Founder and investor Tyrus Shivers breaks down the real cost of raising equity too early, and the ten-question test that tells you if your business is fundable right now.
GROWTH PILLAR: Leadership & Ops
WHO THIS IS FOR: SMB owners / Solopreneurs / Corporate escapees / Leaders building systems
WHAT THEY'LL GAIN: A ten-question fundability test, the real difference between growing and scaling, and a 90-day plan to fix founder dependency before it costs you at the table.
Most business owners don't know if their business is actually fundable — and equity is the most expensive way to find out the hard way.
Tyrus Shivers, founder and investor at Legacy Wealth Capital Group, breaks down what actually makes a business fundable. He walks through a ten-question fundability test and shows the real difference between growing a business and scaling a business — two things owners often mix up. He explains how founder dependency quietly lowers what a business is worth, and why clean finance habits matter more than a pitch deck. Tyrus uses a 170-point framework to fix weak systems and get owners ready for capital raising, whether that means a bank, an investor, or a buyer. He closes with a 90-day plan to build the boring financial habits that make a business worth buying. This episode is for business owners who want to raise money the right way, not the fast way.
Key topics covered:
Guest links: Legacy Wealth Capital Group · Tyrus Shivers on LinkedIn · YouTube · Instagram · Facebook
— PARTNERS ON THIS EPISODE —
Next Steps
Tyrus (00:05)
So this is for business owners and future owners. We're going to talk about what makes a business investable, one diagnostic, three takeaways, and a list that you can start immediately. So I like to give practical information and things that you can actually implement in your business today, not next year, not next week, but right now. You can walk away and actually start implementing.
Some of these things. So here's what you will leave with three things and one uncomfortable idea. The uncomfortable idea first is a condition you build fundalbe
Is a condition you build, not a pitch you deliver. A lot of people want to become a fundable, investable, and they want to pitch. But being fundable or investable is something that you build as a condition, not just a pitch. Nearly half of all failed deals die in due diligence, not on the price. And so, number one, are you fundable right now? Not someday.
But today as the business sits. That's a question that we will answer. We will run some tests in about two minutes. Number two, what investors see that most miss? You present upside, they price risk. The gap between those two views is where deals die. So you may think you're worth X amount or will be worth X amount, and they see where you are today. If you can't close that gap,
The deal doesn't move forward. And then growing is not scaling. We hear a lot of times people talk about growing, scaling, and they almost use those terms interchangeably, but they're not synonyms. And the difference decides what kind of capital you can raise. Most owners are doing one and calling it the other. So everything in the next 18 minutes or so serves one of these three key things.
So take away one, the honest fundability test. Ten questions. Answer the way a stranger with money would answer, not the way you would. So you have to pull yourself back. You can't be emotional. It can't be your baby. It can't be I have the prettiest product, the prettiest baby, the best thing since sliced bread. Can't be that. I want you to count your yeses and keep the number to yourself.
But number one, can you produce accrual basis financials for the last 24 months this week without your bookkeeper rebuilding them? That's question number one. Number two, do your books reconcile to your bank deposits every month?
Are your personal expenses fully separated from the business? Is your largest customer under twenty percent of revenue? Could the business operate for thirty days without you?
Six through ten. Is there a written process for the five things that generate revenue? You may have less than five, you may have more than five. But is there a written process around how that gets executed? Your revenue generating things. Do you know gross margin by product or service line, not just overall?
Are ownership and your cap table documented and consistent with your legal papers? Do you have your corporate governance documents together? Do you have signed contracts with key customers and key employees? And can you say in one sentence what the money is for and what it will produce? If you answered eight or more of these with a yes, you're fundable right now. Five to seven?
You're fundable in six months with focused work. Under five, you are not raising capital. You're building a business first. Now, that being said, can you go out there with two or three of these answered and get a very, very friendly angel investor to give you some money? Sure, you can. But if you're looking and you're talking to serious investors, if you're looking and you're trying to get money from a bank, you have to be able to answer these questions.
If you're interested in buying a business, we're getting ready to close on another business that we're buying video production company. And we asked most of these questions. And they had to produce it, or else it's not a deal. I can't buy on just what you said your SDE was. I need to actually see it on paper.
There are some essential business systems that every business needs. The fundamental things in business are very simple. They're not easy, but they're simple. And every business runs off of the same system, no matter if it's your billion-dollar corporation or if it's your startup that's just getting up and running. A system is anything that produces a consistent result.
without you in the room. Investors are not buying your effort. They are buying what keeps happening after you stop. So here are the systems that capital providers actually check. Not all seven have to be excellent, but all seven have to be, have to exist and be findable. Number one, sales and pipeline. Does revenue come through a repeatable process? Or is it based on owner relationship only?
