Hello everyone,
I'd love to get your take on a rather touchy subject: When is the right time in the interviewing process to ask a private company about financial health and stability?
I am considering leaving a stable and secure corporate environment with life-time career potential and go back to work for a medium-sized employer (say, 80-100 people) or even a post-startup emerging business (say, 12-25 people). Due to the nature of my job search, I usually go through referrals (i.e. my professional network), rarely through recruiters, and almost never through the classic process (job posted, my application, phonescreens, interviews).
To come to a decision, at some point I'll have to know about financial health and stability. For the small, privately-held businesses that I am targeting, such data is not openly available.
So, my approach is, I'll ask if they are profitable, to see how they answer. If possible, I'd also ask whether we could spend some time discussing their annual income statement or profitability history. I expect this to be rather touchy, certainly not trivial questions. For example, I am expecting to have to sign a non-disclosure agreement (NDA) or similar to even make this conversation happen.
All that said: When, do you think, is the right time to have this discussion?
AFTER I have their offer, because only then there'll be enough trust between us to share such sensitive information without feeling awkward? Or BEFORE I have their offer, because their answer to this question could certainly change my mind, and we wouldn't want to waste each other's time in the process if I wasn't ready to accept?
Thanks in advance for your thoughts.
Best
Jochen
It depends
Hate to say it, but it depends.
First, ask yourself why you want to go to a medium/small company vs. staying where you are. If it is the experience (e.g. more responsibility, something different) and/or it is easy to get another job, it may be less important to "see" the financials. If it is the payoff (e.g. stock/options/RSUs), I think it would be legitimate to ask how many shares are outstanding or how many fully diluted shares are there and even how many are currently authorized.
Unless you are going in at a very high position (e.g. CFO), you probably will not be able to see the financials of the firm. For a post startup emerging business, even if you got to see the financials, how would you project what the future is since the past is going to look very different than the future?
Your referring person may give you a sense of the stability of the firm. If you are worried about the firm going under, I think it would be okay to ask what is the runway of the firm or when the last capital raise of the firm was.
For the runway or capital raise, you can ask during the interview. For the number of shares outstanding, I would wait until you get the offer.
-Edwin
Cash Cow vs. New Business
Hi Edwin,
thanks for your thoughts. I also hate to think "it depends", but you may be right :-)
The background is that I'm looking at joining a company that has a profitable established business (a "cash cow") but is also trying to enter an emerging market segment to diversify. In developing the new business, I will play a quite decisive role.
Obviously, until the new division is profitable, it will be neutralizing the margin that the "cash cow" generates (at least to some degree). I would like to look at some numbers to get a feeling for the cost and revenue structures. That would allow me to see the business plan for the new division in context, and discuss scenarios (e.g. assess the risk/impact of a sudden decline in the "cash cow" business).
This discussion is certainly a potential deal-breaker for me: If I feel they can't give me enough time to make the new business contribute substantially to profits, I won't make the move. Even if they evade my question, I'd be hesitant. That said, I will definitely try to scrutinize some financial data before agreeing to any deal.
I've already said that we need to have this discussion at some point, and their high-level answer was that the financials "look OK, will be fine". That's perfectly acceptable, for now. But once an actual offer is on the table, I think I'll need to ask for a financial walk-through, even if, should I then decide to decline the offer, this may mean a lot of good-will and investment of effort lost (on both sides). However, given the depth of the issue and the amount of mutual trust required, I just don't see how this conversation can be had before both sides have essentially committed to the deal.
Further thoughts?
Best
Jochen
You can always ask and what is the history
There are two parts: You can ask and what is the history.
You can always ask
You can always ask to see the financials right after or right before they give you the offer. I would suggest right after (since you have nothing before). Since you will be coming in at a higher position, they may be okay showing you the financials. Once again, they may not. First of all, if you are coming from a competitor or an adjacent market (even a customer), they may not want to show you the financials even if they would show the financials to someone else.
One possible exercise (I have done this before) is to model what the financials would look like if you were starting this company. You have to make a LOT of assumptions. I would treat this as a range. This is a non trivial exercise. If nothing else, it will let you ask a lot of good questions if they do not let you see the financials (e.g. what do you think the growth rate in years 2-3, etc.). I would think they would be okay answering that class of questions. Once again, depending on you level, they may be looking at you to answer those questions after you join, so this exercise is not wasted.
Having said that, this exercise will give you a HUGE range, so this is not the silver bullet. However, if the huge range has no possibility of profitability, run away. Also, if the huge range all looks great, go for it. The last zero on a huge number does not matter.
What is the history
Since you are going to an established company, you need to ask yourself what is the history of the company in these situations. You are not going to change the DNA of the company (vs. a small startup). Some companies have in their culture entering new fields and seeing it through (both success and failures). Other companies cherish cash cows until they are gaunt and dead no matter how much the new market will be an obvious star in a couple of years with just a little more investment or time.
Companies can change (though hard). They may have gotten a new round of investment (most likely not the case if they really have a good cash cow) and management may have changed.
If the company has history of entering markets, it would be perfectly acceptable (I would be surprised if they do not give you this access) for you to talk to similar people in other segments of the company that were able to open new markets. Another clear plus would be if you get to talk to the people who led similar initiatives that were not successful (e.g. market was not there) and see what they are doing now. Some rare companies celebrate honest failure and those people do well in the firm afterwards.
Good luck