponzi, etc) or just a very bad idea.  Either way, the investor will be the one losing out.

So where does that leave the mainstream investor?  Should they stay away from private company investments altogether and potentially miss a home run opportunity or can they also participate?

The answer is yes, provided they have their wits about them and can objectively assess an opportunity.

So how do you find out about investment opportunities in the private markets?  Below is a summary of the typical ways to find an opportunity:

  • Sourced through an investment group – This is by far the best way to source private investments; they typically require an investor to meet certain wealth and income levels (making sure you can afford to lose your investment without going broke) and they will typically vet any opportunities so only real deals are presented.
  • Presented by a professional – Typically these are presented to clients by wealth managers or other professionals such as lawyers or CPAs. The quality of these opportunities varies greatly. A good professional will ensure sufficient due diligence is done prior to making a presentation and that the guidelines set by the SEC are followed. In order to assess if this is a good opportunity always seek a second opinion, make sure the presenter has done suitable due diligence and understand the financial (if any) relationship between the presenter and the opportunity (i.e. do they get commission if you invest? If so, is it clearly stated up front?)
  • Presented by a friend or family member – This can result in great opportunities as you have an early look at something before other investors, but it also comes with an emotional tie that may sway an investor into doing a risky deal. Care and attention need to be taken here to ensure the opportunity is objectively assessed.
  • Online crowdfunding (i.e. Kickstarter) – Generally high risk as most opportunities are ‘ideas’, however, the investment levels can be very low. Many product-based investments will just return you a copy of the product not an actual share of the company so the upside is limited if they are successful. There are some property-related opportunities in this space that can be somewhat interesting. This is still an evolving concept and the requirement for good due diligence is firmly in the hands of the investor at this time.

So once you find an opportunity what then?  Below are 10 questions to ask yourself when presented with an investment opportunity:

  1. Has the lead operator(s) been successful in the past in the same or similar industry?
  2. What is the industry? How big of an impact can the business have? For example, software generally has much higher upside than a restaurant as the customer base is likely to be much larger.
  3. Is there a well-documented investment presentation that includes discussion around the market, competitors (and how the company will differentiate itself) and significant risks associated with the company?
  4. Does the company in question have a thought out and documented business plan and strategy to execute on its objectives?
  5. What stage is the company in and does the value represent this stage? For example, is the company an idea/concept or does it have a proven product with supporting revenues and customers?
  6. How and when will your investment start to return profits and/or principal? What is the annual return on your investment and how does this compare with your other investments? For reference, a private investment in a small company should command annual returns of 25 to 35 percent due to the level of risk typically taken on.
  7. What is the risk of failure? Are the investors in any way obligated to provide additional funding and/or will there be saleable assets in the event the business fails to recoup some of your investment?
  8. Do the presented financial projections use aggressive or conservative assumptions? For example, in the case of a restaurant what is the average expected spend per customer and the number of customers per night and how does this compare to industry norms?
  9. Can you afford to lose the money you plan to invest?
  10. How do you exit your investment? Is there a clear plan to realize a return to all investors and is this reasonable?

Once you have identified a good opportunity and it ticks all the right boxes, it is critical to hire a professional with experience in private company investments to make sure your interests are protected and the necessary legal paperwork is completed.  A good advisor will ensure:

  • The financial presentations use reasonable assumptions.
  • All legal documents are reviewed to ensure you are protected and that any shareholder, member or note agreements are drafted suitably and in line with any presentations made.
  • You fully understand your commitment going forward (i.e. will you be contacted for additional funds down the road or will the company likely have a need to bring in additional investors at a later stage).
  • Any proprietary knowledge or technology is owned by the company and included in the investment.

Finally, below are red flags that should make you run fast in the opposite direction:

  • The opportunity does not come with a thought-out business model and strategy.
  • Financial presentations use best case scenarios only.
  • There is no contingency plan if things do not occur as planned.
  • The opportunity is in a low performing industry or has stiff competition in place (i.e. very limited upside).
  • The person presenting the opportunity has a history of poor performance or ‘excuses’ for prior failures.
  • The opportunity requires you to commit and sign on the spot or in a short window that does not allow for sufficient due diligence.
  • The person presenting insists on representing your interests and is against you utilizing an independent professional to help in your analysis.

