Guest Editorial- Keeping your business investor friendly

What I am about to suggest is not a new or original concept. In fact it has been around for as long as businesses have been in existence. We talk about it across our firm and counsel clients on it all the time about the relevant benefits. But I think it is an important enough concept that it should be periodically revisited.

Companies in the healthcare field, especially those in the start-up phase or those that have only been operating for a few years, often do not set up any real ways to monitor their performance. If they have taken the time to establish some measures, it can often be more of a back of the napkin type analysis, done on an irregular basis or often using different measures at various points in time with no consistency. In some cases, the measures they choose may be too generic, not the ones that are most appropriate for their business, or not the ones in which investors, lenders or purchasers in the healthcare industry may be interested.

In the healthcare industry, as it is in all serious ventures, it is obvious, but you should know how your business is performing. There are a multitude of financial measures and statistics out there that can be used to monitor a business such as operating cash flow, project cost tracking, qualified R&D spending, working capital, earnings growth, EBITDA and budget variances to name just a few. You might also consider things such as quality control statistics or some form of productivity monitoring. You need to decide which ones are the most relevant to you and your business and that provide the information you need to make decisions. By doing so, it will give you a strong base for managing your business now and well into the future. Tracking this type of financial information is especially useful in the healthcare industry when meeting with investors to raise financing or having the information available to apply for SRED credits or other government incentives.

Your product or concept may be innovative but there are many facets of the healthcare industry which are evolving rapidly and yesterday’s star is just that. One of the top risks consistently identified in the healthcare industry is the ability to obtain and retain talent in this challenging field. Individuals with specialized knowledge are in demand and new developments in many of the health areas are arising constantly. So in addition to the financial metrics mentioned above, it is also worthwhile to consider developing a methodology to assess whether you have the right number of people and the appropriate skillsets in your organization and be able to evolve as necessary.

Once you determine what measures you want to focus on, whether financial or in the area of talent acquisition and retention, then you should establish a regular schedule, be it weekly, monthly, or quarterly, to accumulate the results on how your business is performing and then measure the results. Many prosperous healthcare companies follow this approach and it has served them very well. Once you set up a schedule you should follow it consistently in good times and bad. This will also allow you to establish a history in order to monitor trends over time.

If the key decision makers in your company don’t have both this financial and human resource information available to them, and have access to it on a timely basis, it becomes much more challenging to remediate any smaller problems as they arise before they become large ones. The business won’t be able to reach its full potential. It may also negatively impact the ability to obtain new investment from outside investors or to be able to realize the ultimate sale of the company down the road.

All of these procedures are of prime importance whether selling, borrowing, or soliciting investors for your business.

It shows that management is organized and forward thinking. If management can be seen to be regularly monitoring certain statistics and making any required course corrections along the way, it sends the message that processes are in place that ensure proactive actions can be taken to get the best results for the business.

If your business needs to be valued in the future, the ability to provide detailed information, on a timely basis, is extremely helpful. In addition, the more precise you are able to be with that information, creates opportunities to extract some otherwise hidden value.

It is extremely rare that any business can avoid facing unexpected hurdles from time to time. These could include another company launching a competing product on which you had invested significant time and money, unexpected test results, or loss of key talent to name a few. If you are able to clearly show that you have taken a hands on approach to handling challenging situations in the past, this should go a long way to assure potential investors that you could do it again should the need arise.

So, if you implement some of these processes and measurements then the next time someone asks you how your business is doing you will be able to say “Great, let me show you” and you will be able to back it up.