You are not only choosing an investor for your business; they are also choosing you as an investment.
When you take on an investor, you can expect them to dig into your company and see if they feel it’s worth their time and money. Investors will look into many key metrics, assessing the business’s growth and profitability. Your financial statements are an x-ray of your company and should give investors all the information they need to make a sound decision.
If you’re looking for an investor, having your financial statements in order should be your first priority, as potential investors will look at every number that makes up your business.
The first thing you will always be asked is, “Are you making money?” Your net profit will indicate how much your business makes after all expenses have been paid. This is your chance to show just how much profit you have every quarter and show investors what your business is worth. Very little to zero profit may not look promising, but if you have the assurance of future profitability and can show your plan to get there, you have the ability to prove its worth.
Another metric that any investor is going to want to see is your sales. They might love your product or service, but if the market doesn’t love it, there might be a problem. If you have a prior sales track record, you can prove to investors that the market is looking for something like your business offers, which can lower their perceived risk. Investors will look for sales growth throughout your business’s time and look for possible trends.
Related to this are your margins. This will prove that your sales are actually making you money. Investors want to see higher margins to show that you are operating in a profitable manner. If you have low margins, make sure you have a plan of attack to increase them.
Investors will always look for free cash flow. If you have money in the bank after all expenses and overhead, it can be assumed that your company can withstand unexpected problems and take advantage of new opportunities. The higher the cash flow, the more likely you have a sustainable operation.
Debt in an established company can be a red flag for many investors. If they see debt on your financial records, it can be assumed that if the company goes under, debt holders are first in line to get their money back before they, the investors, even have a chance. They will also see debt as a consumer of your cash, leading to a lower cash flow each month and less of a chance of sustainability. All in all, investors do not want to see excessive debt on your statements.
Investors want to see that you are all in. If you have a personal investment in your business, they are more likely to take you seriously and invest. Whether that is your savings or any amount of money you have built over the years and put into the company, investors want to see that you are just as financially tied to the business as they would be. If you are financially invested, investors will know that you will do everything in your power to protect your company and keep it profitable.
These and other metrics are what investors will seek out when questioning an investment in your company. Bring your best foot forward to investors with the help of ReVera Capital.