Overall, private company investments can provide significant returns to investors but they also carry significantly increased risks.  So if you have enough wealth to stomach a small percentage being invested in high risk / high return investments then investing in private companies may be something to consider.  Just remember to be diligent and careful in your approach and always get a second opinion from an unrelated party.

Austin Buckett, ACA, CM&AA, is a Manager at BiggsKofford Capital and specializes in helping clients acquire, grow and exit their businesses as a licensed investment banker within Mergers and Acquisition arm of the company.

Deborah Helton, CPA, is a Director at BiggsKofford, CPAs, a Colorado Springs-based accounting and consulting firm, and a member of the National CPA Health Care Advisors Association. Mrs. Helton specializes in assisting physicians align their goals with simple tax strategies and business coaching to eliminate surprises and assess risk.

Deborah Helton

Deborah Helton

Director

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Austin Buckett

Austin Buckett

Manager

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Practicing medicine is one of the highest earning careers a person can chose. That success is often bundled with complex financial decisions. How to best allocate earnings often tops the list. As a physician, you probably started your career with more than $100,000 in student loan debt. Couple this with personal debt and the financial considerations of running your own practice and making decisions about what to do with extra cash in your practice can quickly become difficult. Financial decisions can be infinitely calculated and modeled, but some basic guiding principles can help set parameters to simplify the process.

Generally, those options can be boiled down into four decisions:

  1. Pay off any existing debt (business or personal)
  2. Invest the extra cash into retirement or other savings plans
  3. Reinvest into your business (buy newer equipment, hire more people, etc.)
  4. Increase your personal expenses (i.e. buy nicer things!)

In general, we would always recommend you maximize the extent of the first two options before moving onto numbers 3 or 4 (although number 3 may require some action depending on how your business is performing). For the purposes of this article, we will discuss how to decide when to act on numbers 1 and 2 and by how much.
When deciding to pay down debt vs. building for retirement, there are three main decision criteria to consider.

  1. Rates of return under each scenario
  2. Risk Tolerance
  3. Taxes

Many people automatically gravitate to considering risk tolerance first when it comes to debt. For example, many people simply don’t like having debt and want to pay off all debt as soon as possible before considering alternative uses for their cash. However, by overlooking rates of return people can potentially miss an opportunity to maximize their wealth creation.

Take for example a situation where you have the funds to pay cash for a car but the dealership is offering zero percent finance. You would be better off financially taking the loan from the dealership and investing the cash in an interest bearing account. If you made the debt payments from your savings account each month you would get to the end of the loan term and have some funds left in the account from the interest received over time. With today’s rates this might not seem like a sizable difference but the situation is magnified when you start considering larger dollars and increased interest rates.
So the simple decision with regards to criteria 1 is to invest into the highest rate you can. For example, if your debt incurs interest at five percent but your investments return six percent per annum, then the choice would be to put extra cash into your investments as over the long term you will generate more returns than you will pay in interest expense on your loan.

While the criteria number 1 decision is fairly easy to determine, it does not consider risk. Investments have a certain level of risk to them, typically the larger the returns the greater the risk that is being taken. Unlike loan interest rates that are typically fixed for a period of time. So in the above example, one could argue that while the investment returns are greater the risk is higher. The loan interest is essentially a risk free rate as it is fixed for the term of the note (if it is variable then it will have some element of risk to it). So when you add risk to the situation, the conservative approach would be to pay off debt first to account for the reduced level of risk being taken. The decision to go either way will depend on each individuals risk tolerance and the relative gap in rates between the options. It should also be noted that while investments have more risk to them this should be factored into the rates and that these rates are expected averages over a long term. Therefore, this decision process should consider the length of time the person will be investing. If it’s short term then the risk is much greater than someone investing over a much longer period who can ride the ups and downs that the investment might take. As a result you should apply less weight to the risk decision if the investment holding period was very long.

