In Edible-Alpha® episode #19, Part 2 Tera talks with Dan Lemmer of the Wisconsin SBDC’s capital access team about building great financial systems and realistic projections for food, beverage and value-added agriculture businesses.
Dan talks about the value of having a process for financial management and fine-tuning it as you learn more about your business. For example, if you project your needed cash or total sales based on a specific set of assumptions and track it accordingly, you can see how accurate you were and get better at projecting as a result. Projections should account for the purchase of assets, including a documented equipment list if applicable, and demonstrate when different sources of capital enter the business. He emphasizes that the more you have the ability to analyze what went right or wrong, the more useful your financial model and plan are to making business decisions.
Being able to have both an accurate history and a rec=ord of making realistic projections that were met can give entrepreneurs credibility with lenders and investors. Bankers are in the business of selling loans, and entrepreneurs should do everything they can to prevent the banker from saying no. This includes setting and meeting firm deadlines as well as being responsive to requests for more information to keep the underwriting process going and their application at the top of the banker’s list.
The financial management model can also enhance the relationship between the CEO and the board/investors, who want to see growth in the value of the company. The model helps communicate what is going to happen. Healthy boards of directors are long-term and strategic in their thinking, receiving relevant documents like the financial model sent by management in advance of any meetings to better guide discussions and priorities. Ideally, the board would have members that are of strategic value in helping entrepreneurs raise money and prioritize. Entrepreneurs often resist having a board of directors, even though most investors require it.
There are many consulting and other support tools available to entrepreneurs, and entrepreneurs need to take advantage of them to compete. For example, Dan is part of the capital access team with the SBDC in Wisconsin. The SBDC provides free consulting to entrepreneurs across the state through people like Dan. Learn more about his services and reach out to him on LinkedIn.