Investment is a key element of growth for small businesses.
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But acquiring investors can sometimes seem like an insurmountable task, leaving business owners with the idea that they will have to rely solely on their friends and family members to invest in their company.
The fact is that there are plenty of people who are willing to invest in your business, but only if they have a reasonable expectation that they will receive a return on their investment. Your job is to convince them that they will receive a return by laying a solid foundation for investment.
Have a Business Plan
First and foremost, investors want to know that you have a plan for your business. A make-it-up-as-you-go approach simply will not cut it. A good business plan is a well-researched roadmap that spells out the goals and strategies that will be required to achieve real growth. It should also include information about your competition and market research that indicates how effective your strategies will be in the marketplace.
You should also be prepared to present potential investors with a written agreement dictating the terms of their investment and an exit strategy detailing the process for divestment.
A written investor agreement accomplishes several things. It communicates to investors that you are serious about investment and indicates that you have taken steps to prepare for it. An investor agreement also boosts investor confidence because it clearly spells out what will be expected of them should they decide to invest in your business as well as legal security for their investment. At the same time, it safeguards your rights and responsibilities by providing you with a documented agreement regarding the scope of the investment relationship.
Track Record of Growth
One of the most important things you can do to attract potential investors to your business is to demonstrate a track record of growth. Investors like to invest in companies that have a proven ability to achieve bottom line growth. You don't necessarily have to set the world on fire, but you do need to be able to show investors that you are able to consistently set and meet your goals.
Healthy Financial Statements
Along with a track record of growth, investors will also want to see financial statements that correspond with the goals and strategies laid out in the business plan. If the numbers indicate that your company is in the midst of a financial crisis or if they don't back up the expectations you have communicated to them, investors will be leery to commit. It's not a bad idea to go over your financial statements with your accountant before you approach potential investors. In some cases, you might be able to take steps to make your financials more attractive for investment.