Criteria 3, taxes, will differ by individual and situation but assuming the extra cash can go into a tax deferred account it will almost certainly make sense to maximize payments into a tax deferred retirement plan before paying off debt. The reason being is that contributions into a retirement plan are tax deductible whereas payments on debt principal are not. Assuming a person pays tax at 35 percent that would be a 35 percent difference in benefit before considering the rate differences discussed above. While it is true that the tax deferred account will pay taxes when the money is eventually pulled out of the account the time value of money (i.e. $1 is worth more today than it will be in the future) still makes this an overly compelling decision, especially for those people who are a long way from retirement age.
In summary, when deciding how to best utilize any excess cash from your practice, first make sure you are maximizing your tax deferred investment accounts (assuming that they are returning suitable returns) and then if you prefer the rates you would get from investing in an essentially ‘risk free’ savings account vs. investing in other ‘risker’ investments (stocks, bonds, mutual funds, etc.), then pay off your debt next, otherwise consider investing those funds instead and making normal payments on your debt.

If you have questions about how this could affect your practice, call or email Austin Buckett or Deborah Helton at (719) 579-9090.

The Alliance of Mergers & Acquisition Advisors (AM&AA) just came out with deal stats from the last half of 2012. To check out the most up-to-date M&A activity, check out their survey results here.

Entrepreneurial Corner HeaderPrivate Capital Markets: Where is the money flow?

Led by:
Chris Blees, CPA, CM&AA President & CEO

Austin Buckett,
ACA, CM&AA

Manager

We’ll Discuss:

  • What industries are attracting the most capital
  • What the latest trends are in valuation for middle-market companies
  • Up-to-date lending trends for the middle market

Thursday, January 24, 2013

7:30 – 9 a.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200

(PitchBook News) Private equity (PE) firms from all across the country (34 states, plus Washington, D.C., to be exact) have Picture1been active this year. In fact, 678 U.S.-headquartered PE investors have completed at least one investment in 2012 to date, according to the PitchBook Platform. Those firms’ headquarters have been largely concentrated in certain areas, with the top three states for headquarters being home to 50% of the firms. New York is by far the most popular headquarters location for U.S. PE firms, with 27% calling The Empire State home base. California comes in second with a 14% share, followed by Illinois at just over 8% and Texas at just under 8%. Altogether, U.S. PE firms have invested in 43 countries in 2012 to date, but those firms have been largely focused on domestic investments, as 84% of their investments this year involved U.S. target companies. California and Texas, both ranked in the top five for U.S. PE firm headquarters locations, are the most active locations for those U.S. deals. The two states each account for about 5% of the global investment activity by U.S. PE firms this year.

To celebrate the 2nd year of the Colorado Pro Cycling Challenge, a number of our team members, including our fearless leader, Chris Blees, will attempt to cycle the first five days of this year’s route. If successful, they will cycle over 500 miles from Durango to Colorado Springs, hopefully before the professionals catch them each day.

During, what should be an epic adventure, Chris and the team will be providing updates via our facebook page, and you can follow their journey by clicking this link and becoming a fan of our page. Every new fan we get between now and the end of the Colorado Springs leg of the race on August 24 will be entered into a drawing for a free BiggsKofford Cycling Jersey (like the one pictured here).

Given the recent events in town, they will also be raising money for those affected by the Waldo Canyon Fire. For more information about how you can get involved, go here.

Deborah Helton

Deborah Helton

Director

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Austin Buckett

Austin Buckett

Manager

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BiggsKofford was recently featured in an article in Physician Money Digest, where Deborah Helton and Austin Buckett talked about the strategic benefit that the relationship with your CPA can have for a medical practice. Read the article here.

For more information, e-mail Deborah or Austin.

Austin Buckett

Austin Buckett

Manager

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As businesses grow, among other things, they need solid financial oversight.  However, it is hard for business owners to know exactly what level of financial oversight they need, whether to have in-house support or when to ‘upgrade’ these capabilities.   In addition, the role of the CFO gets very muddy, as job titles are not consistently aligned with job descriptions in smaller or medium-sized businesses.  As a result, we have seen ‘CFOs’ performing controller-level duties and vice versa.

Most small or medium-sized businesses will not need the services and expertise of a CFO on a regular basis.  Therefore, hiring for this position will often result in an employee whose skill set is not being fully utilized and is probably costing the company more than they need to pay.   So how do you know if you need a CFO?  Below is a summary of the main roles and duties performed by a Controller and a CFO.  Once you have identified the main roles required in the business the hiring process can be more aligned with your needs.

