How to know when your business is investment ready

Securing capital is a transformative step in a business’ growth journey, but it can be tricky to ascertain when it’s the right time to raise funds and, crucially, whether your business is appropriately prepared to undergo a funding process.

Investors and lenders need to believe in your business and have confidence in your team’s ability to use the additional capital to deliver on your plans to accelerate growth.

So, how do you know if your business is truly investment ready?

1. Can you clearly and confidently articulate what your business does?

You should be able to succinctly explain your business model in under a minute. This should include:

What you do
How you generate revenue
Which customers your business serves
Why your approach is different from your competitors (ie. your ‘USP’)

And that’s just the start. A strong investment case also requires:

An explanation of how revenue flows into the business and translates to profitability (or, if it doesn’t yet, how you’re going to get there – and when)
The visibility and predictability of future performance
The strength and structure of your customer relationships, such as contract terms and payment cycles
A solid financial model – more on this later
Very importantly, details on those responsible for steering the ship

Being able to communicate these points clearly – and with confidence – is essential. You never get a second chance at a first impression, so make that introductory conversation count.

2. Do you have a clear strategy outlining how you will use the funds?

An injection of capital can be pivotal, but only if it is used in the right way. Investors want to know:

Why you need the capital now
Ideally, you won’t need the capital immediately – you’ll be approaching fundraising with a long term mindset and proactively securing investment for your future plans, not scrambling to fill cash gaps. Investors will want to understand why it makes sense for your business to be raising funds at this specific point in your journey.

How you’ll use it
While investors such as Growth Lending pride themselves on a flexible approach to funding (which means you can be agile in taking advantage of opportunities as they arise), even the most flexible of funders will want an indication of the use of capital – is it to finance a series of acquisitions? To invest in expanding your sales function? To enable new product or service roll-out? You should know exactly what the funds are earmarked for and how this will impact growth.

What success looks like
If you put capital behind the initiatives you’ve outlined, how will you know that it’s paid off? How will you measure impact? How will you identify which are worthy of further investment? You should have a clear idea of what you’re looking to achieve, as well as an understanding of how your growth investment is expected to contribute to that success.

Every pound you raise should be clearly attached to a specific plan, and that plan should link directly to revenue generation, margin improvement, or long-term value creation. This is not about limiting your ability to adapt to changing circumstances; it’s about ensuring that your fundraise is considered and that the use of the capital you’re looking to secure makes sense in the context of your goals.

3. Are your financials in order – and do you fully understand them?

Investors injecting capital into your business will need to have a thorough understanding of your historical and forecast financial performance.

Most investors will want to see:

A consolidated, integrated 3 – 5 year forecast (including P&L, balance sheet, cash flow statement) based on realistic, justifiable assumptions and presented on a monthly basis
At least two years’ performance history
The latest management accounts

Most importantly, you need someone in your business who can own the model, defend it under scrutiny, and explain how it reflects day-to-day business operations.

4. Is your management team credible and capable of delivering these plans?

Investors need to trust that the team they are investing in actually has the ability to deliver on the plan they have proposed. No investor expects you (or your team) to know everything, but if there are any blind spots or knowledge gaps across the senior management team, demonstrating your awareness of them and how they’ll be mitigated will go a long way.

They’ll want to know whether:

You have a track record of growing or managing businesses
If you are an owner/founder and this is your first time scaling a business, do you have the right team around you, with sufficient expertise to support the areas where you have less experience? If you are a serial entrepreneur, how best can you evidence your previous success/es?

If you’re pursuing M&A or a buy-and-build strategy, have you done it before?
M&A is a smart way to accelerate growth (more on that here), but it can also come with significant challenges. If you haven’t acquired and specifically, integrated, a business before, how can you give investors confidence that you are cognisant of, and prepared for, the potential obstacles?

Is there a strong finance function that understands and owns the numbers?
Investors will thoroughly interrogate your forecasts and financials, so you need to have a strong understanding in order to both explain and defend them. And if you can’t, you need a CFO or Finance Director who can. This person will also be responsible for evidencing the relationship between revenue, profits and cash, and how the proposed investment will be used to enhance these metrics.

Does the team reflect your future goals?
If you are a business whose USPs lie in its tech stack, do you have a CTO? If you are anticipating using funds to expand your sales team, do you have a proven sales leader with a clear strategy? Even if these people are not in place at the moment – in fact, many businesses raise funds specifically to grow their expert teams – an investor wants to see that you’ve considered the gaps and have a recruitment plan where key roles are missing.

5. Are you fundraising for the long term?

Fundraising with the future in mind requires a delicate balance.

It is not in anyone’s interest to over-leverage the business by raising more capital than you really need, but equally, you want to ensure the capital you raise is sufficient to support both your immediate and medium term plans.

In an ideal world, you will cultivate the type of relationship with your investor that means follow-on funding is an option, so it’s important to demonstrate that you’re committed to the long game and will prioritise building trust and a strong foundation for an enduring professional partnership.

6. Do you actually have the capacity to fundraise?

Before you even begin fundraising, it’s important to assess whether your business actually has the capacity to manage the demands of the process.

Does management have the bandwidth to spend time speaking to advisors and meeting with potential investors? Is your finance team able to dedicate substantial time and resources to assembling comprehensive reports and evidence of your business’ performance? Is there someone with the knowledge and capacity to ensure your legal structure is exactly as you think it is?

The preparation phase might also require governance updates, including more formal board meetings, comprehensive board packs and refined processes for collecting and presenting management information. While these steps are key to enable you to succinctly communicate how your business works to potential investors, if not already in place, they can be a significant and resource-intensive project for the management team to take on.

Preparing for investment is no small feat, so if your management team is already fully occupied with day-to-day operations, you either need to re-prioritise or outsource. This is where bringing in a trusted advisor can be impactful.

Good advisors:

Have an existing network of investors and know which ones are likely to be the best fit given your circumstances
Can help with preparation, including refinement of your financial model and gathering of information investors will require
Can be more time and cost effective in the long run by enabling you to stay focused on your business while also ensuring you don’t waste energy pursuing unsuitable funding options

Look for advisors that have worked with businesses that have similar characteristics to yours and, ideally, that operate in the same industry – this knowledge will be key to matching you to an appropriate lender.

Preparation is truly half the battle

If you are running a successful business that has already reached the kind of revenues and trajectory that make growth capital an appropriate next step, it’s more likely than not that you’ve already considered much of the above; the key is proving to an investor that you are well-prepared and on-plan to use their capital for meaningful growth.