You're a small businessperson. Maybe you've gotten an idea built out enough to pitch to investors, maybe you've been running for a while and investors have come calling on you instead. You're in your meeting, your pitch deck is pristine, and you're ready to go. This is your big moment. The make-or-break for your business, your goals, for your life. Right?
I hate to break it to you, but that's the easy part. You're already passionate about your product or service, and turning that into a sales pitch is not the most difficult part of raising outside funding.
...Click the link below to read more.
I hate to break it to you, but that's the easy part. You're already passionate about your product or service, and turning that into a sales pitch is not the most difficult part of raising outside funding.
...Click the link below to read more.
The real hard part comes when the analysts and consultants start looking at your business under a microscope. If you ever want to get a serious outside investment from anybody other than your mom, you're going to have to be prepared to explain every expense, every contract, every detail of your business so that the investor has some reasonable amount of certainty that you can deliver the kind of return they're looking for.
So what is an investor really looking for? A net payroll expense is the first thing they’ll see in regards to your HR practices, but if your investor is intelligent and is curious enough about your business to want to know the details, it won’t be the last. Is your payroll being spent well? Are there overpaid legacy employees priced well above the market rate for their labor? Are there internal redundancies – payroll being lost to duplicative jobs or jobs that only exist to patch an operational hole that could be better-solved with software (and is that software cheaper than the person holding the job)? Could you be outsourcing work more cheaply than what you’re paying for?
The investor has an edge in questions like this because state governments and private research services tend to do a pretty good job of accurately pricing the market rate for certain job titles. If your company has an inflated payroll number, there may be a perfectly good explanation for that – maybe the rockstar who keeps the company together or who works sixteen hours a day to keep your technology running, really is worth twice their job title’s average salary. Maybe the salesperson whose clients constitute 80% of your book has earned that (comparatively) sky-high bonus. But you had better be able to explain that. And if you can’t, maybe you learn something about your company you hadn’t realized and it helps you to adjust your payroll expenses – but maybe your oversight will make your investor wary of your ability to run the company!
Payroll processes go naturally hand-in-hand with HR processes, but a savvy investor will examine them differently. If I’m going to invest in your business, the first thing I’m going to look at is your turnover rate. Regardless of your payroll rate, you’re going to have people coming in and out of your payroll. If your entire staff cycles out every three months, why? Is it because of a series of coincidental and tragic mishaps, or is it because your business looks (at least to the employees) like its going to collapse at any moment?
Your actual hiring process is crucially important, in ways you might not even recognize. If I talk to your hiring manager or partner, I’m trying to see how well your staff needs are designed. Ideall,y your hiring person has a clear idea of how every new hire will be integrated fully into the business, and so knows exactly what kind of personality, skill set, and cultural fit they are looking for. But if the only instruction your hiring person has is to take a job title that the CEO needs to fill and blast postings onto Craigslist or Indeed and hire the cheapest person who answers with a plausible resume, I’m going to be skeptical of not just all of your employees, but also of how well your goals and vision are being communicated to the rest of the company.
And once hired, how do you incentivize people to remain? Employee stock-option plans or other equity payouts can seem like an affordable way to reduce your turnover rate, but if I as an investor notice that you’ve given away half your company in small chunks to everybody who walks through the door, then I immediately know that either you have so little faith in your own vision that you’d give away half of it to save on payroll costs, or that you’re just bad at negotiating with your new hires. Neither is particularly inspiring.
If your workforce is fully built-out and your business looks like it’s been completely automated with software and smart hires, the next thing I want to know is how your HR person is helping to build and guide your corporate culture. Your HR person should be deeply involved in the culture of your company, since that same person is probably responsible for most of your company’s population! Does your HR director have a clear idea of how to build a corporate culture that values innovation, that fights turnover by making people feel involved and included, that is building your business into a true community of highly-motivated people? Or is your HR director just responsible for collating performance reviews and running an algorithm to determine who stays and who goes home? If the latter, that’s your fault as the business owner for failing to engage the member of your team who should be the most engaged with your vision and your corporate culture.
Intelligent investors aren’t just looking at your numbers. Whether it’s someone looking to buy an equity stake, provide enhanced credit investments, or even looking to buy your business, they’ll be doing the deep dive on your business if they have the kind of common sense and diligent attitude you’d want in a partner. If any part of your business has been neglected, it’s probably your HR and payroll processes. Give them a closer look today – or engage a knowledgeable partner to help you do it!
RSS Feed