Typical job duties of a Controller are as follows:

  • Preparation of monthly financial statements
  • Oversee accounting department
  • Prepare reports for the bank and CPA
  • Perform miscellaneous human resources (HR) functions
  • Perform miscellaneous information technology (IT) functions

The difference in roles between a CFO and Controller is often not fully understood by Business Owners.  While a controller is mainly focused on providing accurate and timely financial reports, a CFO’s role only really starts once accurate financial information is available.  Below are some significant duties that should be expected of a CFO:  

Participate in strategic planning activities

This includes developing the organization’s vision, formation of the core values, performing SWOT analysis, setting goals for the next one to 10 years, expansion/contraction planning, etc.  A CFO should contribute ideas, as well as evaluate the feasibility of the plan from a financial perspective.

Perform financial statement analysis

Preparing financial statements is important, but interpreting the data is critical.  A CFO should identify as early as possible whether the organization is on track to hit the goals for the year, if corrective action is required (e.g., downsizing, expansion, investment in equipment), if there is sufficient cash available, etc.

Manage budgets and projections

Both profitability and cash needs to be budgeted and monitored. Specific tasks include creating an annual budget and cash flow forecast, performing a monthly budget-to-actual analysis, explaining material budget variances, and recommending any applicable corrective actions.

Establish and maintain financing

A CFO should take responsibility to find and interface with sources of funding (banks, private equity, friends/family, etc.), secure adequate financing, and maintain relationships with financing sources. A CFO should also be monitoring cash reserves and identifying additional sources of funding in case the need arises.   

Manage risk

The majority of organizations feel that managing risk is as simple as purchasing insurance. Although it is critical that all of the proper insurance is in place (workers’ compensation, umbrella, etc.), new products and services, acquisitions, currency fluctuations, regulatory changes are just a sample of other risks a CFO needs to manage. Managing risk includes running the applicable what-if analysis and determining the cost-vs.-benefit of hedging the applicable risk.

Once you have identified your needs you can make sure you have the right financial oversight in your business and the responsibilities and costs of your key financial employees are appropriately aligned.

If you have questions about your business’ needs in this area, contact Austin here.

Austin Buckett

Austin Buckett

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Right now, we are well into the second quarter of the year.  Have you evaluated your Q1 performance against your original budget?  The budget process should be an ongoing event, not a once-a-year chore.  To make the most of your budget process, an evaluation should be made at least quarterly to determine if the budget that was created originally needs updating to remain relevant and useful. 

Failing to update a budget appropriately, especially when large difference accumulate during the year, will normally result in negative consequences.  As an example, exceeding a budget significantly can lead to complacency (especially among sales teams) and not fulfilling your company’s potential for the year. On the flip side, not adjusting a budget to reflect some reduced performance can lead to bad morale and a self-fulfilling prophecy until a new year comes around. 

Here are some things to consider when comparing your actual performance to your budget and possibly making changes for the remainder of the year:

  • The process of reviewing any variances between budget and actual performance is much more important than setting the budget and seeing how close you came.  This review process will ensure you spend time ‘on’ your business and step back to consider what is happening to your business so you can make adjustments throughout the year and not miss opportunities.   
  • If a revised budget is necessary, make sure you keep an original budget in play, especially if it is tied to bonus plans or personal performance reviews.  The revised budget becomes the one that everyone uses for future operations only. 
  • If your budget is only slightly different than actual performance, leave the original budget in effect.  However, run ‘scenario’ budgets for your own benefit to determine a more likely result in case the original budget does not get back on track. 
  • Many events will occur during the year that impact your business, make sure these are considered and your budget is updated to account of these situations so you can be prepared for the resulting financial impact. 
  • Understand the reasons variances occurred before adjusting future targets?  For example, if revenue is up for the year but no one can point to specific reasons why, do not make an assumption that the trend will continue and adjust sales targets to a much higher level. Rather, reset the annual expectation to account for actual performance to date and leave the rest of the year at the original target. 
  • How do the variances in your budget compare to your Key Performance Indicators (KPIs)?  For example, if revenue is up but your number of customers has reduced, then you may be too reliant on a handful of customers to drive your growth.  Not that you would want to turn their business away but you would want to understand why other customers are not growing proportionately or why your customer base is shrinking.

The overall objectives of budgets are to motivate your team and minimize financial surprises. You want to make sure your budgets remain achievable and realistic throughout the year, striking the right balance between optimizing your company’s performance and keeping your employees motivated.  Careful review of your budget vs. actual performance on a quarterly basis will ensure you accomplish this and drive your business forward.

