Once upon a time, an entrepreneur approached the most important and influential venture capitalists in the country in hopes of securing financing for his latest attempt to enter a new market. Having already successfully completed several trade missions and penetrated a variety of markets, he expected his proposal to be well-received. It was not.
The necessary funding was only secured after he relocated his business to a market where potential investors were more tolerant of risk. Once funding was secured, he purchased the necessary equipment, hired the necessary staff and implemented his business plan. As often happens with innovative entrepreneurs, however, his business plan was flawed. Fortunately, as also happens frequently with innovators, rather than destroying the business, the flaw opened up an unimagined wealth of opportunities. As a result, the entrepreneur paid back his investors, financed future business ventures and became famous.
The story is familiar. Yet, in this case, it happened more than 500 years ago when Christopher Columbus set out on a voyage to the East Indies, only to discover the New World.
Columbus’ difficulties with venture capitalists are not unique. It is not enough to have a good idea and a history of success. Entrepreneurs also need to demonstrate they can successfully build and operate the business they are proposing. The best way to do this is with solid, and accurate financial statements. In other words, the quality of the entrepreneur’s accounting plays a significant role in their ability to secure venture capital or expansion funding.
It is important for new and growing companies to have good quality accounting even if they don’t rely on venture capitalists. Good accounting can help determine appropriate pricing and discounts, not only of the products and services the company sells but also for the goods and services they purchase. When it comes time to sell, merge, add shareholders or take the company public, good accounting allows the company to negotiate from a position of strength and confidence to get the most value from the situation.
Good accounting also helps prevent fraud. Accounting fraud is sometimes thought of as a big business problem. Check forgeries and theft are common among smaller firms lacking strong accounting processes and controls.
Columbus could not have achieved his dream without the financial support of his investors and the hard work of his suppliers and staff. Modern entrepreneurs and innovators may not go to the king and queen of Spain for financing, embark on a physical journey lasting months or experience the discovery of two unknown continents. Yet for all the obvious differences, there are also many similarities.
This Columbus Day offers the opportunity to reflect on how exciting the small business environment is. Today there is great opportunity for expansion and growth, with new markets waiting to be discovered and explored, just as there were in 1492.