When you start a business, investment can seem such a remote possibility that you don’t even consider it. But fast forward a few years and suddenly it’s not so far off your radar. Whether you’ve created a new system or product and need investment capital to develop it or it’s simply time to expand, seeking investment can be a great way to take your business to the next level.
That being said, it’s certainly deeper waters than most SME owners navigate in their day to day. While it’s tempting to see investment capital as free money, it’s important to remember that the money comes with people attached. And that can lead to some complications when it comes to deciding on the direction of the business — not to mention the legal and financial headaches that can occur if you can’t make a return on the investment.
So how can you give your business the very best shot at securing investment and make the most of it when you get it?
First, get a sense of what investors are looking for.
It’s not all that hard to find investment, but it is important that you know how to make your business as attractive to investors as possible so you can secure the best deal for your situation. Investors tend to pay the most attention to these four things:
- The business’s strategy, both in general and for using the investment.
Investors don’t want to sink money into a business with no clear plan, so the clearer you can make your plan for the business overall, as well as your plan for how you’re going to use the money and provide a return, the better.
- The past performance of the business and key staff.
If your business hasn’t been performing very well or running very long, you’ll likely find it difficult to secure investment. Similarly, if you have a high staff turnover rate or you’ve just brought in new people for key positions, investors may not be as excited to get on board. That being said, if you have a track record of success with a previous business, you may be able to secure investment even if the business is new or in transition.
- How well you’ve dotted your “I”s and crossed your “T”s.
You need to have all of your legals and finances sorted well before you seek investment. This includes contracts with your staff, suppliers, and key clients, as well as things like HR systems, protection from common liabilities, etc. Nobody wants to be left on the hook because you cut corners with your paperwork early on.
- The market.
Investors keep a keen eye on the current market dynamics; the better things are going in the market, the better chance you’ll get investment. Similarly, if things are projected to go poorly in the market, particularly in sectors that affect you, you’ll probably find it harder to get investment. People looking to invest are always weighing up the potential downsides. What happens if it doesn’t work out? What if they don’t get a return on their investment, or worse, they lose money because the company goes belly up? The bigger the risk, the less willing people typically are to invest.
Next, take steps to make your business as attractive as possible.
Those four things that investors look for? They can also form the basis of your investment prep checklist. Make a list of all the things you can do to speak to those four things, and then do them.
This could include:
— Coming up with a clear business strategy, or revising your existing one.
— Working with a business advisor or accountant to create an investment strategy.
— Tracking your business’s performance to demonstrate a record of success.
— Signing longer contracts with key members of staff.
— Reviewing all of your legal documents (incorporation papers, trademarks, contracts, etc.) and making sure they’re all in order.
— Pulling all your tax and financial papers and having your accountant review them for irregularities, then working with your accountant or business advisor to create a summary that investors can easily reference.
— Including contingency plans for changes in the market in your investment plan.
— Proactively addressing potential risks: are there things you can do to reduce the potential downsides of investing?
Now you’re ready to start the process of investment prep.
Once you have all these things sorted, you can start what most people think of as investment preparation proper. This includes getting your business valued by an accountant, coming up with an investment proposal that you can tailor for each investor you approach, and preparing all the legal and financial documents required for signing investors.
If it sounds like a lot to do before you ever start seeking investment, it’s because it is.
But the time and energy you put into understanding what’s required for investment and getting your business investment-ready will pay off big time when you actually start approaching investors. And don’t forget, you don’t have to do this on your own. (In fact, you shouldn’t.) Your accountant can be one of your best allies in this process, so make sure you’re calling on them!