While starting a business can be exciting, finding investment is often filled with uncertainty. What you might not know is just how important the right investor partnership could be for your small business. According to a study from the Harvard Business Review, investor money “has become an essential driver of economic value”.
What specifically does that mean, though, for your small business? On a basic level, attracting investors to your business will provide you with the capital you need to grow. But investors also benefit small businesses by offering valuable resources. For instance, their network of connections and their proven expertise in the field. An investment partner might be able to revolutionize your outlook on marketing or introduce you to industry contacts.
Convinced that attracting investors should be a focus of your business, or looking for more information before planning a strategy? Below is a quick guide on what investors are looking for as they choose businesses to back.
5 Tips to Attract Investors for Small Business
While it can be hard to know what particular motives of an investor may be, there are proven traits that investors as a whole look for. Here are 5 of them:
A rock-solid grasp of their financial situation.
Potential investors need to be sure that businesses they partner with have a rock-solid understanding of their financial situation. If a business’ financial data isn’t in order, investors won’t have the information they need to evaluate risk or make decisions.
From a bookkeeping standpoint, your business should keep an airtight balance sheet. You must also ensure that all financial statements are exact and error-free. You may know that your company is capable of making money, but investors want to know that as well. That means making sure that your financials are in order, so that you can present them confidently. Because crunching financial data is complex, a professional bookkeeping service may be a consideration during this step. An experienced bookkeeper will demonstrate to potential investors that your business cares about the accuracy of your finances.
Also, you should be able to present investors with a carefully considered financial strategy for the future. Investors won’t be impressed by vague ideas about future success. They want to see that a business is making decisions based on hard data and thoughtful strategy. Your business’ accounting service should ensure that monthly financial reports are accurate.
Your statements will should show you have both short and long-term strategies for growth. Also, they should show you have a firm grasp on your market position. For many small businesses, the services of an expert in financial strategy, like a virtual CFO, can be especially helpful in this situation.
Finally, an accurate range valuation of your business is also important. Investors want to know that their efforts will be profitable. You shouldn’t trust your gut or wildly guess when trying to determine how much your company is worth. Rather your valuation should be based on a sound understanding of your financials and the marketplace.
An understanding of their market and their competitors.
How will you convince investors that your business is the best bet in a given market, and that they should back you rather than a competitor? Investors want to know that you have a strong understanding of your position in the market as well as a plan to increase your market share. This understanding comes from a familiarity with your competitors and their financial situations.
When it comes time to discuss possible investments, you should be able to present an investor with a no-nonsense, data-based market analysis of both you and your competitor’s positions. If that sounds like a lot of work as a small business owner, consider outsourcing the services of an accounting professional.
A plan for how the partnership will work.
Investors want to partner with businesses that have taken the prospect of a partnership seriously, which means they not only have a plan for how to put capital to use, but have thought about how the deal will function overall. Investment partnerships can be complicated, and often involve things like stakeholder agreements and negotiations about ownership shares. You should be prepared to show investors that you have considered the terms of a potential deal — and you should consult with a financial professional in order to maximize your benefits from it.
An exit plan for the partnership.
Although some investors will provide a business with quick money, more often than not investment deals are a longer-term partnership. Investors want to know that you have thought about how that partnership will eventually end. Like the details of how an investment deal will work, exit strategies for that deal will involve financial planning. You should be prepared to discuss a potential merger, sale, or additional investment rounds. Like with everything else, investors will be most attracted to some proof that you recognize the importance of having an exit strategy and have planned carefully for it.
A unique vision.
Showing investors that you and your business are unique is where you are the expert. A CFO may be able to quantify your vision of the future with data, but investors also want to hear your story as told by you. Consider hiring a virtual accounting team to crunch the numbers, but don’t lose sight of why you started your business in the first place. Your passion and dedication can speak volumes to a potential partner.
Other Articles You May Enjoy
Looking for a couple of more articles similar to this you might like? Want to learn more about KPIs for your small business? Check these out:
5 Considerations For Bringing in a New Partner for Your Small Business
What is a Cap Table and Why Is It Important?
How Much Capital Does My Business Need to Raise?
How Krieger Analytics can help
Krieger Analytics specializes in outsourcing accounting services for small businesses, from bookkeeping to virtual CFO consultations. Our background in entrapuernship and finance means we know what running a business entails. We want to meet your accounting needs without burdening you with the costs of a full-time accounting staff. We understand your position as a small business owner, because we have experience running businesses ourselves.
Have questions about anything discussed in this article, or interested in what valuable insights a CFO have for your business? Conversations are free, so don’t hesitate to reach out at [email protected]. Let us explain how our services could be the right fit for you.