Seeking investment is a major milestone for any business. However, it can quickly become stressful and overwhelming for everyone involved without the proper preparation.
Lack of preparation can also mean an increased risk of being rejected by investors, resulting in a considerable waste of time and effort.
The problem for many business owners is knowing where to start when it comes to investor readiness. Before you jump headfirst into the funding frenzy, make sure you are set up for success.
To help with this, we have put together a checklist to help you figure out if your business is truly investor-ready.
Why You Need To Prepare For Funding
Before knowing what you need to cross off the list, it is essential to understand why preparation is key and the benefits it can have for your business when seeking investment.
- Ensuring your business stands out: Investors will get dozens of proposals, and a well-prepared business is likely to stand out from the pack.
- Saves time and resources: Having all the necessary documents prepared in advance can move you swiftly through the funding process. Having a smooth approach gives investors confidence for future interactions.
- Increased Likelihood of Securing Funding: A well-prepared business is far more likely to receive funding, as it offers investors a clearer picture of exactly how your business will succeed.
What Investors Typically Look For
Getting investment should not feel like a game of chance. Now you know the importance of preparation for funding success, let’s explore the key areas investors typically evaluate:
- Clear Financial Statements: Investors need to assess the financial position of the company. Providing investors with up-to-date financial statements and a clear understanding of your current financial position will help them determine that your business is not only sustainable but has the potential for profitability and growth.
- Scalable Business Model: Investors are looking for businesses that have the best potential to scale their returns. A clear and profitable business model that can expand over time with minimal risk will always be more attractive. You will need to demonstrate that your business has a clear path for growth and that you have planned on how to handle an increase in demand, operations, or market share.
- Market Validation: Investors need to know that there is enough demand in the market to validate their investment. Providing proof that there is demand for your product or service helps to reduce any uncertainty that they may have.
- Strong Leadership Team: A business is often only as strong as its internal team, and investors need to know that you have a strong, capable and experienced team that can execute the business plan that you have set out.
- Detailed Use-of-Funds Plan: Investors need to know exactly how their money will be used. It is crucial to have a detailed and realistic plan that clearly outlines how the investment will drive growth.
With a solid understanding of why preparation is essential and what investors are looking for, we will now guide you through iFD’s key steps to help ensure your business is fully ready for investment.
10 Key Steps to Prepare Your Business for Funding
1. Organise Your Financial Statements
Investors rely on financial records to assess profitability, stability, and growth potential. Proper organisation helps to demonstrate that your business is professional and transparent.
What should you include?
- Compile and update profit and loss statements, balance sheets, and cash flow statements for the past 2-3 years.
- Ensure your accounts system aligns using tools like Xero and QuickBooks for easy management and integration.
- Reconcile all balance sheet accounts to maintain accuracy.
Tip: Consider having a financial expert review your records to catch discrepancies before investors do. If you lack in-house expertise, fractional CFO services, such as those offered by iFD, can provide the financial oversight needed to ensure your records are investor-ready.
2. Develop a Clear Business Plan
A clear business plan is the key to success. It showcases your vision, strategy, and market understanding, giving investors confidence in your roadmap.
What should your business plan include?
- A 3-year forecast covering profit and loss, balance sheet, and cash flow.
- Executive summary
- Problem and solution
- Market opportunity
- Market analysis
- Business model
- Traction and momentum
- Competitor analysis
- Product or service descriptions
- Marketing and sales strategy
- Financials and financial strategy
- Management team
- Risk and mitigation
- Appendix
- Realistic financial projections that align with historical performance
- Regular updates to reflect market changes and milestones
3. Refine Your Pitch Deck
A strong pitch deck can be the key to securing funding. It is your chance to tell a compelling story and demonstrate why your business is worth investing in.
This is your first opportunity to capture an investor’s attention. Since investors often review multiple proposals at once, you need to guarantee that yours stands out.
What should your pitch deck include?
- At iFD, we suggest including the information below within your pitch deck.
