Establishing and growing a business is exciting, and there is usually enough hope and enthusiasm to go around at first. In most startups, everyone is wearing a lot of hats, and it’s all hands on deck. At some point, though, you likely will want to consider bringing on investors. The challenge is knowing when you’re ready to talk to investors.
The Fisher Bookkeeping team works with startup companies in many industries, and it’s fantastic to watch them thrive. We can help you prepare for investment opportunities by keeping your business financials in order.
Going from startup to established takes tremendous energy, strategy, and effort. It also can take tremendous amounts of money depending on your industry and business. Shows like Shark Tank glamorize the process of securing funding. However, the reality is that attracting investors and coming to a beneficial agreement is hard work, and you have to be ready for it.
Here are the top five signs you are ready to talk to investors about partnering with you in your company.
The ideal time to talk to investors is when you aren’t in significant financial need. If you are in immediate danger of failing without a lifeline, you’re not in a position to attract high-quality investors. When you are on adequate financial footing, you can enter talks with a clear head and without a sense of desperation.
Your ideal investor will be eager to partner with you, not rescue you. So if your books are in order and you are meeting your obligations, it could be an excellent time to look for potential investors. You will be able to navigate the conversation with confidence and strength.
As you prepare for this step, be sure to only grow in ways you can afford. If you can’t pay your bills or payroll while waiting for funding, then you’ll simply be out of business. Taking a new loan to help with this problem is likely to turn off investors.
To have success with investor financing, you must be careful and stay super lean. The process of securing funding always takes way longer than you expect. It’s hard to be patient when you’re eager to grow, but it’s the name of the game.
Startups are energetic entities and often require people to fill many roles. Eventually, sooner rather than later, you need to have clearly defined roles and responsibilities for everyone involved. Whether they are co-founders or hired employees, each person should know their lane and navigate it confidently.
At the same time, everyone involved needs to share the company’s vision and know how they can support it. You can each have different roles while still being unified in your plans, mission, and goals. Working with a business coach or strategist can help ensure everyone is on the same page here. If your team works effectively and communicates well, you might be in the right space to talk to investors for the company.
While building your team and preparing to meet with investors, your leadership positions need to be solid. They should have excellent resumes and credentials and have experience with funded startups and your industry.
You may have some roles in the company that you will fill when more funds become available, but high-level positions need to have experts in place before you talk to investors. It’s okay to use outsourced consultants when appropriate. For example, here at Fisher Bookkeeping, we offer outsourced CFO services to help companies fill that need.
If your books are a mess, or you don’t understand your numbers, you are in no way ready to meet with an investor. Your financial health is one of the top things potential partners will consider as they make a decision. And going hand-in-hand with your financial reports is your ability to understand them and communicate your numbers.
You must have airtight books and know what the numbers mean to your company before seeking outside funding. One of the best ways to prepare for this is to hire a chief financial officer (CFO) for your company.
They will not only tighten up your finances and reports, but they will also help you present yourself to investors when it’s time. A CFO can also help craft and communicate a plan or even a model for where the potential investor’s money will go.
Once your reports and books are in excellent shape and you know what all the numbers indicate, it could be time to look for additional funding to grow your business.
Investors are not only looking for financial viability as they consider where to put their money. They also want to see business owners who can experience tough times and come out the other side. Many investors will ask startup founders to talk about a time when they failed and how they handled it.
Of course, potential investors need to see that you have expertise and experience in the industry. However, they also want to know that you have encountered stumbling blocks and found a way around them. Or over them. Or that you moved those stumbling blocks right out of your way. Whatever the experience was, be ready to share it.
This sign of readiness requires some humility and introspection. After all, who wants to dredge up mistakes and failures publicly? But being willing to talk about your errors and misjudgments is crucial to investors who want to learn how you work under adversity.
These potential partners are looking for someone who can admit mistakes, be open to outside ideas or expertise, and be willing to change their behavior when needed. If that describes you, it’s a sign that you might be ready to meet with investors.
I can’t stress this enough. High-quality investors want to know precisely what you plan to do with their money if they invest in your company.
You must be ready to communicate an exact plan for the funds and have data to back up your numbers. If you’re seeking funding to expand manufacturing capabilities, you need to have dollar amounts ready to go. Will the money go to machinery? Hiring designers? Contracting with a new manufacturer? Buying a property?
Be crystal clear about where you plan to allocate the funds if the investor chooses to move forward with your company. If you have these numbers in place, an investor is more likely to listen and take you seriously.
You will need to have a model in place for the investors to examine. The model is a detailed financial plan, usually in an Excel file, for the investors to comb through carefully. They will question your numbers and demand justification. They likely will also force a much more conservative sales and revenue estimate than you have.
Startups can’t fill their models and projections with pie-in-the-sky dreams and expect investors to respond. You must be clear, forthright, reasonable, and accurate. If all goes well, you will have about a year’s worth of financing with benchmarks attached.
It’s thrilling when a company grows enough that it’s ready to meet with investors. At Fisher Bookkeeping, it’s an honor to help businesses reach that point and beyond.
Our bookkeeping and fractional CFO services get your financial reports in order and support you in crafting a sound strategy. We also offer Profit First coaching to help you become profitable immediately, further preparing you for meetings with investors. Schedule your free consultation today to get started.
Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).