The minimum viable version, a CRM. And that doesn't have to be software. If you're still on spreadsheets, if you're still on notebook and paper, do you have a written sales system? Is it repeatable? Is it consistent? Is it predictable? Number two, delivery and fulfillment. Can the work be done to standard by someone who did not invent it?
So can you pass off your delivery of fulfillment system and someone else can do it? Do you have SOPs? Financial close? Do you know your numbers within days or months in? Hiring and onboarding. Can you add capacity without quality dropping? Do you have a hiring system, a training system, a process? Customer retention? Does revenue renew? Or must it be won again after every period?
Legal and compliance is the corporate house in order. And then reporting and decisions. How does the business know it's off track and how fast? And you could think of this as KPIs, operations, dashboards, all of these things. Without these, you don't have a business. And yes, even a startup needs all of these in some capacity.
I'm not asking that it be robust, but I am asking that you have the simple system in order to generate a lead, close that lead, deliver the product or service to that new client, find out if it's satisfactory through customer retention and satisfaction. Look at the money, and then make decisions on what you need to change and track it. All while
having your legal and compliance documents in order. So that's the seven systems.
Now we talked about growing and scaling not being the same word. This decides which kind of capital you raise and on what terms. So growing, what happens? When a business is growing, revenue rises and costs typically rise with it. You spend more, you get more. What it looks like, more clients mean more staff, space and hours. So as you're growing the business, you're paying out more. That's why most businesses stay in the red.
For three, up to three to five years. Because you're reinvesting that money. You're putting that money right back out. Margin over time is flat or compressing as complexity grows. And what an investor looks at, the job that got bigger, is priced on cash flow, financed with debt. Now, scaling is a different thing. Scaling is when revenue rises faster than the cost of producing it.
This is when we start to see business become more efficient. More clients are absorbed by systems already built and paid for. So you're not having to lay the foundation when you're scaling. The foundation is laid. You're actually now taking advantage of those early investments. You're expanding the margin over time. Each new dollar costs less to serve. And then from an investor view, now you have an asset that compounds.
Priced on future earnings attracts equity. And the expensive mistake, raising equity for a growing business. A lot of times we see, and I know from a venture world or from a safe world, you do a safe notes and you might have these agreements for future equity. If you raise equity too early,
You're already selling a good part of the business potentially that you won't get back unless you have an agreement to buy it back. You permanently sell a part of the upside to solve a problem that debt or better collections would have solved temporarily. Equity is the most expensive money there is. It belongs where capital genuinely produces nonlinear returns. So I know all the venture people, they don't want to hear that.
But that's what venture goes after, nonlinear returns. If you feel like you can take that product, that service to unicorn status, giving away equity early can get you there. If you're giving away equity very early just to pay the next bill, just to fund the next campaign, that's an expensive mistake. When I was raising capital, an investor told me no one time because he said
I went in and I asked for not enough money and for not long enough term. He was like, I'll give you this 150,000. You'll come back to me within six months asking me for more money. And I learned the lesson and I said, Well, how much should I have asked for? And I've used this rule of thumb since then. Ask for two to three years of your operating expenses. So if you know you're launching a startup and you want some money from an early investor,
Calculate three years of startup or operating expense cost and go and ask for that money. And what does that do? That allows you to actually bill the company without going back to investors time and time and time again. And it's very similar to if you were to go to a bank. They're gonna pull your personal credit because you don't have the business and you're not leaning no revenue. So they're gonna lean on your background, but you want to get enough money to actually.
grow that business and not have to keep going back.
Six things founders and investors read differently. When you look at one customer is 40% of the revenue, that may sound great to the founder, the proof the product works. But what an investor or even what a bank sees is your one phone call away from losing nearly half the business.
The owner is in every deal. That can sometimes seem like I'm dedicated. This is why my quality stays high. I hear this all the time. When I start to hire, my quality is gonna go down because nobody treats is gonna treat the business like I treat it.
Well, what the bank sees or an investor sees is that value leaves the day the owner does. Revenue grew 40% last year. A founder can see that as momentum. But investors are looking under the table a little bit more. Did margin actually grow? Or did we buy revenue with cost? Books are on a cash basis. It's simpler, is what the CPA set up is what most business owners run in the beginning.
But what the investor sees is I can't tell when anything was earned. So I discount it. No written processes. We move fast and everybody knows their job. And I don't have time to do SOPs and I'm all over the place. Well, what the investor sees is nothing transfers. I'm buying people who can leave. And the owner takes no salary. I reinvest everything back in.
Your real profit is lower once I normalize it because an investor or bank, they're not coming in to run the business. They're going to put somebody in that place. Or they're looking for you to scale to go do what CEOs and owners or founders should do and not run the day-to-day. So you have to hire somebody. Neither column is dishonest. They are two accurate readings of the same fact from different sides of the risk. Read the right column before you ever walk into the room.
