Published in The Entrepreneur Aug-Sep 2014
One of the biggest challenges that small and medium-sized businesses face is the inability to exploit investment opportunities immediately they present themselves. This is due to a number of factors that are prevalent in the business space. The key issue however. Is that entrepreneurs should always be ready for investors by preparing themselves and their businesses to take on value adding investors into their businesses.
Investor in this context refers to organizations or indeed individuals that have the capacity to provide funding 1 terms of debt, grants. Equity and business support. These may take the form of private equity funds, institutional investors, commercial banks or angel funds who desire to invest i n viable businesses which generate value. The onus about being ‘investor ready’ rests with the entrepreneur by their ability to make their business attractive to outsiders.
Keeping all financial information about the business with a clear distinction between business an personal funds. The entrepreneur should draw a salary from the company and not tap into company funds to finance personal expenses. This greatly helps the business to manage its cash flow which is a very important element for the business.
Investors will be interested in knowing the brief of your business and vision. A Business Plan is in this case a blue print towards raising capital and it is the easy language which establishes a connection with the potential investor. The following key areas should be considered in your Business Plan which will prove to the potential investors that you are ready for business .
- Management Team: explain your management team. Their background and their working experience and how that is relevant to the business.
- Business Model: How do you intend to go into the market? Highlight the business, the market segment you will target, what are the opportunities you forsee and why you would succeed.
- Customers: who are your current clients? How will your customers access you? Are you located in a suitable location to meet with the distribution channel for your services or products?
- Major Competition: who are the main players in the chosen segment you are targeting? Understand the business in terms of your competitive edge. What makes your business stand out?
- Strategies and Tactics: Have a clear plan for the future. An entrepreneur should never operate on a day-by-day basis. It is easier to get investor buy-in when as an entrepreneur. You believe in your own plan and follow it. The plan should encompass all aspects of the business from human resource management, sales and marketing, financial management and all other aspects of the business.
- Understand the business in terms of your suppliers: who are your key suppliers and at what terms do they supply to your/ how many suppliers of your stock are available? Are they easily accessible so that there would be no disruptions to business? Are they reliable?
- Projections: one of the most important pieces of the Business Plan is the financial projections. Investors are looking for growth opportunities. But do not try to simply inflate growth expectations because they can backfire on the entrepreneur. These should be reasonable and connected to your current business.
- Use of Proceeds or Purpose of Loan: Explain the use of the capital to be raised and what change it will bring to the business.
In a nutshell, as an entrepreneur, you should know your operations. This is both from an operational and technological perspective. It is very important to understand how you are using your knowledge to make the business more efficient. How do you use the technology to generate greater efficiency, greater sales higher profitability, etc.?
You should also have formal governance structures in the company. This should cascade down from the policy and decision making process all the way to the management and staffing.
Besides, the investor will need to look at the key entrepreneur and gain the confidence that he or she have the drive. Perseverance, ethics, grit and character to generate a return on capital. Therefore the entrepreneur should expect a lot of personal questions as well as business related probing that will prove to the investor that he/she has the ability to run a business successfully and therefore not put investor funds at undue risk.