Advice for CEOs

A financial model should analyze the complex relationships between costs, volumes and revenues that lead a company to be profitable. It should provide an early warning that profitability is deteriorating so that management can take action. What are some early warning indicators that a company is becoming less profitable as its grows its top line—and might even risk growing itself out of business?

Early stage companies naturally gravitate to budgeting as a way to control their spending and measure performance against their plan. They are less likely to see the need for an economic or financial model that is forward-looking in predicting how the company’s will respond to changes in circumstances and assumptions. We asked our partners to explain how a financial or economic model of the business differs from a budget or forecast.

Entrepreneurs who start to achieve success can expect to be approached by investment bankers who want to create a relationship with them, anticipating the possibility of doing a transaction down the road. Question: What are the pros and cons for a company early on to establish a relationship with an investment banker, even if a transaction seems to be years in the future?

A private company is more than an economic entity. It is an integral part of the founder’s individual and family life. All entrepreneurs face the issue of how to manage their business aspirations in harmony with their personal goals. Question: How important is it for entrepreneurs to set and update personal goals for themselves including for their business, their families, and their lives?

We’ve all heard it – an ounce of prevention is worth a pound of cure. The problem, of course, is that this saying, like so many other good bits of advice, is easier said than done. It turns out that running a successful business is hard. If fact, unless luck is the driving force behind your business, running a successful business is often all-consuming. You learn to prioritize activities and resources. You are likely head-down with a clear focus on what needs to happen to get through the day, or the week, etc. Over time you are likely to focus more on those issues that are within your control or are more satisfying. While these are good coping strategies, they leave you exposed to real risks.

A company’s ability to plan and execute capital transactions is an essential driver of its success. Doing a transaction can be an integral part of a company’s plan from the outset. Or the issue can remain in the background until the time to do a transaction approaches. Question: Should entrepreneurs be thinking from the start about their “end game?” Or should they focus simply on building a successful company in the belief that, if they succeed in doing so, they will have good options down the road, like selling it or passing it on to their heirs?