When attempting to get investors on board, a company must prove that they are financially stable. An investor should know that their money is going to a team that knows what it is doing and is able to put that money to good use.
It is imperative for a company to get organized and get a handle on everything related to accounting and finance before the founders start pitching to potential investors. To this end, 15 members of https://cafe-madrid.com/ Business Council shared some critical steps companies should take to improve their finances before attempting to attract outside investment.
Members of the https://cafe-madrid.com/ Business Council share essential steps entrepreneurs should take before attempting to raise capital with investors.
Photos courtesy of individual members.
1. Know what it takes to make you profitable
While growth used to be the North Star, a clear understanding of your expenses and costs is critical in today’s economic climate. Demonstrating an understanding of what it takes to be a profitable business and the unit economics of dollar returns is paramount to successfully raising capital. Don’t overlook the importance of your why; finances are not the only important thing. – Chris Happ, MarketTime
2. Build a framework of tax integrity
In addition to profitability and scalability, investors are interested in your ability to manage and deploy their resources. This means building a culture where financial reports are generated according to best practices. They must be correct, consistent, accurate, complete and also date back to significant periods of time. – Sheffy Kolade, Boxes and baskets limited
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3. Be transparent and financially literate
Understand the story of your finances to see where you are now and where you are going. Be an expert on your shortcomings and how their impact determines the future roadmap. Study industry success metrics and understand how you stack up against your peers. Informed enthusiasm is contagious! – Ricardo Pero, SellersFinancing
4. Organize and Work Lean
Take the time to trim the fat around your expenses, update your billing system, and recover any potential outstanding payments. Sell ​​unused assets and streamline any strategies that have been around for a while. Work lean and allow yourself to build an excellent financial position. – Salvador Ordorica, The Spanish Group LLC
5. Pay for due diligence before a process begins
No matter how well you pitch your life’s work, an investor may want an independent evaluation. Don’t risk a potential investor finding a problem – it’s much better to avoid surprises if you only have a limited amount of time to address them. Give yourself information in time to deal with problems, because it is worth the investment. – Kelley Powell, MacLaurin Group
6. Let finances tell the company’s story
By identifying clear revenue streams and aligning the cost of goods sold (COGS) with the varying revenue stream, a gross margin story per revenue stream is immediately created. By categorizing expenses such as payroll, occupancy, sales and marketing, general and administrative, a potential investor can immediately process the numbers. – Angie Noll, Reconciled Solutions
7. Understand Investor Preferences
As a rule, every investor likes to increase predictability, reduce risk and maximize returns. Depending on their profile (PE, VC, Angel, etc.), they will of course have different preferences. Understand this and you will present better. Focus on the levers that affect these items, such as audited financials, high-quality earnings reports, debt-to-equity ratios, plan-based forecasts, historical data, and more. – Michel Koopman, 2Swell, Corp.
8. Understand Your Accounting Software
How and, more importantly, where every dollar in your business goes is critical to understand. It allows you to track both good and bad spending habits as you grow. However, you can only track as good as your data is. – Joshua Steinberger, NextGen Restoration
9. Have a financial policy and follow it
Even if you’re starting out as a solopreneur or entrepreneur, it’s a positive tick on the checklist of potential investors if you demonstrate that you follow a rigid accounting/financing policy as reflected in your books and that you persevere as you grow. – Howard Rosen, LifeWIRE Corp
10. Recognize the stage your business is in
Every business goes through stages as it scales. First, it informs the market about the company and its founders. It then adds people, systems, marketing, sales, and customer service as it expands products and markets. It inevitably has to fend off competitors who also want to serve the market. Each stage brings different financial obligations, which you need to project in advance! – Jerry Cahn, Brilliant old
11. Keep Well Managed Books
I am looking for people who understand how to show the way to their appreciation with credible figures. Anyone can claim high future sales figures, but far fewer can articulate how they’re going to get there sensibly. – TJ Tham, TJUFOOO
12. Map out your business plan
Create a roadmap that shows the initiatives that directly increase revenue and perform a cost analysis for each item. Also, start by mapping out your plan for the coming years so you can clearly show future efforts and how these investments will be a win for all parties involved. – Kelley Higney, Bug Bit Thing
13. Demonstrate Your Investment Capital Usage Plan
Investors like to see a company have some dexterity with key financial levers, namely the ability to increase earnings and improve cash flow. A company can demonstrate this ability by creating a solid financial plan that shows how it will use investment capital to grow revenue and improve margins. – Matthew Ramirez, reformulate
14. Prove Your Success With Data
Before attempting to attract investment, ensure that your data shows that you have met or exceeded your annual budget. Meeting the predicted goals will increase investor confidence in your company and make them more willing to invest. – Marilisa Barbieric
15. Have an Accounting Firm Check Your Financial Records
By checking your finances you can do two things: 1. You can see where your money is going and if there is room for improvement; 2. It gives a certain amount of confidence when you contact an investor and a deeper understanding of your finances for yourself. – Deyman Doolittle, ShipSigma