Understanding what prominent investors look for in companies can help your business succeed.
- Mark Cuban, a successful Internet entrepreneur and current owner of the Dallas Mavericks basketball team;
- Barbara Corcoran, a New York City real estate mogul who started her now-multibillion dollar business with a $1,000 loan;
- Lori Greiner, an idea woman who’s made a fortune creating new products and selling them on her QVC show;
- Robert Herjavec, a “rags to riches” entrepreneur who found business success in the technology industry;
- Daymond John, founder of the design brand FUBU, who’s now considered a fashion mogul and is a much-sought-after branding and business expert; and
- Kevin O’Leary, a venture capitalist who made his fortune in software educational products.
Each shark started from humble beginnings and built their fortune from the ground up. They know what it takes to be successful, and they apply that knowledge to determine which opportunities are good investments for them to take on.
On every episode, there’s a pattern to the questions the sharks ask each entrepreneurial presenter. As expected, the questions focus on financials and market viability. And that’s how the show relates to you: As an entrepreneur and small-business owner, knowing the financial specifics and viability of what you offer your market is critical to your success in business.
Think you really understand every inch of your business? Here are five critical questions the sharks ask that you’d better know the answers to when it comes to your business:
1. What are your sales? This seems like a no-brainer, but you’d be surprised how many budding entrepreneurs can’t answer this question with an exact number. The sharks want to know this so they can determine if the product or service you’re selling is something people have actually shown they want. You should know the sales number for the year to date and, at the very least, last year and the year before. It may sound obvious, but the numbers should be increasing year after year. Knowing what these numbers are can tell you if you’re trending in the right direction.
2. How much does the product sell for, both wholesale and retail? The sharks want to get a feel for the pricing in the marketplace to determine whether you’ve got a viable investment. And it’s important to make a distinction between wholesale and retail pricing as those are very different numbers. There’s often quite a huge gap between what a wholesaler will pay (so they can make money) and what you can charge the customer directly.
3. How much does it cost to make the product? The sharks want to know what your margin is—the difference between what it costs to make your product and your sales price. It’s a good thing to have a low cost to produce whatever you’re selling, and looking for alternative methods that allow you to make your product with the proper quality at the lowest possible price is good for your bottom line. All of the sharks light up when a product margin is good because that’s a sign that they’ll be able to recoup their investment.
4. What are your profits? Knowing what’s left over after all the expenses, including your paycheck, have been paid is an indicator of good management. If your business is healthy, profits should grow year over year. Way too many small-business owners focus on revenue as the single most important number. But that’s a big mistake because you could actually have millions of dollars in sales and absolutely no profit to show for it. The sharks want to know your profit because their investment means they own part of the company—they aren’t just investing in a business out of the goodness of their heart. It’s about business and getting a good return on their investment.
5. How much debt do you have? Your ideal situation is zero debt, though that’s rare to achieve. But keeping your debt low is critical; it eats away at your profits and can keep you awake at night. You should do your best to stay away from adding debt to your financial equation. Getting a shark—or any other source—to invest in a company with a lot of debt would be a tough sell.
Of course, these aren’t all the questions the sharks ask during the show. There are plenty more that can help you learn how to make your business better. So why not pull up a chair and watch? The best part is, you can get this valuable education for free.
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Photo: Getty Images
by: Denise O’Berry