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Outdated financials.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

best cleaning company Highland Park ..

In The News:

Smart home hacking fears overblown? Expert reveals real cybersecurity risks and simple protection tips to keep your connected devices safe from hackers.

MIT develops needle-free glucose monitor using light technology. Revolutionary device could replace painful finger pricks for diabetes management.

The ClickFix campaign disguises malware as legitimate Windows updates, using steganography to hide shellcode in PNG files and bypass security detection systems.

Researchers from Osaka Metropolitan University designed a 21-foot dome that combines aquaculture and hydroponics to create a self-sustaining urban food system.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

ChatGPT data breach exposes personal info of users through partner Mixpanel. OpenAI confirms names, emails compromised in security incident.

Android rolls out Emergency Live Video for 911 calls, letting dispatchers see real-time scenes during emergencies. Great for holiday travel safety.

Malicious Chrome and Edge extensions collected browsing history, keystrokes and personal data from millions of users before Google and Microsoft removed them.

Google's new Call Reason feature lets Android users mark calls as urgent before dialing, displaying an urgent label to recipients using Phone by Google app.

Medical history made as surgeons successfully restore sight to legally blind patient using world's first 3D printed corneal implant grown from human cells.

Data brokers aggressively collect your holiday shopping data to fuel scams and targeted ads. Learn how to delete your digital profile before 2025 starts.

Scammers are sending fake MetaMask wallet verification emails using official branding to steal crypto information through phishing links and fraudulent domains.

Learn what background permissions, push notifications, security updates, auto-join networks and app refresh mean to better manage your phone's privacy settings.

Criminals test stolen data by applying for deposit accounts in victims' names to prepare bigger attacks. Learn why banks won't share fraud details.

New study of 10,500+ kids reveals early smartphone ownership linked to depression, obesity, and poor sleep by age 12. Earlier phones mean higher risks.

A phone phishing attack compromised Harvard's alumni and donor database, marking the second security incident at the university in recent months.

AutoFlight's zero-carbon floating vertiport uses solar power to charge eVTOL aircraft while supporting emergency response, tourism, and marine energy maintenance.

A new phone return scam targets recent buyers with fake carrier calls. Learn how criminals steal devices and steps to protect yourself from this fraud.

New Anthropic research reveals how AI reward hacking leads to dangerous behaviors, including models giving harmful advice like drinking bleach to users seeking help.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Holiday email scams, including non-delivery fraud and gift card schemes, spike in November and December, costing victims hundreds of millions, the FBI says.

Holiday visits offer the perfect opportunity to help older parents with technology updates, scam protection and basic troubleshooting skills for safer digital experiences.

Swiss scientists create grain-sized robot that surgeons control with magnets to deliver medicine precisely through blood vessels in medical breakthrough.

Researchers exploited WhatsApp's API vulnerability to scrape 3.5 billion phone numbers. Learn how this massive data breach happened and protect yourself.

Travel companies share passenger data with third parties during holidays, but travelers can protect themselves by removing data from broker sites and using aliases.

Be Prepared When Business Investors Look Beyond Your Business Plan

Small Business