FROM THE EMPRESS BLOG
How to Get Your Business Ready for Investment
Co-founder Empress Global
There are a few landmarks that nearly every successful business goes through — and getting investment funding is one of them.
Maybe you’ve never even thought about investing before, but you’re starting to see businesses at similar stages in your industry suddenly take off with it. Or maybe you’re starting to realise that this business you’ve created has grown into something much bigger than you ever expected, and that to keep that growth going, you’re going to need to get some outside help.
Investment can be a great way to level up your business…as long as you go into it with open eyes.
Always ask yourself this first: what’s driving this search for investment?
Planned growth, expanding internationally, or creating a new product or service that fills a hole in the market can all be good reasons to seek investment. Simply wanting other people in on your business, being short of cash, or funding any old idea are not.
As Empress co-founder Suzanne (formerly an investment lawyer in a big City firm) recently reminded us on a call, you should really think carefully about investment because it’s not just percentages on paper, it’s a process in which other people get involved in your business. And that means that there are all kinds of ways spanners can get thrown in the works: from disagreements about how the business should be run to failed returns –– investments gone wrong can lead to some serious headaches.
So before you start looking for investors, do a quick reality check: is investment the best way to reach your goals?
It may be that you’re able to solve whatever issue you’re trying to fix with investment with another financial option. Ask yourself, is there any way you can improve your cashflow? Should you get a bank loan instead of investment? What about crowdfunding, or asking your friends and family for money?
And don’t forget, you may be able to make the changes you want in your business without bringing finances into it at all. Consider looking at joint ventures, increasing recruitment to facilitate expansion, or systematising some of your processes to increase efficiency and amp up your cashflow.
If you’ve really thought it through and you want to go ahead with seeking investment, you’ll need to do some pretty thorough prep. Here’s how:
1. First, figure out how much you need.
It’s not enough to have a ballpark figure here — you need to know exactly what it’s going to take to reach that goal. Get together with your financial advisor to discuss your goals, what you’ll need in investment to get you there, and precisely how you’ll spend that money.
2. Next, think about what you’re willing to give up.
As much as it can seem like it sometimes, investment isn’t free money; it comes at a cost of equity and control. Think about how what you’re going to be giving away in real terms. If you’re doing all this work and putting in all this time and energy, how much will your investors be getting as their return? Does that make sense in terms of a cost-benefit analysis, not only in terms of money, but in terms of time, energy, and opportunity cost?
This is also the time to get an accountant in to give you a clear valuation of your business, if you haven’t yet. After all, you can’t determine how much value you’re willing to give away if you don’t know how much you have, right?
3. Start thinking about how you can make your business attractive to investors.
This is really the key bit: if you can’t demonstrate that your business is an attractive proposition for investment, then you’re going to be hard pressed to get people interested, no matter how great the business actually is.
A while back Suzanne spoke with one of the team that evaluates investment propositions at Virgin, and got a checklist of the types of things they pay attention to when determining whether to invest in a business.
- Clarity of strategy. How clear is the business strategy? Is it realistic? Has the business owner prepared for multiple contingencies?
- Business performance to date. While investors will sometimes go for a new business, it’s almost always because the person running it has a track record of success with a previous business.
- Market dynamics. What’s going on in the market right now? How is that likely to impact the business’s success?
- Quality of people. How do the management team or the key players in the business perform? What’s their history like? Will they stick the course, or get distracted at the first hurdle?
- How the money will be used. Specifics matter here; investors aren’t just handing you free rein with their money. Does the spending plan seem like it will actually get the business closer to its goals?
- The possible downsides. What happens if it all goes pear-shaped? How much are the investors going to lose?
- Clear, solid business structure. Does the business have a clear legal structure? Are the contracts solid? What kind of liabilities does the business have, and has it taken steps to protect itself from them? Investors don’t want to be on the hook for a surprise later down the road.
- The ambition, focus, and realism of the people seeking investment. It’s not all about the numbers; the people involved matter too. How focused are they on this project? Do they have the drive to keep going, no matter what? And do they actually have a realistic sense of how this is going to play out?
4. Identify your key assets and take steps to protect them.
Now that you know what investors are looking for, you can start taking steps to make your business as attractive as possible to them. One great place to start is by identifying your key assets and protecting them. Do an audit of your assets (hard and soft) and see what really makes your business tick. Is it the people, do you have a particular system or piece of IP that is valuable or key to the business success? Do what you can to get those as locked in and protected as soon as possible, whether that means trademarking, patenting, design rights, signing a key customer for a longer contract or something else.
5. Create your “investment packet” — a collection of all the documents you’re going to need when you seek investment.
You’re going to need all kinds of documents ready for investors, including your tax returns, your formal accounts, EIS docs, projections, contracts with key employees and customers, evidence of legal protection, etc. Your accountant or lawyer should be able to give you some good advice about the specific documents you’ll need for your business, but these are all good ones to start with.
6. Take steps to increase your profitability.
Just because you’re going to be seeking investment doesn’t mean you can hang around and wait for it to come through. Create a plan to increase your profitability now, so you’ll have a good track record to show investors when they come looking and your business will be of greater value when it comes to valuation. Consider renegotiating contracts with key suppliers, see if you can increase your prices or sales with your best customers, and track it all! It’s great data to have for your investment packet.
Ultimately, the process of finding the right investor, getting the legals sorted, and signing the contract isn’t all that difficult — but making sure that you’re a good fit for investment, and vice versa, can make all the difference. So take the time to really think it through, and when you are ready to go ahead, do so with the help of a good solicitor and accountant, and of course, the sanity-checking and support of your network.
We love talking about big topics like this at Empress.
While we’re just able to dip a toe into these key areas for growth in our blog posts, we go an awful lot deeper in the trainings and mentoring calls that we regularly run for our members. One member thought that she needed investment in her business when really the problem she was looking to solve was a staffing one. Had she not had the support of Empress mentors and members to challenge her on this, she could have wasted an enormous amount of time and effort on the wrong strategy.
If you want to benefit from business changing support like this, then why not download our brochure by clicking here and then complete our application form by clicking here to find out more about Empress. Once we receive it and if you’re a good fit, we will invite you to a very low key call where you can find out more. It could be just the thing your business needs to get to the next level.