Being Investor Ready – The 3 Essential Ingredients
Funding a business throughout a period of high growth is often a difficulty that many businesses face. There are many sources of funding that are available to business owners, the most common sources (according to the reserve bank) are:
- Bank funding, often secured by private assets
- Personal funds being injected into the business
- Friends and family
- Extending creditor terms
- Private equity funding
A careful selection of the most appropriate source of funds is important and based on the stage your business is at as well as your business plans and goals. Selecting an external private equity investor can be a great source of funds. They bring the following benefits
- Expertise – investors who are looking to make an investment in a private business are often successful business operators in their own right and can bring serious knowledge and expertise to your business.
- Networks and Connections – again investors often have a significant network they belong too which can bring significant benefit to your business.
- Reputation – “Ohhhhh…. investor X has invested in your business; you must be doing well”. It’s the success by association thing.
If private equity funding is something you are looking to pursue, being “investor ready” is a really important step. What exactly does being investor ready mean?
It’s a continuum that never really ends, and each investor will require differing levels of readiness. However, I think there are 3 essential ingredients you need in order to bring investors on board successfully
- Accurate financial records – nothing will send an investor running for the hills quicker than inaccurate records. All investment decisions are based on this.
- Separation of private and business expenses – many small businesses record non business expenses as part of the business financial records, which are then flushed out at tax time. Investors need clear line of sight over the true cost of running a business.
- A clear articulation of your business’s economic drivers – every investor is looking for a certain return on their money. Demonstrate clearly and carefully how your business makes its profits and how those profits will grow at scale.
Bringing the right investors on board can be a wonderful way to grow your business. If you are thinking about this as a potential way to fund that growth, put your business in the best position to capture the best investors on the best terms.
