12 steps to get your business ready for investment

24 April 2020

Most businesses will require additional investment at some point, whether it’s for the initial launch or to help them expand further down the line. And, effectively raising funding could be one of the biggest deciding factors in your company’s future success.

There are multiple sources of business funding available, and what you need will depend on what stage your company is at, the size of investment required, and the area in which your business operates. Getting funding may seem daunting but with the right preparation, it doesn’t have to be. Check out our 12 steps to get your business ready for investment.

1. Consider who to approach

You may already have an idea in mind of which investors you’d like to approach, but don’t forget to do the groundwork first. Check out which of the below options seems best suited to your business needs:

  • Loans and overdrafts – if you hope to retain total control of your company, then a loan or overdraft may be the best option for you. You’ll need to show that future projections include repayments.
  • Crowdfunding – crowdfunding has been used to great effect by some of the biggest businesses out there. Monzo managed to raise a whopping £20,000,000, which is thought to be the largest amount ever crowdsourced in fintech. If you have a project that you think people will love and can offer multiple smaller incentives to potential investors, then this option could be hugely beneficial for you.
  • Friends and family – if your financial requirements are slightly more humble than Monzo, then one potential option could be to turn to friends and family and offer them the chance to invest. You can offer a far better return on investment than their bank will if they pay the same money into a savings account, and they also get the added bonus of supporting a loved one.
  • Venture capitalists – bigger, professional investment companies will usually require a stake in your company but, for the right business, can provide huge capital.
  • Angel investors – similar to venture capitalists, angel investors tend to be wealthy individuals looking to improve their portfolio.

Consider the above carefully and do your research into the unique benefits and risks associated with each. Then, get to work!

image of presentation

2. Know exactly what you want and why

Be crystal clear on why you want investment, what you plan to do with the money, and how it will benefit your profit margins. Telling an investor that you simply wish to grow your business is unlikely to convince them to part with their cash.

Be clear on how their investment will change your business and improve profit margins over the next 1-5 years.

3. Get to know your market

A good understanding of your industry is vital to prove to potential investors that you’re a safe pair of hands. Prepare to demonstrate that you intimately understand the market, and illustrate your knowledge of both domestic and international segments to show that you have a clear handle on the competition.

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4. Get advice from the professionals

It’s never too early to get external specialists, such as accountants and lawyers, involved in your company assessments. It will enable you to spot potential problems or issues long before they could affect an investor’s decision making. Professional input will give you added reassurance and provide you with adequate documentation to present to investors.

5. Ensure your finances are in good shape

Investors will want to know that their money is going towards growing profit margins, not just paying off debts. Discuss with your accountant the best way to effectively present your finances and use credible accounting software to ensure that your books are up to date.

Consider reducing or restructuring your debts and transferring any overdrafts to fixed-term loans. Look into your existing expenditure and see where you can streamline expenses that are no longer necessary.

Likewise, carry out a stock check of sorts and clear out any obsolete items from your asset register. You don’t need to be swimming in profit to achieve investment – there’d be little point applying for it – but you’re far more likely to win investment if your finances are in order.

business people in the street

6. Create a bullet-proof business plan

Your business plan is the blueprint for your organisation. Your plan will change and grow exactly as your business does and, in the case of acquiring investment, it’s essential for forecasting growth and expansions. A full business plan will set out your objectives, strategies for achieving them, and financial projections. A well-thought-out plan will allow investors to assess not just your ambitions, but the work you’ve done to achieve them.

7. Don’t forget due diligence

Any investor will do due diligence before they invest to ensure that all your affairs are in order. It’s likely that they’ll expect to see business plans, service contracts, and to check that you the have intellectual rights to your products. It’s wise at this point to view your business critically, as an investor might, and carry out an inventory. Any issues that you spot at this point can be raised with your lawyer and addressed before an investor becomes aware of them.

8. Ensure your management team are primed to impress

Investors will want to see a great team. If your finances are in order and your business plan is watertight but you don’t appear to have the staff to achieve your aims, an investor may think twice. If you’re hoping to grow your business from 10 members of personnel to one hundred then you’ll need to show that your existing 10 are committed and dedicated to the company and their roles. If there’s a vital team member missing but you intend to hire them with the investment, then be ready to say so.

9. Have long-term strategies in place

A clear strategic plan outlining where you expect your business to be in five, ten, twenty years will show your long-term thoughts even if they’re only educated guesses at this stage. Focus on why you’re different to and better than the competition and how you envisage the market changing over the next few years. Futureproof your company and include projections for how you will continue to grow once you’ve achieved your initial goals.

colleagues working in coffee shop

10. Consider your exit strategy

Contemplating your exit strategy before you’ve even gained investment may seem a bit premature, but this illustrates your long-term strategic thinking to potential investors. Long-term goals could include management buyouts, corporate buys outs or IPOs (listing on the stock exchange).

11. Refine your pitch

Make your pitch as clear as possible. You’ll want to show, briefly and succinctly, that your strategy will make money. Show knowledge of your industry and the competition but keep the focus on the finances. If they want to know more, they’ll ask. Aim to develop a rapport with the investors – they could be your future colleagues, after all.

12. Draw up agreements

A shareholder’s agreement will protect both you and the investor. The agreement sets out rights, responsibilities, key decision making and information rights. Of course, this isn’t finalised until a deal is in place, but in the long-term, it will minimise disputes and could save both parties’ time and expense.

When it comes to attracting investment, you’ll need to show your business in the best possible light while also remaining realistic. Investors won’t be interested in a business that has mountains of debt, but they also won’t feel reassured by a business plan that presents unrealistic year-on-year profit increases. Your main objective is showing potential investors that while they’ll be helping you out in the short-term, the long-term benefits are all theirs.

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