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Whats the norm for sharing financials with major clients?

I'd love to see some examples or hear from others what kind of packet they put together for major clients they are planning to work with. As a private company, our financials are not something I feel comfortable sharing at this time. But, once under NDA, is it normal to share them?

I understand this will be part of a due diligence package for investors, but clients? Not sure the expectations.

How much and how little info do you share about your company packet and what does it look like?

12 Replies

Claus Skaaning
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Claus Skaaning Advisor
CEO, Sales on Tap, PhD
It's a reasonable thing to ask for if you're a large enterprise who has to buy a critical/important solution from a small company. Of course they want to be sure that you're a going concern.
We used to provide the most important financials upon request even without an NDA (Revenue, EBITDA, Equity, etc.) when it was required in an important sales process / RFP.
We did however try to postpone sharing financials until the client had acknowledged to some degree that they were serious working with us - i.e., most other parameters had been checked and approved already.
If the financials are poor then it is of course a thing to be avoided but it's difficult.

Alison Lewis
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Alison Lewis Entrepreneur • Advisor
CEO/Creative Director
They seem serious. Now, I want to know what is meant by poor in this case. Startups don't have a usual P&L statement.
Claus Skaaning
1
0
Claus Skaaning Advisor
CEO, Sales on Tap, PhD
If you are a startup with no real financial report behind you yet, then your financials can by definition not be poor but they will be of little relevance to the client. You'll then need to explain the circumstances and the plans and expectations for the company rather than the financials. You can provide projected financials instead and hope they trust them.
It's really tough to sell to a large client in this situation but you need to try to make them feel secure by highlighting any of the following:
- If you have investors backing you, ensuring that you will exist for at least some years into the future
- Willingness to put source code in escrow (if you're a software company)
- Etc.
Jack Hembrough
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Jack Hembrough Advisor
Member, Board of Advisors at Pwnie Express

I'd suggest asking the customer what they'd like to see. Have an open conversation with the internal champion or the purchasing person. "Let us review your financials," is too ambiguous a request - and likely just a sales objection.

If three years of audited statements is an absolute requirement, find out early so you can stop wasting your time. If, on the other hand, they can get sufficient comfort with your code in escrow (they pay for the escrow, of course = a positive sign), make a business decision.

Don't guess what will work. Ask!

John Sweet
1
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John Sweet Advisor
Business Strategy, Technology and Innovation

Jack Hembrough raises an insightful point: There can be many reasons why a client would ask for financials. You need to understand what the specific reasons are within the context of the buying decision process of the organization you're selling to. You need to get at the root of the request because, as Claus Skaaning said, you need a plan that will speak to the actual concern. If you are a small software company and your client would have to incur substantial organizational costs in adopting and maintaining your product (essentially, as an economist would say, a "specific investment" that would be worthless outside of your product), then a natural concern would be how to deal with the contingency of your going out of business.


In that contingency, an escrow would be part of your plan for speaking to the root concern (in addition to your argument for why the specific investment should be made, despite the availability of other solutions on the market). By contrast, as Jack and Claus implied, the real concern could have nothing to do with financial viability of your company. It could be a smoke screen for an objection. Or it could be that your champion doesn't really understand or know how to manage the internal decision process -- merely asking for financials as a means of delay while he or she figures it out.


Selling to a major client is tough. Good luck!

Josh Bohls
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Josh Bohls Entrepreneur
Founder at Inkscreen
I agree with Jack here. Escrow only if they pay. Best to be open and honest about your financial situation verbally, avoid sending a statement that will just get passed around without the story behind it, and try to convey that by doing this deal they are enabling you to be a going concern. In my experience frank honesty is treated like fresh air in the enterprise software game.
Alberto Alonso
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Alberto Alonso Entrepreneur
President at Global Gate Systems LLC.
In my experience, startup financials are for investors. Any body else is using them as a way to justify a decision that they have already made.

If they mention anything about risk assessment, then you target that with specific solutions to mitigate the risk, additional insurance, being bonded, or, as already mentioned, code escrow.

Some larger companies don't like working with startups because of the lack of successful history. Financials have been used to justify going with larger more established companies.

In the end, they need to make sure the decision doesn't cost them their job and you need to make sure it doesn't cost you your company. Figure out their real needs and don't be afraid to say no.
Alison Lewis
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0
Alison Lewis Entrepreneur • Advisor
CEO/Creative Director
Looks like some sound advice. Thank you all. We've been very clear about being a start-up; so I will learn more about their interest. We have a trusted relationship with the main person we're speaking too, so it's not a risk to discuss.
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
Take time to understand the request and the motives behind it: have they been burned before? has some competitor of yours planted this question to trip you up? Are they interested in investing? Typically this questions stems from the customer wanting to know their risk exposure should your company fail. There are better ways to address that question (if you are selling tech then as mentioned, source code escrow is a good option) than sharing your financials (assuming your financials are not overly impressive). It's not a matter of hiding anything or being dishonest, it's a matter of understanding the real basis of the request. If you feel it is necessary to share your financials i would condition it on a signed NDA to be sure it does not get shared with your competitors.
Bob Fucci
0
0
Bob Fucci Entrepreneur
Sales and Revenue Growth, Strategy, Advisor, Speaker

Tell your (directional) story in the most positive way. Major clients understand your value proposition more than offsetsyour early stage. I've built 5 global resell channels with SAP and IBM and in each case we were early stage.

Please contact me directly for specific examples at [removed to protect privacy].

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