For questions, contact Austin Buckett here.

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Business Tune Up: Monitoring and Measuring Your Performance for Optimum Business Health

Led by Kurt Kofford, CPA, and Austin Buckett, ACA, CM&AA

Kurt Kofford, CPA, is a director at BiggsKofford.  He plays a major role in the management of the firm’s clients, overseeing all of the firm’s auditing and accounting engagements, as well as consulting clients on long-term planning.

Austin Buckett, CMA, CM&AA, is a manager in BiggsKofford Capital, BiggsKofford’s Investment Bank department and also acts in an outsourced CFO capacity for clients, providing consulting in financial performance as well as developing growth and exit strategies.      

We’ll discuss:

  • Determining your profit and cash breakeven
  • Growing a business efficiently
  • The key numbers you need to know about your business

Thursday, April 26, 2012

7:30 – 9 a.m.

BiggsKofford’s Office

R.S.V.P. here.

Austin Buckett

Austin Buckett

Manager

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Every year brings about new expectations and hopes for the coming year, especially as it relates to the economy and business performance.  Given the past three to four years, it is about time we had something to look forward to. 

I recently attended the annual AM&AA winter conference to see what others in the M&A market had experienced in 2011 and were anticipating for the coming year as we roll into 2012.

The conference itself is attended by people from all over the country that work in the M&A middle market, defined as working with companies valued between $5m – $250m.  The attendees are comprised of Investment Bankers, Private Equity Groups, Attorneys and Advisors.

The overall theme of the conference for this year was ‘culture’.  In particular, the role a company’s culture plays into the success of a transaction and the valuation it attracts.  In summary, those with great cultures that are ready for a sale and can be easily handed over to a new owner will generate the most interest from a buyer.  Those that do not have good cultures or team members with good work ethics will likely be passed over from a buyer perspective or heavily devalued as buyers are becoming more aware and more sophisticated on the cost of trying to overcome cultural issues with new acquisitions.

 Below is a summary of the discussions and expectations noted during the conference:

  • 2011 Performance:
    • Deals done in 2011 were on a par with 2010.  While we are a long way from the highs of 2006 and 2007, it is encouraging to see deal activity stabilize and not retreat to pre 2010 levels.
    • Average deal valuation multiples remained constant in the $10m – $25m deal size range at 5.3 x EBITDA.  However, there was an increase in the overall middle market (deal sizes up to $250m) valuation multiples driven by deals north of $100m in deal value.
    • Debt multiples, the amount of purchase prices funded by debt, increased slightly.  Again this was at the larger deal level and was one of the reasons for increased valuations overall.
  • As we head into 2012, it is encouraging to see the larger end of the middle market generating increasing value and bank lending easing up on.  While this has yet to benefit the smaller end of the market, it is a good leading indicator and we expect these trends to continue moving downstream into 2012 and 2013.
  • Private Equity funds are still struggling to find quality deals they can invest in.  There is currently an estimated $450bn of private equity money that has not yet been deployed and many funds have moved downstream to look at smaller business, even those with EBIDTA of $1m are now getting interest from Private Equity Groups. We expect that Private Equity will continue this trend for the next few years as they try to put their money to work and justify raising additional funds in the future.

So is now the time to sell?  For most of our clients, we have yet to see a real uptick in the deal market that they would fall into and we anticipate the market improving over the next 12-24 months.  Therefore, we anticipate sellers being in a better market position towards the end of 2012 and into 2013.  However, given the buyers significant preference for well run companies we strongly advise anyone who is considering an exit in the next 3 – 5 years to really focus on internal improvements to make their business more attractive to a buyer.  

If you have any questions or would like more information on this subject please contact me at (719) 640-0831.

Chris Blees

Chris Blees

President & CEO

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Kurt Kofford

Kurt Kofford

Director

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Austin Buckett

Austin Buckett

Manager

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BiggsKofford was happy that three members of the management team got the opportunity to speak to many of Colorado Springs’ top businesses at the Revenue North Small Business Growth Summit, which was held January 20 and 21.

If you missed their presentations, you can find them here:

If you have any questions about how you can take your business to the next level of growth, value and success, please feel free to contact us.