Because you have to know who you're talking to.
So systems and founder dependency. How much of the value walks out the door with you? That is what systems are for, and is what founder dependency costs. So the question: what transfers? Relationships. One of the things that when we were getting ready to buy this company or submit the LOI was we understood that the two brothers handled all the client relationships. So does the
Customers belong to the company or they belong to you. When you walk away, will they walk away? Knowledge, is it written down in your head? Decisions. Who sets pricing, hiring, expectations? Reputation. Is the brand the company's or yours? Whatever does not transfer is value a buyer or lender would not pay for. And so the price, this is what dependency costs.
Owner-dependent businesses commonly trade one to two turns of EBITDA below management run peers with reported valuation discounts of 20 to 40 percent. It also changes deal structure. More earnout, longer transition, less cash at closing. Roughly 80% of small businesses fit this description. They're owner dependent. And when I see that, I immediately look at okay, maybe two, three X.
4x maybe if you have some systems, but you don't command the 5 to 8x if you're if the business depends on you. And so here's a test that you can do. Take two consecutive weeks off. Tell no one you're testing anything. Write down what broke. Did revenue stop? Did delivery slip? Are decisions waiting for you to return? Did collection slide? That list is your roadmap.
And it's more useful than any assessment anyone can sell you. You can do this for free.
Financial controls. Number one, and I won't read all of this, but you want to separate the money. Business bank account, business card, no personal spending, no commingling. Move to accrual based accounting.
Keep cash basis if your CPA advises it. And there must be a strategy or reason why. Close every month. So you gotta make sure that every month you're closing the books out and you're starting the next month fresh and you're reconciled. Build three schedules: revenue by customer, age receivables and payables, gross margin by line. And then get a third-party look.
A sell-side quality of earnings or review statement before you go to market. If you are trying to sell a business or buy a business, once you get above about two or three million in revenue, people are going to start asking for a quality of earnings statement or report from a CPA independent. So if this room only does three things from this session, make it the first three. They're free and they get everything after it.
And now I want you to think about a hundred year view. If you look at billion dollar corporations, especially in manufacturing products, those businesses have been around since the eighteen hundreds.
A long horizon, a long view can be a decision filter. Of course, you won't run the business for a hundred years, but a hundred year question produces a different answer today than a 12-month question does. And so you may have a big customer who wants exclusivity.
12 month may take it right now, get the revenue, or you may decline or cap it. You're trading independence for cash. Documenting the process, a lot of businesses skip it. But for the hundred-year view, if you want this thing to keep running, if you want to pass it down, you want to sell it, you want to franchise it, you want to do all these things, you have to do it. It's the only thing that outlives the people is the process and the system.
Hiring a strong second is expensive.
But from the 100-year viewpoint, it's essential. The business must survive you. On a compensation is take what's left over. 100-year answer. You pay a market salary so the books show real profit. If you read the book Profit First by Michael McAllowicks, it helps you establish how to pay yourself first. And reputation versus a deal. Sometimes the short term will tell you to go ahead and close the deal. We need it.
The hundred-year answer is brand loyalty and brand strength and credibility. So you protect the name. Trust does not come back.
So starting this as soon as today, maybe you have to sit with it. You can start it Monday, but 90 days to move up. So here's one item per window. You would not fix founder dependency in 90 days, but you can become materially more fundable. And if you really hustle, you can fix founder dependency in 90 days.
Days 1 through 15, separate every dollar, make sure your books are straight. 16 through 30, that's move to accrual and bill that monthly close if you're not doing it already with a checklist. Days 31 through 50, you build the three schedules. Understand your revenue by customer. Look at your age receivables and payables margin by line. Days 51 through 70, document the five processes that generate most of your revenue.
And name a second contact on every major account. And if you already have it documented, go back and look. Make sure your SOPs aren't stale. Day 71 through 90, retake the 10 question test that we did at the beginning. Then take two weeks off and write that and write down what broke. Nothing in the first 50 days requires capital, a consultant, or anyone's permission. It requires deciding that the boring work is the work.
And last slide, fundable is a condition you build, not a pitch you deliver. Run the 10 questions honestly. Eight or more you are fundable right now. Under five, you are building, not raising.
Know whether you're growing or scaling. Only one of them attracts equity and asking for the wrong one costs you. Found a dependency is a discount, not a compliment. Whatever does not transfer, nobody pays for. Separate the money, move to accrual, close every month. Free, boring, and is where deals are won or lost. And so if you take that, and then if you implement
Those seven systems, build those frameworks in, make them effective. Because a lot of times I hear businesses say they want to be efficient. But in order to be efficient, you have to be effective. Because efficiency is nothing but doing what's effective more without having to spend more. You reduce money, reduce time, reduce effort. And so first become effective, then become efficient, and your business will.
Go from growing to scaling. Thank you so much.