Ercan Demiralay explains the fine balancing act for entrepreneurs of maintaining good relations with your investors.
Operating an in-motion start-up isn’t easy; you’ll need to please your investors and shareholders as the source of your business funding, whilst simultaneously ensuring you remain in charge and the business stays on course. It’s far from simple, but with these key items you’ll feel more confident in managing your backers and thus building invaluable long term relationships.
The frantic nature of running a start-up means it can be all too easy to let communication with your small business investors slip; too often they don’t receive sufficient communication which can lead to feelings of frustration and disengagement. Early on you should determine what the expectations are on both sides and find a balance.
If you’re new to entrepreneurship and starting up then you should work carefully with your accountant to help keep your investors happy. They can provide the necessary financial information and intelligence to ensure shareholders feel in the loop with the latest developments. Read on to learn more about how to manage your relationships to keep both sides content so that you remain in control of key decision making.
Essential planning before you set up and bring investors on board
Have you thought about what types and class of shares you’re willing to offer investors? Are you aware of these and how to select them based on your ambitions for the business? Ideally you’d identify from the outset in your business plan, the need for investment and when it will be required. Only then would you incorporate the business accordingly.
These can be quite complex legal matters which means unless you know the legislation in detail, you’re going to need professional advice to implement it properly. It’s vital therefore to consult your accountant on these matters. Whilst you can make changes to share capital after incorporation, it requires a lot of planning and re-drafting the articles of association.
It can potentially get expensive because these legal documents govern the ownership and rights associated with your company. You should also work carefully with your accountant to see if various tax breaks such as SEIS are applicable as these can then be applied to help your pitch to investors.
1. Communication is key
Once investors are in place communication is critical. That might seem obvious, but it really is the basis for a productive relationship. It can be a case of simply providing regular management reports to your investors keeping them informed of performance and progress.
Your accountant will have performed this work with their other clients, so work with them to understand what your investors are likely to need and when. They can then help you prepare this information and brief you prior to any investor update meetings. Alternatively you may bring them along to report on the key financials.
Written monthly or bi-monthly communication combined with quarterly meetings should satisfy most investors and this will give them a real sense of involvement in your organisation. Do bear in mind that each investor is different. Some will want a more hands on role, while others will be more passive. Often, investors will take pride in hearing about your success, while they’ll tend to not be so interested in your day-to-day happenings. So don’t bombard them with every little detail!
If you’re unsure, check in with them and ask what frequency of communication they prefer.
2. Learn how to manage the relationship
Early on you’ll need to understand how to manage and build honest relationships with your shareholders. It can take time to form a strong relationship, but be sure that you set clear expectations from the beginning; you need to be on the same page for your vision of growth or even, a potential exit plan.
Again you can draw upon your accountant’s experience of having done this with other clients to guide you. They can provide you with advice on when and what should and shouldn’t be shared with your investors. Ultimately, setting expectations from the get go can save an abundance of pain and frustration in the long run.
3. Know your shareholders rights
Professional advisors have an intrinsic understanding of financial legislation and keep up to date with the latest regulatory changes. They’ll be able to inform you as to what your shareholders’ rights entail.
This is particularly important to understand especially if you’ve got some new investment decisions to undertake or market changes mean a new strategic direction needs to be undertaken.
So it’s important that you, as the owner, and your investors know exactly what their rights entail – you don’t want to come across as uninformed when it comes to your own business. It’s surprising how many investors are unaware of this, but it’s imperative to know so that both sides get the most out of the deal!
Be sure to remain in control of your business
It’s all well and good keeping your investors sweet, but after all of the hours you’ve immersed into getting your business moving, the last thing you want is to lose control of decision making.
Investors are successful people, with money and influence that can be intimidating especially when you’re on the beholden-receiving end. But you should always remember that you know your company best. Not because you’re necessarily more intelligent, but because you live it daily.
Your investor’s opinions are in the main based on what you report. While you should listen to what they say and give it considerable thought, investors will prefer the final decision to lie with the entrepreneur as it's you they're ultimately investing in.
To recap, consider exactly what frequency of communication suits shareholders, formulate how you’re going to manage your relationship with them, and be sure everyone involved knows their rights. Whilst managing all of this, remaining in control of the day-to-day operations and business decisions is an absolute must!
The content of this post is up to date and relevant as at 17/10/2016.
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