What do Investors Want to See?
Gary White, Business Advisory Partner at Essex-based chartered accountants CBHC LLP, offers some advice to help make fundraising a much smoother process.
One of the most important issues faced by a growing business is funding – and it should form part of any expansion strategy. That said, many businesses have been put off by the negative press surrounding the banks’ apparent reluctance to lend, which may make it seem as if securing investment is nigh-on impossible.
However, the outlook isn’t quite as bleak as all that. I have found that lenders are being more cautious – quite understandably – but it’s certainly not actually impossible to secure financial backing, as there are a number of government initiatives (such as the Enterprise Finance Guarantee), grants and development loans, banks and private investors keen to invest in strong propositions. Whether we are in a downturn or a period of strong economic growth, financiers are always looking for a good opportunity – and if your business represents a good opportunity then they will want to back it.
This of course begs the question “what are investors looking for?”, and this is something I hear a lot from our clients. The answer is that most are looking for evidence of the following:
You want your potential investor to have confidence in your company’s future, and nothing serves to ensure this more than a strong management team. How long have your key staff been in place? What experience do they have and what stake have do they have in the company’s future success? Your company’s structure and the loyalty of its staff are valuable assets, and underpin the stability and continuity of your business.
Could someone gain an understanding of how your business operates simply by spending a few days on your premises? You may know your business inside out, but there is value in formalising your procedures and introducing reporting and control mechanisms. This will not only ensure consistent results and long term efficiency, but it will prove enlightening to potential investors, plus you will find it easier to analyse strength and weaknesses in key areas and new staff will be able to get up to speed far more quickly.
In most cases it’s unlikely that any potential investor will have an in-depth knowledge of your sector, so it can be enlightening to provide relevant industry information and data that shows how favourably you compare against your competitors. This information will not only allow the investor to understand the role their funds would play in the development of the business, but it will give your application more credibility too.
Do you know your company’s vital financial statistics off the top of your head? Any credible business owners should be very familiar with the most important numbers, so make sure you can recall headline figures relating to past performance, current status and forecast activity. You should also be able to show any potential investor a history of monitoring this information – which is why it’s important to keep such records even if you don’t plan to apply for funding in the near future.
Key Performance Indicators
Key Performance Indicators (or KPIs) are critical points that determine the success of your business. For example, the first one might be the initial point of contact with a potential customer – how is the contact handled, and what impression does the customer receive? What system is in place to maintain contact? The next might be related to presentation and how the premises, staff or web site appear to a potential customer. Each KPI is an opportunity to convert the lead into actual business, and even the process of identifying them will have a positive impact since the areas ripe for improvement will become apparent. This sort of analysis shows an investor that you are a proactive and professional organisation.
Of course this is just a brief overview of a typical financier’s approach to evaluating a business’ prospects – but hopefully it demonstrates the strategic, process-driven type of information they require, as well as illustrating the planning and preparation that’s required for a successful funding bid. Not only should following these suggestions help you to secure investment in your business, but you will also be following best practice, which will result in greater profitability.
Gary White is the Business Advisory Partner at CBHC, one of the largest independent firms of independent Chartered Accountants in Essex and East London. With over 30 years of experience in corporate finance, working with large organisations such as Unigate and DairyCrest, he is ideally placed to advise on all aspects of commercial financial strategy. An entrepreneur in his own right, Gary is passionate about helping businesses to grow and fulfil their potential. He is also firmly committed to football, and is the Financial Director of Colchester United Football Club.
CBHC Charted Accountants LLP has offices in Essex and London, and works with over 4,000 SMEs across a range of industries. To find out more visit www.cbhc.uk.com.