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Open and Regular Communication with Investors and Lenders Is Essential
Capital is one of the essential ingredients necessary for starting and growing a company. That capital can come from an angel investor, venture capital firm, private equity firm, bank, or one of the many other available capital sources. Regardless of the source, once you take their money, they are a stakeholder in your company. All stakeholders have contractual rights to certain information, but we have found that going beyond contractual requirements and communicating openly and regularly with your investors and lenders will always serve you better than just providing the minimum amount of information required.
Try to keep the following in mind when dealing with your stakeholders:
Send Monthly Financial Statements
Nothing tells a company’s story better than financial statements, so the absolute minimum level of communication you should have with your stakeholders is sending them monthly financial statements (income statement, balance sheet, and cash flow statement). Include explanations for anything out of the ordinary and an offer to answer any questions.
Discuss the Good (and Bad)
Sharing good news is easy. It might even result in an “atta boy” or two. However, effective communication with your stakeholders should also include the bad news and challenges being faced by the company. By sharing both the good and bad, management will build the trust and continuing support of the stakeholders.
Share Plans Before Implementing
Businesses are continually evolving and reacting to opportunities and changes in their marketplace. Before making any major changes or implementing significant new initiatives, call or meet with your stakeholders to discuss your plans. Knowing you will have to explain yourself will help you fully think through the business case for your plans and thus make better decisions. The discussions with the stakeholders will also allow you to hear their perspectives, which are often different than yours, so you can take them into consideration before finalizing your plans.
Do Not Only Talk To Them When You Need Something
Your relationship with most of your stakeholders probably started when you had a need for capital. That is completely acceptable. However, for that initial “transaction” to become a “relationship” you need to communicate with your stakeholders regularly. The easiest way to do that is to treat them as advisors, even if they aren’t a formal advisor. If you only communicate with your stakeholders when you need something, you are showing great disrespect and eventually they won’t be there when you need them.
Address Problems Early On
If a stakeholder receives a call telling them the company needs money by the end of the week to make payroll, or avoid defaulting on a contract, or any other bad situation, the stakeholder will have a hard time helping for two reasons. First of all, most investors and lenders do not have the ability to react quickly to those situations. Second, a call like that is a red flag to stakeholders alerting them to poor management or someone who is trying to pull the wool over their eyes. With little notice, stakeholders have few options other than saying no to the request. However, if they had been alerted to the possible need a month or more earlier, they could have explored different ways to help, run the request through their established internal processes, or made appropriate recommendations or introductions. More time always results in more options.
Effective communication with your stakeholders after the deal is done is essential for building relationships and making sure your stakeholders continue to support you and your company. If you simply make a habit of openly and regularly touching base with your stakeholders, you will build strong relationships that will serve you well in good times and bad.
About Waypoint Private Capital
Waypoint Private Capital is an investment banking firm that educates and advises middle-market, privately held companies through critical stages of their business' life cycle. Waypoint helps business owners and entrepreneurs sell companies, buy companies, raise equity and debt capital for growth and recapitalization, and plan for a successful exit from the business.
To learn more visit waypointprivatecapital.com or call us at 608.515.3354 or 918.633.2647 and speak with a Waypoint Private Capital expert.
Steve Sprindis is co-founder and managing director of Waypoint Private Capital. © 2015 Waypoint Private Capital, Inc. All Rights Reserved.