Friday, February 25, 2011

CFO Services – Guidance to the Entrepreneur with an Idea

As a Part Time CFO who performs multiple CFO Services I very often come across entrepreneurs with an idea. It is great to see the enthusiasm and the passion the entrepreneur possesses about their new idea for a product or service. I do not call these situations start-up companies yet because they are just an idea and not something that was put into motion. To me a start-up company is an idea that had been put into motion.

One problem I notice very often is that the entrepreneur thinks that the idea is sellable to an investor as an idea. For example, an entrepreneur has an idea for a new widget that will solve a particular problem in the medical industry. However, it is just an idea. There is nothing tangible. Oh sure, there may be a bunch of doctors that were polled who will say that it will work, but there is no prototype of the widget therefore an investor will question whether the widget can actually be produced. The investor will also question the costs the widget can be produced at because since it has not been produced no one has any idea of what manufacturing challenges exist that may escalate costs. The idea doesn’t even have a contract manufacturer lined up to at least identify someone who can possibly produce this widget. I could go on but the bottom line is that the entrepreneur must take their idea and create as much tangible evidence as possible to support the success of the idea.

The objective of an entrepreneur with an idea is to create as much tangible evidence as is humanly possible in order to convince an investor to make a maximum amount of an investment in exchange for the least amount of equity. The more holes in your idea the lower an investment you will attract if any and ultimately you will give up the most amount of equity. Investors do not invest in ideas. They invest in solid business plans and business models with strong management chock full of tangible evidence that they will get a return equal to 5 to 10 times their investment in five years.

The Part Time CFO can help the entrepreneur develop the business plan, prepare the forecasts and the financial section of the plan, be a strong part of the management team, help develop the strategic plan, find investors, help pitch the deal to investors. These are essential CFO Services.