Attracting Investors for Your Sports Facility
Inevitably when we’re working with our clients the subject of how to attract investors comes up. Either we make the suggestion as a way to grow their company or they ask us how they should go about raising some money. The main issue so many of our clients have is that they really don’t have anyone to help them through the process. They aren’t a Fortune 500 company with strong financials. They are sports facilities or recreational sports companies that have less than 20 employees and make a modest living doing what they love. Aside from our focus on helping clients become more profitable, we’ve taken on the role of advising them on how to go about starting the process of attracting investors to infuse some cash into their business. In select cases, we’ve even personally invested and taken equity positions to give our clients the boost they need. After all, just like any larger corporation who goes public to raise cash, small business owners often need cash to grow and scale their companies too. A few helpful tips along the way….
Look At Your Company Objectively
By far and away the hardest thing to do for most small business owners is look at their company through the eyes of an outside investor. Cut out the emotional ties to the company completely. Yes, you’ll have to be passionate when pitching your story and investment strategy. However, to properly come to a valuation and investment amount you’ll have to put on your investing cap for a while. Ask yourself these questions…Would I invest in this company? Are there clear opportunities for growth? Are there good people involved? Can systems and procedures be easily identified and adjusted as needed? As an investor it will only take a quick conversation to uncover these answers. You’ll need to make sure you’ve thought about them without the bias that owners typically view their companies with!
Financial Reporting Is Everything
No serious investor, no matter the amount of money, will entertain handing over cash without solid financial reports to go by. Hopefully you’ve done a good job tracking your finances and can generate the necessary reports. Investors will initially want to see current and past year P & L’s, current and past year Balance Sheets, and they’ll want a breakdown of any Account Receivables/Account Payables. They’ll want to know the system you use to collect the receivables and when you will have to settle up your payables. They’ll also want to know the debt you have on the books. These will all trigger further questions if they are interested but plan on having these ready to go. Keep in mind that a company that cannot provide these in literally a day or two probably isn’t a company that investors will want to get involved with. They’ll want to know that ownership has a pulse on their numbers and can get additional information about the state of the company in a timely fashion.
Don’t Take Just Anyone’s Money
When you take on the responsibility of having investors you’re now not only in charge of making sure you and your staff get paid, but also that your investors receive a return on their investment. It’s terribly important that you choose to accept cash from people you’ll enjoy working with. There are PLENTY of people that have the money to help you out if you know where to look and how to present the information (That’s our job!). You’re the one that has to work with them, provide to them updates on the company, and collaborate on new ideas. If you can’t see eye to eye or have constructive conversations then they aren’t the right investor for you. “But they are investing a ton of money, I’ll put up with them!” ABSOLUTELY NOT! This is the worst thing you can do for your business. You need to learn how to say “NO” and move on. It will be the best decision for your business in the long run. You want a partner, a mentor, and an investor. Someone that understands what you do, trusts you to make proper decisions, and provides support both financially and through their expertise to help take the company to higher profitability.
Equity Versus Cash Payout
When we are moving in the direction of helping clients attract investors it’s vital to determine what type of structure makes the most sense for the business. Does the company need cash? Do they need a partner who can commit time and contacts to help the company? Or do they need both? Identifying what your company needs most might sound simple, but again you’ll have to look at it from an investors point of view. For example, you feel it’s obvious that your company needs cash to purchase some new equipment that will allow you to service more clients on a regular basis. This might be true. Your investors might view that to be correct as well. However, they might see things in your systems and procedures that they would like to see fixed first. They may want you to pay down debt before the money goes to working capital and improvements. You’ll need to think about this thoroughly before you start discussions. Does it make sense to give up equity? If you take a lump sum investment, does it make sense to start paying off the interest immediately and cut into cash flow? Remember, they are looking at your company as an investment with zero emotion. Yes, they want you to be successful but most importantly they want ALL their money back and a return! Or they’ll want an equity position for the cash and time they’ll be giving to the company. Make sure you’ve given this thought before your first conversation with potential investors. It could be a deal breaker!
Clear Roles and Responsibilities
Once you’ve moved past the financial analysis stage that all investors will want to go through start to prepare everyone’s roles and responsibilities in writing. It’s vital to outline and determine what everyone’s role will now become. Will they be involved in day to day decisions? Will you need to run large purchases by them? When you hire or let someone go does it need to be discussed with them first? Do they have certain responsibilities that you expect from them? Will they be introducing you to new contacts as part of the deal? Have you laid the groundwork for more money to be invested at certain points? Have goals been set to track the success of the company and more importantly the impact of the initial investment? This is where contracts need to be clearly written with the help of a lawyer. Do not make the mistake of doing the hard part of showing you’re a solid investment and then not take the simple steps to make sure the relationship is carefully and thoroughly outlined!
Buy Out Possibilities
Most small business owners don’t start a sports related company with the intention of selling it. They are passionate about what they do and want to provide a great service to their clients. A person who opens a pizza shop doesn’t do it with the intention of selling it in a few years. All they want to do is make great pizza and earn a living. Nor does someone open up a martial arts studio or sports facility to turn it over in 5 years for a profit. However, that’s exactly how they should run their companies! They should absolutely run it with the goal of earning a dividend and profit from a sale just like any investment. If you consider yourself an entrepreneur this has to be what you think about. Do not confuse what I’m saying! I’m not saying that you can’t love what you do and have passion. I’m saying succesfull business owners and entrepreneurs do both. You need to treat your company like an investment, not a hobby. If you bought $10k worth of a stock you’d expect to earn a dividend (you should always invest in stocks that pay it’s shareholders regularly!) and ultimately earn a profit when you sell it. Otherwise, why would you buy a stock if it doesn’t yield anything or have the potential to grow profitable?! When you put money into your company to open it you need to earn a dividend (pay weekly,monthly, yearly) and ultimately when you go to sell it earn a profit. This is the beauty about being an entrepreneur! You can’t do that at a 9-5! Start treating your company like an investment and see what opportunities come your way! Continue to remain excited and passionate about what you do but make decisions based on attracting investors and getting bought out.
And for those that say I don’t want to sell or get bought out….tell me that in a few years when your life changes, markets change, or new opportunities come your way and you can’t get out from under your company! You always want to be in a position where you can capitalize on opportunities and if selling your company is the only way for you to achieve that then you better start preparing for the that day now because when it hits you it will be too late!
Tim Ziakas is a Sports Facility Consultant who specializes in helping sports facility owners run growing, viable, and profitable companies. He is one of the only Sports Facility Consultants who has real life experience purchasing, operating, growing, and selling sports facilities. His leadership and sales training stems from real life experiences both in the financial services industry and sports facility industry.
“We only work with entrepreneurs who are passionate about running a sports facility business, open minded, and understand that in order to take their ideas and passions to the next level they’ll need help in getting there.” — Tim Ziakas, CEO, Parkview Sports Group