Thursday, March 6, 2008
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For many small firms the person who they come into contact most often may be either an accountant, business coach or even business plan writing firm. These professionals may be ideally situated to provide the support for access to business angels in the local area. In some countries online angel investment networks may also exist which can provide instant support to entrepreneurs.
Businesses must realise that they should communicate more with these professionals. It is for the professional to encourage this process, so they can themselves expand out of the traditional (and shrinking) areas of taxation and compliance. The professional knows that if they help a client’s business grow, so will their own. They are an integral part of a business team, and they can refer to other business specialists without fear of losing their client.
At the same time, professional can take a different view, broader than that of their client, who will usually be focused on their business activity. The accountant will have connections, relationships and linkages with a range of companies and individuals. This capacity to make linkages is a key asset.
A crucial area for expanding the client relationships is in the organisation of capital. For many small companies, the availability of capital is as important as any thing else. But ‘capital’ in this sense should not be restricted to a cash injection: it can also mean human capital. This is where Business Angels come in.
A Business Angel is simply a private backer. Some are seasoned investors but many are private citizens, often a friend of the family or a member of the community, or even an accountant, who provides risk funding for new or growing businesses.
These investors come with the added bonus of skills, experience, insights and contacts that can be directly or indirectly provided to the business to accelerate growth. To have an Angel involved in a small business can provide a wide range of rewards, but often, businesses think they only need the money; it is up to their accountant to offer a broader view. There is no use in taking on a Business Angel just for their money. That would miss the point, as well as the fact that money (or money alone) is not what the Business Angel wants to provide. Many investors are motivated to give something back to the community. It is quite usual to hear an investor say that there is a real joy and satisfaction in using their life experience to help a young business to grow and develop. For them, the financial return becomes a bonus.
Although Business Angel investors have usually demonstrated their ability to manage their financial resources, they often need the guiding hand of their accountant. Apart from due diligence issues, an accountant can be a valuable sounding board throughout the preliminary process of investigating an investment opportunity.
In essence, a Business Angel is a business partner - and few words evoke a more negative reaction than ‘business partner’. How many accountants have direct knowledge of a failed business partnership? But communication breakdowns such as these happen over time, not overnight. Many partnerships are thrown together by circumstance and often not formalised.
This is an emerging need for accountants to act as facilitators of business partnerships between growing businesses and private investors. This will become even more important as traditional sources of funding become more difficult, as banks resort to formula-based lending policies.
The next generation of successful private firms will be built on powerful partnerships: partnerships carefully crafted, where the whole is far greater than the sum of the parts, where all parties are dedicated to growth and determined to explore all possible means of achieving it. The partnership includes the firm’s accountant, who will be consulted much more frequently on a wider range of issues.
A clever Business Angel partnership will call for well-drafted partnership agreements that document a clear understanding of each partner’s expectation, performance objectives, a mechanism for dispute resolution, and a schedule for continual business plan review - to name only a few. Regular reviews conducted in conjunction with an objective third party such as the firm’s accountant are crucial for overall success.
Many accountants also know that if partnership agreements exist within a business partnership, they are often written from a position of mistrust rather than from a position of co-operation and confidence. This must change as the Business Angel finance process becomes more common. These new business partnerships can work for the benefit of small firms, investors, and the wider Australian business community.
Thank you for the contribution of Christine Kaine principal of the firm Business Angels Pty Ltd, in Australia www.businessangels.com.au.
This post was written by: Franklin Manuel
Franklin Manuel is a professional blogger, web designer and front end web developer. Follow him on Twitter