Chris Blees

Chris Blees

President & CEO

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Austin Buckett

Austin Buckett

Manager

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An Interview by John Gachiri

Editor’s Note: Entrepreneur Richard Branson regularly shares his business experience and advice with readers. What follows is the latest edited round of insightful responses.

Q: What are some of the most common mistakes entrepreneurs make when starting out? — John Gachiri

A: Making mistakes is part of the process of building a company; quickly recovering from them is what’s most important. It’s all part of the adventure of entrepreneurship, which will require all of your stamina, drive and determination.

But your way forward is not entirely uncharted: When you notice an opportunity that has never occurred to anyone else, there are certain steps to turning your vision into reality. You must formulate an innovative business plan, find funding, hire the right people to carry out the plan, and then step back from your role in the business at exactly the right moment.

Let’s take a look at these steps, and also at ways to avoid some of the most common mistakes new entrepreneurs make.

Step 1: Stay on Target
A mistake often associated with the first step is signaled by an entrepreneur’s inability to clearly and concisely convey his idea. You have to be able to generate buy-in from investors, partners and potential employees, so nail down your “elevator speech” — what you would say if you ran into an important potential investor in an elevator. Try using a Twitter-like template to refine the essence of your concept into just 140 characters. Once you’ve done that, expand your message to a maximum of 500 characters. Remember, the shorter your pitch is, the clearer it will be.

An associated error is lack of focus. If your start-up has been tagged as “the next big thing,” the adrenaline rush that comes with building buzz can lead to impetuous decisions and a loss of a sense of purpose. Many entrepreneurs end up sprinting in many directions instead of taking assertive steps toward their target. Clearly define your goals and strategies, then establish a timeline. Don’t let the other possibilities or hazy dreams distract you from achieving your goal.

Getting too far ahead of yourself is also dangerous. If your product or service is still on the drawing board, don’t get sidetracked by plans for future versions. As a general guideline, looking two or three years ahead is best, but the nature of your business and feedback from your investors will help you determine just how far ahead you should plan.

Be flexible, because just as a lack of planning can be a problem, adhering blindly to your plan is a surefire way to steer your company off a cliff. A successful entrepreneur will constantly adjust course without losing sight of the final destination.

Step 2: Be Realistic About Costs
Don’t shortchange your start-up when estimating the funds you will require — you’ll just diminish your chances of success. Keeping your expenses under control is vital, but don’t confuse capitalization with costs. The playing field is littered with undercapitalized start-ups that were doomed from the outset.

In the late ’90s, David Neeleman told me he needed $160 million in start-up capital for JetBlue — a huge sum, far more than most entrants to the industry manage to raise. Most of the so-called experts scoffed at the notion that he would be able to find the money and launch a low-cost airline when established companies were failing one after the other, but he stuck to his guns and raised the money. As a result, JetBlue had one of the most successful airline launches of all time, and turned a profit only six months after its launch in 2000.

Step 3: Hire the People You Need, Not the People You Like
As tempting as it may be to staff your new business with friends and relatives, this is likely to be a serious mistake. If they don’t work out, asking them to leave will be very tough.

When Virgin starts any new business, we always hire a core team of smart people who already know the industry and its inherent risks. Take full advantage of the knowledge pool you’ve created; when a problem comes up, remember that nobody has all the answers, including you._One of your goals should be to find a manager who truly shares your vision, and to whom you can someday confidently hand the reins so that you can carry out the next step.

Step 4: Know When to Say Goodbye
A great entrepreneur knows when the time has come to leave the CEO role. It’s seldom easy, but it has to be done: few entrepreneurs make great managers. In my own case, managing the daily operations of a business simply isn’t in my DNA. (Or, as I’ve said to friends, “It’s not bloody likely.”)

Stepping back doesn’t mean turning your back on your business. At Virgin, I’m always involved in the launch of a new business, and then I gradually hand over control to the new management team as it starts to jell. But no matter how long it has been since I was at the helm, if I see something that I don’t like, I’m not at all shy about making my thoughts known and asking some very pointed questions.

Founders shouldn’t hesitate to re-insert themselves into their businesses when necessary — look at Larry Page, who temporarily returned to the CEO role at Google in April. That said, I had to laugh when I heard this news, wondering how many managers at Virgin businesses had thought, “Wow, I hope this doesn’t give Richard any ideas.”

This article was published by Stellar Risk Report & Journal.

If you have any questions about what it takes to start a company, please contact us.