Navigating finances can be a challenge for many entrepreneurs; Daryl Ching knows that firsthand. That’s why his company, Vistance Accounting, takes the lead in providing financial services to companies and entrepreneurs, helping them successfully kickstart their business ventures.
From bookkeeping to smart, proactive tax planning, Ching covers multiple areas to help businesses grow, especially in a competitive market. He takes the time to understand every business goal, assisting entrepreneurs to develop a financial forecast that resonates and meets their growth targets.
Ching spoke to us about some of the challenges small businesses face, how to raise capital, and why it is important to do succession planning.
What are some of the most common challenges that small businesses face?
I started my business by providing capital-raising consulting services. We’re now in due diligence mode, assisting numerous companies with the process as investors come in. There’s interest, and we’re signing term sheets.
To my horror, I watched several of my deals fall apart, and the feedback from the investors was that the financial statements were completely inaccurate. So, I started looking into what’s going on, and as it turns out, the majority of small businesses, when they start, they’ve got a bookkeeper.
They’ve got an accountant who shows up once a year to do their taxes, and they do a notice-to-reader engagement, which is the cheapest engagement. But if you read the disclaimer, it basically says the accountant did not review anything and relied a hundred percent on management.
A lot of accounting firms churn through clients at tax during tax season, and they don’t ask any real questions like, do you have any expenses that are considered research and development and therefore should be capitalized as intangible assets? Were you using your personal credit card? Should I be booking a shareholder loan?
Why do you think it is important for small businesses to do succession planning?
That question is so timely because there are baby boomers retiring everywhere right now, and it is not an immediate assumption that one of your children is interested in taking over the company. In fact, it’s the opposite.
Many entrepreneurs are stuck right now trying to figure out what to do. For a lot of small businesses that are privately family-owned, they’ve been trying to minimize taxes. Their profit’s close to zero, they’re a bit loose with expenses, and they run it like a family business.
When an investor comes along and wants to buy the business, the first thing they ask for is three to five years of financial statements. Now, you’ve got a set of financial statements that are showing zero profit, and you’re hoping to get a good valuation on your business. Well, valuation is based on a multiple of profit or a multiple of revenue.
As a result, they’re getting really low-ball valuations, and they’re getting surprised by it. The first piece of advice that I give every business is if you’re planning to sell, plan five years in advance and start generating profit.
How can businesses raise capital?
If you ever watch Dragon’s Den or Shark Tank or you go to Angel Forum, the CEOs are really good at presenting their vision. They’ve got passion. They present their products very well, and the weakest part of every presentation is always the financials. Here’s my hockey stick revenue graph, and the numbers. Yeah, that’s it. And they move on. And if they get any questions, well, I need to get back to you.
My accountant handles that. The advice that I give a lot of people is, listen, I know that you’re not naturally an accountant. You didn’t get into the business to be an accountant and to do your own bookkeeping, but to have no knowledge of it and just pass it on to your accountant does you a disservice when you’re trying to raise capital. A lot of entrepreneurs, when they look at their profit and loss statement, know their top-line revenue, and then they know their bottom-line profit, but they don’t know much in between.
It’s in between; you really need to know when you’re speaking to investors, what’s your gross profit margin? What’s your operational leverage? If you increase your fixed assets by 20 per cent, can you double your revenue? If you can’t answer these questions, it becomes a weakness.
Pragya Bisen | Contributing Writer
