How to Make Your Business Attractive to Investors
Getting a business off the ground requires capital. Cash flow is needed for developing your product, hiring the right staff, and implementing your distribution process. There are a few options to get a head start financially, but one of the most lucrative is through the use of investors. Investors provide organizations with a portion of the funding they need to complete their business. They usually offer flexible repayment and can help you make sound decisions on how to move the company forward and ultimately find success. If you are serious about working with an investor, you'll want to address a few areas of your business and compile an effective strategy to position yourself favorably.
1. A Solid Business Plan
An investor won't even consider opening the proverbial checkbook if there isn't a business plan in place. A business plan is a roadmap to your company's success and contains everything anyone would ever need to know about how you plan to run and operate the business. If you don't have a business plan put together, here are a few starting points to get you going.
- Create a summary or mission statement. It's all inclusive and no longer than five sentences.
- Have a company overview of what your structure will entail like history, location, ownership, etc.
- A complete list of products and services. Address how you plan to source your materials and the costs for production.
- The target market will identify who you are selling to and what problems your company will solve.
- A sales plan is essential and one of the areas investors will scrutinize heavily.
- Projects address where you see your company going and provide a realistic approach to achieving those goals.
The business plan is all-encompassing and will address every facet of the business. While that is a crucial step to being considered by an investor, the second biggest attribute will be the numbers game. Investors are giving you money based on the idea that they will see a more significant financial return when you start to pay them back. How they know their money is going to the right place is by the information laid out in the financial section. For businesses that have been up and running, you need to show your performance thus far. Highlight areas that are succeeding even if there have been a few setbacks. A business that hasn't gotten off the ground still has a chance; they just need to provide more research on competitors in the market and a sophisticated estimate on how and when the investor can see a return.
3. Investment Structure
What many businesses fail to recognize is the involvement investors have in the company. When you contribute financially to an organization, you don't do so blindly. The result is either part ownership or voting rights on business decisions. How you want to lay this out or what it is you're looking for is up to you. A complete valuation of the business should drive the direction of the final structure. To complete the plan you can ask yourself these questions:
- Will investors be part owners or shareholders?
- What are the rights of the owners?
- What are their obligations?
- Will they have the right to vote?
- Will investors get dividends or just an increase in their shares?
Negotiations are common and should be expected. Be prepared with counter offers and what your limits will be.
4. The Return
As we previously mentioned, investors won't hand you cash and then walk away. If you want to be competitive and favorably position yourself, address the different ways you will spend the money and highlight how they will get it back. Don't forget the exit strategy. You won't always need an investor, and they will want to move on to different ventures. There should be an exit plan to make it easy for them to be bought out or sell to another interested party. These terms and conditions can start with your needs, but you will want to be flexible on how you will work together.
At Brindiamo Group, our entire team have been entrepreneurs and have extensive experience working with businesses to develop their companies. Visit our website to see how we can help you with your investment or work with you to define your business plan.