Home
>
Small Business
>
Be Prepared When Business Investors Look Beyond Your Business Plan

Be Prepared When Business Investors Look Beyond Your Business Plan

You have spent considerable time pulling your business plan together, contacting potential business investors, making management presentations and pitching your business plan to prospective business investors. Now you finally have a serious investor who wants to conduct "due diligence" before investing real cash into your business.

Great! What's "due diligence?

Due diligence is a thorough examination of available facts, references, books, records, etc. of your business and business plan.

And, what exactly should you expect during due diligence?

Skepticism...

Business investors want to be sure there are no skeletons in the closet and that your venture is not the next Madison Priest "black box technology" -- a revolutionary technology that claimed to allow ordinary phone lines to transmit data into people's homes at rates faster than fiber optics. By staging impressive demonstrations, Priest convinced private business investors and seasoned companies, such as Blockbuster and Intel, to invest money in his venture. In the end, Priest's 'magic box' was nothing but a high-tech hoax.

In addition to a detailed analysis of your financial statements, business investors will hone in on four key areas: finance, management, manufacturing, and marketing. Specific concerns in each area are as follows:

Finance

Cash. Cash is king. It's the lifeblood of all businesses - start-up or on-going businesses. Business investors know this. They will spend the time understanding your cash flow assumptions and, if you're an existing business, they'll analyze your cash management practices. Poor cash management or shaky cash flow projections are immediate red flags.

Profitability. Expect investors to compare your actual or projected gross margins from year to year. This provides a quick indicator of your historical or projected manufacturing efficiencies and pricing environment. It can also highlight potential control issues, excessive overhead, or under pricing strategies to capture market share.

Bank problems. Out of compliance financial ratios, scrutiny from banks, or suspect bank relations - personal or business - are all red flags to business investors about how you manage your financial affairs.

Outdated financials. The lack of monthly financial statements or detailed cash flow projections or, for an on-going business, statements that are not prepared on time are all indications of a loosely run operation or a lack of planning.

Management

Continual crisis. Business investors watch closely for signs of weakness in you or your management team. Constant interruptions by emergency phone calls and demands for immediate decisions are signs of disorganization and lack of management.

Substantial changes in key personal. Unusual turnover in key management positions can be viewed as a lack of leadership.

No changes in senior management for many years. An established company with little or no changes in the management team can indicate a stagnant business, not current in new methods or processes, or a very autocratic management style.

Lack of pride or enthusiasm. Seasoned business investors can just sense the true tempo and spirit of an operation and its management team. Ask them how they do it and they'll tell you it's a sixth sense or gut feel. Nonetheless, it is something they are looking for and expect to see and feel.

Manufacturing

Outdate methods and processes. Your manufacturing and service methods and processes provide a quick indication of your ability to compete in the markets you serve and shift gears if the business doesn't go as planned. Even if you're a start-up, business investors will want to know the methods and processes you plan to use to manufacture your product or provide the services you plan to offer.

Rejects. If you are already in production, investors expect you to know your reject rates, the problems causing them, and the quality controls you have in place. How you handle rejects is an important issue to business investors. Remember, rejects are not limited to only production rejects. They also include missed service calls, late deliveries, and other process failures.

Just in time (JIT). Inventory is often the first place business owners and entrepreneurs get into trouble. Too much of it and you can quickly run out of cash; too little and you'll quickly start missing deliveries and losing customers. How well you manage inventory and understand it is a key strength business investors are looking for in the management team.

Sales per employee. The measure of overall productivity is a good, simple benchmark investors can use to measure your historical or projected performance against other companies in your industry. Questions like: What is it that you plan to do differently than your competitors to allow you to use the number of employees you use or plan to use? Why do you think you can earn more or less per employee than the average for your industry?

Marketing

Market share. Be ready to compare your expected market share or changes in it to your competitors. Remember to only measure the relevant markets you serve. Also, avoid justifying your market share by taking small percentages of extremely large markets. "Our projections only assume we get 1% of this billion dollar market" is one of the most meaningless statements a business owner or entrepreneur can say.

Trade shows. Investors will be interested in the activity and interest your company's booth generates at trade shows compared to your competition. Some may even want to attend and observe the next trade show you attend. Be sure to take pictures, videos and conduct customer surveys to demonstrate and support the interest and activity surrounding your booth.