- Problem or solution in the market
- Market Opportunity
- Revenue model
- Financial projections
- Team expertise
- The funding amount you are requesting
- Specific details on how the funds will help you achieve milestones
Tip: Keep your pitch deck short and to the point. Use visuals to simplify complex data. Practice your pitch delivery to ensure clarity, confidence, and authenticity. If you are unsure where to start, consider seeking professional support to refine your pitch deck and make it investor-ready.
4. Prepare a Use-of-Funds Plan
Investors want to know how you are going to spend their money. By preparing a use-of-funds plan, you can give them a detailed breakdown of how their capital will be used for measurable growth.
What should your use-of-funds plan include?
- Break down funding allocation into categories such as R&D, marketing, and hiring.
- Tie each category to specific milestones, such as launching a new product or expanding into a new market.
- Balance ambition with realism in your projections to avoid over-promising.
5. Show Proof of Market Traction
If there is no demand in the market, then it is unlikely investors will ever see returns on their investments. Providing proof of traction validates that your product or service has demand and that your business is ready to make an impact.
What metrics should you highlight?
- Customer growth, retention rates, and any partnerships.
- Testimonials or case studies from satisfied customers to help build credibility.
- If your business is in the pre-revenue stage, focus on indicators such as waitlist signups, user engagement, or early adopters that can help showcase demand.
6. Demonstrate Competitive Differentiation
If there is already an established market, then investors need to see how your business will cut through the noise. Identify your business’s USPs to make your business more attractive to investors. They want to know that you have a sustainable advantage over competitors.
What should you highlight?
- Your unique selling points, such as proprietary technology, first-mover advantage, or cost-efficiency.
- A competitor analysis showing why your solution is superior.
- A plan for maintaining your competitive edge as the market evolves.
7. Build a Strong Leadership Team
Your business is often only as strong as the people running it. Investors need to be able to get an understanding of your senior leadership team. If they trust the people within the business, then they are more likely to trust your vision.
What should you highlight about your team?
- The credentials and expertise of key team members.
- How your team’s skills align with your business goals and funding requirements.
- Any gaps in expertise and how you plan to address them (e.g. recruiting advisors or filling key positions).
8. Ensure Legal and Compliance Readiness
Businesses may face red tape around legal and compliance issues so it is essential to ensure that investors know your business is operating within the law and that there are no hidden risks.
What documents will you need?
- Shareholder agreements, articles of association, and a share capital table.
- A compliance review to ensure alignment with regulations.
Tip: Hire a legal expert within your niche to identify and resolve any potential risks ahead of time.
9. Prepare for Due Diligence
Investors will need to perform due diligence on your business to ensure that the plan you have outlined is achievable. Preparing for due diligence is one of the last steps of the investment process. It can also be the time when a deal falls apart.
Being well prepared for the due diligence process saves time and strengthens your credibility. Ensuring the process is smooth can also help to build trust with investors and speed up the funding process.
What should you do to prepare?
- Organise key documents, including financials, contracts, and tax records.
- Ensure information is accurate, complete, and easy to access.
- Be transparent and responsive to investor queries during this phase.
Tip: Prepare documents ahead of time and seek professional advice to ensure you are covered ahead of time.
10. Build Relationships with Investors Early
Investors are more likely to back businesses they trust and understand, so try to identify investors with experience in your niche and create a relationship early.
How can you build relationships with investors?
- Identify the most appropriate types of investors for your business, such as VCs, business angels, or private equity firms.
- Connect with these investors through networking events or direct contact.
- Tailor your approach to align with each investor’s focus or portfolio interests.
How Professional Support Can Help Streamline Preparation
While the checklist provides a solid foundation, many businesses often look to professional services to help support their funding process. This expertise can help reduce the risk of rejection for your funding proposal. At iFD, our fractional CFO services are designed to help businesses like yours navigate the complexities of funding preparation.
Conclusion
Securing funding is a long and often tedious process, but with the right preparation, you can ensure your business is as prepared as possible for investment.
Remember to tailor your approach based on your specific business needs.
If you need expert guidance, iFD is here to help. Our fractional CFO services can streamline your funding preparation process, from financial organisation to pitch deck refinement. If you need support, then book a chat with our team.