Firstly we must ask ourselves what is ‘Investment Readiness’?
A simple definition: – “Providing sufficient information, credibility and trust to an investor to motivate them to invest in your firm.”
However before going outside your firm for money – you should make sure the funding you need is not already available within the firm. You already have money tied up in your business, your “working capital”. This can take many different forms: stock, work in progress (WIP), unpaid bills or assets you no longer use – to name a few common examples. In many businesses the working capital is just not working hard enough! Improving the working capital situation of the business may remove the need to raise money from outside of the firm. Here is a simple check-list to go through prior to seeking external funding:-
• Are your customers paying quickly enough?
• Are your creditors paid too quickly?
• Is there too much working capital locked up stock in the firm?
• Are there underperforming or unused assets in the business?
• Is there a way to turn transactional business into recurring revenues?
If you release working capital in these ways, the net effect will be a reduction to your operating costs plus you will have released cash to re-invest as you see fit. This is a “win-win” situation – there is no downside.
Still need the external investment?
In order to successfully raise funding, whether equity, loans, grants or other forms of finance, a firm must be in good shape and sufficiently attractive to the providers of funds. A company with higher invest-ability, that makes the providers ‘feel right’ about advancing funding, will have a greater chance of getting finance and will secure it both quicker and cheaper.
Essentially, getting a firm investment ready is all about carefully mentoring it and its people to present the right image and proposition to investors and bankers.
The need for Investment Readiness
• There is a fundamental knowledge gap in most SMEs such that they do not know the options for financing and which sources would be relevant to their strategy
• There is also much evidence that many SMEs do not seek funding because they are unsure about the process and resistant to giving up any equity due to anxiety about losing control of the business
• The low quality of applications for funds results in a high failure rate, particularly those for non-bank risk money.
Key stages in the Readiness process
• Identifying the most appropriate sources of money and discussion and analysis of the effect of any ownership dilution. The benefits and downsides of raising equity
• Reviewing the business to identify and correct shortfalls or omissions that would impact on an investment decision
• Guidance on investor expectations and attitudes
• Help with preparation of the business plan and of the live presentation
• A mock run through of the due diligence process to ensure all queries are covered, including legal, financial, management, marketing, competition
• Mentoring through the funding and due diligence process
• Post-investment management guidance
Route to Success
CMC Partners have being helping firms for 25 years, from the experience gathered we have written a white paper “Thinking about raising money for your business?” It will guide the key executives of a firm through the entire process of raising finance for growth. There are many challenges – both real and imagined – along the route to success and our programme aims to address, explain and solve those challenges.