Six Golden Questions that Business Owners Must Look Into To Get Investors/Funders for your Business
Both year 2020 and 2021 have been and still is a testing time for many business owners. The Covid 19 Pandemic have affected many businesses in many different areas and many took a hit on both sales and cash flows. Many businesses have put in efforts and resources to adjust and adapt to it and many I know are still struggling and is looking for funding and investors to help their business. During this challenging times, it is a bigger challenge to woo Investors and/or Funders. Here are the 6 Golden Questions that Business Owners must address as part of your preparation.
1. How much capital and what do you look from the investors whom you want to invest in you and your company?
This is to prepare you as you look for the best suited investor that could match your need. Many at times, it may be beyond just capital. Also, as the amount you are looking for increases, the people that you proposed to will also be different. Example if you are looking for RM10K investor versus RM1m investor, they both will have different requirement and appetite. On top of capital, you need to be clear of what investors you are targeting if you are looking for leverage on their network and expertise that can bring you and your business to the next level beside money.
2. What are the investor’s share of the business vs potential return?
Investor often will look at “What is in for them? “. You need to communicate clearly to them your basis of valuation of your company and it must represent your hard work and the potential you see in it to woo your investors for them to be able to see that it is worth their time, money and effort to invest in you and the possibility of the returns. Often, they will not buy in if you are cashing out the business unless it is very cheap with huge potential and with everything in place.
Example: RM1m for 20% means the company is worth RM5m. You would need get your sales, gross profit and net profit figures in place with a good plan of what are you using the funds for with a good indication to your investors of what is their return and when they get their investment back.
3. What are the existing risk of your business?
Any business have its potential and risks. While focusing on the potential which is important, it is also necessary to be prepared for the unexpected and this is where you must be able to identify and mitigate the business risks in terms of safeguarding your business uniqueness and roughly how the business will cope against competition, rights such as territory or patent rights as well as the business plan against unforeseeable business risk. Example if you are selling a software, do you own the code? Are they anyone selling similar software? How would you market your software? Preparing yourself will also ensure you appears you are on top of your business as savvy investors will look into these areas.
4. Are your sales and marketing working?
Investors will definitely validate your business sales figures for the last 3 to 5 years. This is usually used as an indicator to assess the growth of your business. Investors will always assess both your marketing and sales strength of your business and they will want to know your growth strategies in place. This is where it is important that you are able to capture accurate historical sales numbers that matches with your financial statement and also able to provide a forecast over the next 3 to 5 years. This is also known as sales mastery in the business world.
5. Are your operations and logistics working?
After evaluating marketing and sales, you would want to show that your business’s delivery is in place and in order ie the business is able to meet the orders and delivery satisfactorily in terms of capacity, manpower, machine and method of delivery. Again, like sales, you must be able to demonstrate that you have strategies in place to support your business growth. This is also known as delivery mastery.
6. Investor will always ask how much are your sales figure, your gross margin and your net profit?
This is probably the most important as it sums above in terms of historical results and also provide a good indication of what and where the business will reach going forward in terms of projections. It will ties your (1) to (5) above for the investors coming in for them to assess and look into both expected cash flows and expected financial results going forward after they invest in. Here is where you need to get good finance team and financial coaching that can support you before you go out talking to possible investors.
While funding is not easy, it doesn’t have to be hard. Be prepared and you can go a long way in your pitch.
Alex Wong
InTune Outsourcing
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If you don’t know, or your figures are not sexy, this is where InTune can help you step by step. Check out our financial statement analysis =).