How To Improve Your Startup's Financial Results By Using An External Advisory Firm Bringing an advisory firm on board is analogous to hiring several top-level C-suite executives, even as a startup with minimal overheads.
By Tatiana Veller Edited by Aby Sam Thomas
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It's been announced that starting in 2023, United Arab Emirates (UAE) citizens will be able to take a year of paid entrepreneurship leave to explore their business interests and set up their own ventures. But as more UAE citizens (and expats as well) make their foray into the world of entrepreneurship, it is important they also ensure the financial stability of their startups.
The typical startup owner/founder is driven by an idea, and they are passionate about seeing their brainchild brought to life. However, they often minimize the value of assessing the idea from the perspective of financial feasibility, right from the initial stages of the business lifecycle. This, within the real estate market, for instance, can result in projects that are often a misfit for their geographic market, wrongly positioned in terms of target demographics, sometimes overdesigned, almost always overspent in terms of costs, and driven by architectural concepts instead of commercial considerations. Most importantly, ideas may not be profitable, as they fail to accurately size up the demand and cater to it, irrespective of the sector.
An advisory firm plays the role of a true partner, working towards the best interests of its clients. Bringing an advisory firm on board is analogous to hiring several top-level C-suite executives, even as a startup with minimal overheads. The main goal of any advisory firm is to find practical and economical solutions for challenges faced by the client, ensuring business owners receive an objective and qualified outside view of their business. As such, advisory firms help to align all elements of a business with financial expectations in mind, to create a holistic framework, through the following practices:
1. MARKET ANALYSIS Most business ideas can be compared to other operational examples either within the same competitive landscape, or within more developed markets. This provides sufficient grounds for advisory firms to build projections, and perform various analyses to test how lucrative the potential business truly is. Naturally, this is harder to do when the idea is so innovative that it creates a whole new market or segment, but these cases of pure innovation are quite rare. Advisory firms also perform in-depth market investigations to ensure the business concept matches its scope and level of investment. This includes a competitor analysis outlining key learnings, potential market share, emerging trends, and industry reactions. As part of the analysis, advisors also consider the associated financial risks and sensitivities involved.
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2. FINANCIAL BENCHMARKS AND PROJECTIONS When raising capital, which startups do throughout their growth cycle, an external investor requires detailed business plans that are supplemented with solid financial projections as well as a profound understanding of the competitive market landscape. A typical investor is not emotions-driven, nor image-driven, but rather buys into the future positive cashflows and/or exit value of the business. An advisory firm can help determine the proper price positioning and promotion strategies for the product/service, as well as provide forecasts of cash flow, profit and loss, overall budget statements, and other financial indicators. Expert advisors can also assist with value engineering to bring cost overruns under control, and manage operating budgets.
3. ESTABLISHING CONNECTIONS An added benefit of utilizing a niche advisory firm is that it typically have an unending supply of connections within the industry, and it would be able to make strategic introductions for its clients, instead of new entrepreneurs going around and knocking on closed doors. Established businesses also frequently make use of advisory firms' services, specifically when evaluating the potential to expand their business into new markets. Local insights gained through industry relationships also play a key role in determining business expansion and forward-thinking plans.
4. RESULTS MONITORING Once the business kicks off, there needs to be a diligent and regular (weekly, monthly, quarterly, yearly) process set up to ensure the projections/business plan built during earlier phases deliver on predictions. Advisory firms can offer regular monitoring to evaluate business progress, as well as quick corrections on strategies when targets are not being fulfilled, and possibly amend the idea itself to better reflect the realities as they are encountered.
5. STRATEGIC PLANNING Additionally, advisory firms act as a conduit by bringing all relevant parties on the same page for optimum business growth, including owners, operators, designers, and technical specialists. This approach ensures the financial feasibility of the project is prioritized, protects the owner's returns, and brings longevity to the newborn business. As an advisory firm is a collective wisdom of people with dozens of years of experience in a chosen field, they serve as a great tool and a sounding board for new entrepreneurs to bounce ideas off, and assess the viability of the business in the long run.
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