How to prepare a small business for investment?

Preparing your business for investment can be a stressful process. This does not always have to be the case. Once a potential investor agrees that your idea or business looks potentially viable for investment you will need to ensure that your business be ready for investment?

A recent client was in this same boat two months ago and because he never really believed that the day will come so soon, his company was not investment ready. So how do you become investment ready?

Here are a few questions you can ask your self together with the different issues related to the questions that can set you on your way to becoming investment ready very quickly.

1) Describe the background and history of your business

This first step in explaining the investment ready status of your business may seem straight forward bur there may be more to it then meets the eye. Points that you may want to cover here is how your business cam into being. What were the difficulties encountered when starting and how were these overcome? What were the barriers to entry you encountered and how difficult may it be for future incumbents to do the same? Has your growth been erratic or stable and what roles has other industry trends plaid in your success up to now?

Investors want to know, not only that your business has a high potential for future growth but also that the business has been able to handle demand and other challenges that show up at your door during the initial stages.

2) Illustrate the Organisation Chart and resumes of your senior management

Potentially one of the more straight forward issues to cover, your organisation chart should be illustrating the flow of communication within the business and the effectiveness of this strategy. In addition the resumes of your senior management team needs to illustrate what your company stands for. Where are your strengths? How does te experience in your team contribute to your competitiveness and uniqueness of product. Is there a good balance between skills, experience and cost within the team?

3) Your competitive advantage

By this time your potential investors may already have a good idea of what your product or service is and the level of uniqueness that it offers. This may be a good opportunity to come up with related facts, statistics and research related to the uniqueness of your product. Your unique selling point/proposition or USP as its also called tells the investor what sets your business and the products and services of your business aside from the competitors. Why will customers prefer to by your product rather than that of a competitor in other words? This is a great opportunity to show just how unique or good your product or service is. Focus on benefits rather than features of the product. At the end of the day customers are interested in the benefits of a product. What can this product do for me, hw will I benefit? What is the difference between a benefit and a feature? Here is an example.

Feature: Intel core Duo Processor

Benefit: I can work with more than one application at the same time with no loss of process speed.

Benefit: I can get more work done in a day.

Benefit: I have more time to spend on that which is most important or enjoyable to me.

Although your investor/client think that features are important, they can associate better with benefits.

4) Provide a copy of your SWOT analysis

A bit like a status report on your business your SWOT requires of you to be honest about what’s going on in the business and offers you the opportunity to be innovative and creative when coming up with solutions to challenges as well as suggest potential opportunities that exist within your business and it’s market.

Strengths, weaknesses, opportunities and threats of the business gives both you and your investor to assess the challenges and potential of the business. Focus on each one equally. To often businesses elaborate on their strengths and opportunities and fail to show that they have really seriously considered the weaknesses and threats of the business. This shows short sightedness and potentially the inability to be prepared for future challenges. Of course your investor is very interested in your strengths and opportunities but having a good insight into possible threats and weaknesses together with possible solutions for these will show that you are prepared and have thought through issues tat could potentially harm your business.

5) Describe your products and services

Hopefully you will be able to do this with your eyes closed by now. This is your opportunity to show why clients will be approaching you. Speak about features of your products (eg. Core duo processors) and more importantly speak about benefits (save time by working faster, or complete projects in half the time) of your products to your clients. Clear benefits are important as it shows clients how they will benefit. Remember that your investors will be thinking like clients. Can you sell your idea to them and will they be interested in buying your product or service. From an investors perspective it may be hard to imagine investing in business if you are not interested in its products or services.

Together with the description of your product you also need to discuss any research & development you did when developing the product, how much the R&D phase cost, what you learned and how you altered the product as a result. Mention if your products have any guarantees and if any future developments are likely.

6) Provide a list of your customers and their feedback

Discussing Customers and feedback follows on very well from the previous points of describing your products and services. Could we really even consider the one without the other. It is very likely that investors will want to know how clients are responding to your products and what type of feedback you have been receiving. Customer is king, and we can also say that customer opinion or reaction is king. If your customers are beating a path to your door to buy your product or service then half the race is won. Don’t be scared to mention less than ideal remarks about your product. Use these to show your responsiveness to what clients say and how you are using you client feedback to improve your product, while at the same time showing how good your customer service is.

Research figures suggest that there is a 80-90% possibility of unhappy customers never returning to your business. If clients are complaining and they are doing it to you rather than friends or colleagues then count yourself lucky and see it as a sign that they believe in your business and simply want you to improve so they can enjoy your product while returning for repeat purchases for years to come.

7) Describe your pricing strategy

Your pricing strategy or strategies will say allot about your ability to be competitive within the market. Pricing strategies also have a way of providing insight into your strategic thinking abilities. Many small businesses make the mistake of simply undercutting their competitors, and although this strategy is good in the short term it may backfire when your product cost is higher or not much lower than the selling price. Customers that respond to this strategy will also be the first to leave when new or established competitors respond by also lowering their prices and unless you have the capital backup to fight this type of war, you may be better advised to be competitive in other ways.

Who is your customer and what type of pricing strategy do they respond to. This is the key question you are looking to address.

8) Describe your marketing strategy

• Provide market research justifying your reasons to grow

• Describe your technology strategy

• Describe your operational plan

• Provide projected financial statements for 3 to 5 years

• Provide a 12 month cash flow

• Provide historical accounts

• Provide 12 month key objective and milestones programme

• Describe your investment strategy

• Explain you application of funds

• Describe your exit strategy