New products. What is the percentage of new products or services that generate future sales? How often will new products or services need to be introduced to maintain your market position? What is your success rate with new products and services?

Business investors are constantly trying to sniff out symptoms of trouble. It's important that you never mislead or deceive them. Most investors have extensive business experience and regularly see or have seen many different businesses and industries. The questions they ask often stem from their real world experiences. That's why it is important not to get defensive by their questioning.

Be prepared when potential investors want to get behind your business plan. Use this list to conduct your own review of your business. Then, like many successful business owners and entrepreneurs, take the time to tap into the knowledge and questioning business investors have to offer to improve your business and prepare for future investor meetings.

Mike Elia is a chief financial officer and an advisor to venture capitalists and leverage buyout specialists. His business plan ebook business plan secrets revealed shows how to make your business the most appealing investment choice to venture capitalist, bankers, and other business investors. For his free business plan guide business plan secrets revealed

residential cleaning services Lincolnshire ..

In The News:

Friendly text conversations about BBQs and social events can lead to WEEX gold trading scams that target older adults with fake investment opportunities.

California company Skyeports creates self-healing glass spheres from Moon regolith that generate solar power and support plant growth for sustainable lunar living.

Cleafy researchers discover fake VPN streaming app Mobdro Pro that installs Klopatra banking Trojan, giving attackers full control over Android devices.

Police departments across the U.S. and Canada are adopting virtual reality training to better prepare officers for high-pressure, real-world situations.

House Bill 469 would prevent AI systems from owning property, serving as executives, or gaining legal personhood in Ohio under Representative Thaddeus Claggett's proposal.

Public voter records expose retirees' personal details to election scammers who create targeted cons using names, addresses, and voting history data.

Instead of fearing what comes next with artificial intelligence, think outside the box. Here are high-earning AI jobs that don't require a computer science degree.

OpenAI CEO Sam Altman says polite words like "please" and "thank you" cost millions annually, while direct prompts may improve ChatGPT accuracy by several points.

Chattee Chat and GiMe Chat exposed intimate conversations and photos, revealing users spent up to $18,000 on AI companions before the breach.

New Instagram parental controls allow families to manage teen screen time and content limits through the Family Center with stricter safety settings.

Third-party security breach at Discord exposes sensitive user information including government IDs, highlighting cybersecurity risks from external service providers.

Survey of 1,000 students shows teens using AI for personal relationships while two-thirds of parents remain unaware of their children's AI usage.

Cybersecurity experts warn about a ShadowLeak vulnerability that weaponized ChatGPT's Deep Research agent to steal personal data from Gmail accounts through hidden commands.

Tesla's Full Self-Driving system faces federal investigation following 58 reports of crashes, with six vehicles running red lights before colliding with other cars.

The Fox News AI Newsletter brings you the latest developments on artificial intelligence, with news on OpenAI moving to soon allow erotica for adult users.

Eric Schmidt alerts that hackers can reverse-engineer AI models to bypass safety measures, citing examples like the jailbroken ChatGPT variant called DAN.

Cybercriminals exploit Microsoft Teams through impersonation, malicious links and fake profiles to gather intel and deliver ransomware to personal and work devices.

Google, Dior, Allianz and dozens of other companies lost sensitive customer data in Salesforce-related breaches affecting millions of records across multiple sectors.

Apple launches iOS 26 with new Preview app that combines document editing, PDF annotation and scanning features into one streamlined iPhone experience.

New AI road monitoring system uses sensor-embedded fabric to predict infrastructure problems, potentially reducing maintenance costs and traffic disruptions for cities.

Holiday charity scams target retirees through lookalike organization names, untraceable payment requests, and data broker information to steal donations.

The Federal Trade Commission says criminals are posing as IRS agents, law enforcement officers or other officials, often over the phone or online, to steal thousands of dollars at a time.

AI phishing scams now use voice cloning and deepfake technology to trick victims, but Kurt "CyberGuy" Knutsson reveals warning signs to watch for.

Inversion Space unveils Arc, a reusable reentry vehicle that can deliver up to 500 pounds of cargo from orbit to anywhere on Earth in under an hour.

Red flags like processing fees, urgent countdowns and requests for full Social Security numbers expose fraudulent settlement sites targeting consumers.

Be Prepared When Business Investors Look Beyond Your Business Plan

Small Business