WHAT INVESTORS WANT
So many companies are looking for investment at the moment, whether to scale up or even get off the ground and develop a marketable product. Rather than simply focusing on your company’s needs and what kind of investor you’d like, it’s important to recognise that this is a buyer’s market – any potential investor you speak to will often have a choice of prospect companies to direct their money towards. In this extremely competitive environment, it’s worth actually thinking about what investors want.
Proven Viability
More than anything, investors are seeking proven viability. They’ll first look at the fundamental financials of a company. Has it got a history of generating profits over the last number of years? Is its liquidity position in a healthy state? In other words, if an investor looked at its balance sheet, would they see it has ample cash reserves to deal with ongoing day-to-day expenses? One can’t work without the other. You could have a situation where a business has healthy profits on paper but, when you unravel the mechanics of what makes the business work, you’d see that its cash-flow situation is not so strong. That’s a big negative.
Having said that, investors are a law onto themselves and they may see something in a business that may bring value. You could have a scenario where an investor sees a healthy turnover and a healthy client or customer base, which may be appealing. An investor could see potential synergies from shared resources, cutting into the overheads and so on, to turn it into something more profitable. However, that’s a more difficult sell.
Define the Opportunity
In either case, it’s important to actually convey the opportunity – whether that’s increasing profits or developing new revenue streams – that a cash injection will give. If you’re going to draw on investment, I would always advocate preparing a strong business plan incorporating financials, historic financials and what the strategy is. It must communicate clearly what’s planned after investment is drawn down. A very well prepared business plan is crucial to drawing in investors, or even getting their attention. It’s not good enough to have financials on their own.
Some business owners are reluctant to share data – either on their core financials or opportunities identified in the market – with people they don’t know that well. This is understandable, and often healthy. A non-disclosure agreement is common now for parties that are looking to potentially invest. While its protection may be scant against someone who’s determined to act in bad faith, it at least sends out the signal that this information is privy only to someone who might invest in the business.
Screening Investors
You can also do an element of screening, looking into a potential investor’s background, doing a search, or getting information through a third party to see where they’re coming from. It may help get an idea as to how much is behind a person’s interest. However, it’s impossible to eradicate the risk completely.
You’d be forgiven for being quite downbeat about the hunt for investment – it’s tiring and sometimes exasperating. But companies that have healthy turnover, a wide customer base and a history of generating profits are always seen as a good bet by those with money. At DCA, we spend a lot of time preparing business plans for people who want to send an idea out there for potential investment. It’s something we’ve been doing here for a number of years with great success, and we would be happy to offer you a free, no-obligation consultation on this issue. Feel free to contact us [link] to set up an appointment.
Declan Dolan,
Partner,
DCA Accountants and Business Advisors.
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