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Tuesday, May 29, 2012

It Takes Longer and Costs More


You are planning the development of your technology and your budgets.  You carefully outline the timelines milestones and key inflections for your company growth.   In all of the planning, you consulted with your team and advisors.  Now you are preparing to present the business strategy to raise capital or find a partner for the technology.  In the practice sessions, one of your advisors tells you that the plans are great but be cautious, programs always take longer and cost more.  This fact is generally true. 

There are often issues that are not predictable that influence your costs and timelines.  Depending on the field of your business, the differences from projections and actual costs and timings can vary widely.  In the medical field, the ranges can be as much as 2-3 times longer and greater in costs.  One would think that with practice, the predictions are much closer, but it is not possible to figure in the unknown events that effect your business.

You still need to plan and be able to defend the budgets, timings, and milestones.  Investors will scrutinize your knowledge of the numbers and timings along with your abilities to defend the numbers.  The information shared really help the investors become more confident in your understanding of the business and ability to run the company.  The investors use the information to determine how much investment is needed.  Their goal is to get the company to some reasonable inflection so the company can be profitable or raise capital at a higher valuation. 

No investor wants to give funds to a company and see it run out of money before reaching a key event.  In fact, they would rather the company have extra funds in the bank on reaching the event.  They know that raising capital in the next round can result in a down round when the company has no money left and is negotiating the terms.

When you prepare your budgets, always consider the timings and costs carefully.  Remember that you are likely to have issues that will slow the projects down and/or make them costs more.  Try to plan conservatory and add a bit of a buffer.  The planning to the next big event is most critical.   Try to ensure there is a window of money left to operate while you try to close on the next round.  In some cases, this window may need to be between 6 to 12 months of cash.  Likewise, negotiating with potential partners goes better when there is adequate cash on hand.  Well-informed people will find out when you will run out of money and drag out the negotiations until you have to give in to their demands. 

Remember, that things always take longer and cost more than your plans would indicate.  Showing you can operate on a lean budget is good, but running out too soon is not.  You will be better off with the extra cash in the bank rather than raising it with nothing left.  Plan for higher costs and longer time, then run the company to save money and move quickly.  You will win in the end.
You can follow Taffy Williams on Twitter by @twilli2861 and you can email him with questions at twilli2861@aol.com and his company website ,  photo website, or like ColonialTDC on Facebook.  You can also find him in the group Startup Group on Linkedin. Other articles can be found in the Charlotte, NC- small business section of Examiner.com. This blog is listed on StartUpRoar  and on Alltop®.

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