It pays to know your numbers

Published: 05 June 2018

MYOB

Nearly every episode of Shark Tank features the same refrain ‘it pays to know your numbers’. Here’s what the Sharks are on about.

Coming up with a good business idea and making a few sales is great. If you’ve achieved this, you’re on your way to having a solid startup.

But just because you’ve achieved minimum viable product doesn’t mean you’ve demonstrated the full potential of your business model.

No matter who you are and what your idea is, potential investors are going to want to lift the bonnet on your business, and that means knowing a whole raft of key financial details.

Being able to talk to key figures like revenue, costs, units sold, growth and cash flow allows entrepreneurs to describe the reality of their business concept, and this is the information investors need to be able to hang their hats on.

Nevermind Adventure: passion doesn’t replace thorough insight

Before Matt Natonewski entered the tourism industry, he had a career as an environmental consultant to the mining industry.

By the time he came to opening a motorcycling tour business, ferrying dozens of clients each year to India and beyond, he had no more understanding of running a business than the practical day-to-day activities he’d been managing since day dot.

“I went from being a sole trader to taking on what’s essentially the role of a CEO before going on Shark Tank,” Natonewski said. “I’ve got absolutely no experience in that, but you make it up as you go.”

This story isn’t unusual for many business founders that wake up to find themselves at the head of a new startup, even if that wasn’t their first priority. And that’s usually fine – until you come to seek investment.

“Going on Shark Tank demonstrated that I had a solid product, but I didn’t understand the numbers behind it very well,” he said. “The experience highlighted plenty of grey areas around what our actual margins were and that had knock on effects for our operations.”

But Natonewski also acknowledged the fact that entrepreneurs aren’t often experts in all areas of business, and that investing a small amount of resources on good bookkeeping and accounting services can make all the difference.

“I didn’t get into business to spend hours and hours on doing the books,” he said. “I’ve discovered I’m much happier leaving that kind of work to the experts. As a business owner, you just need to understand what your accountants and bookkeepers are telling you about your business, so you can relay those things on to prospective investors.”

SpeedFit: business figures don’t necessarily add up to an accurate valuation

When Matej Varhalik and business partner Roland Safar went to pitch their concept for a personal training startup to the Sharks, they had a thorough understanding of their internal figures, but that isn’t where the arithmetic ended.

“Everyone should do their homework before presenting a pitch on their business, and we’d done ours,” Varhalik said. “We were able to answer every question confidently on the show, and that goes a long way to satisfying the Sharks.”

But the numbers alone weren’t enough to bring investment across the line.

“We valued our business very highly, so when the Sharks began asking for a large chunk of our equity, we didn’t feel confident in giving it away."

“If we were to do it all again, I’d go in with a more realistic figure to get the Sharks on board and use the Sharks for the value of their experience, rather than just a cash injection, to help grow the business,” Varhalik said.

The experience of the SpeedFit team demonstrates that knowing your numbers should be closely tied to how you value your startup concept, and that a miscalculation of either one can be damaging, regardless of whether you’re being overly conservative or optimistic.

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