What to prepare before an investor joins your business
Accounts an outsider can follow, a plan with its assumptions, the problems named plainly and the papers in one place get a business a faster, clearer answer.
- Investing
- 4 min read
- Published
An investor who will take part in running a business needs to understand it before committing. The owner controls how long that takes. A business that arrives with its figures in order, its plan in writing and its problems named gets a clear answer sooner, whichever way the answer goes.
The preparation below is worth doing even if no investor ever joins. Most of it is information an owner needs to run the business well.
Accounts that someone else can follow
Start with the accounts for the last two or three full years and for the current year to date. They do not have to be elaborate. They have to be complete, and they have to agree with the bank statements.
An outsider reads the accounts for a few things. How the business earns its money. Which customers and products bring in most of it. What it costs to run each month before anything grows. Where cash gets held up, in stock, in unpaid invoices or in deposits. Write a short note that explains each of these from the accounts, so the reader has the owner's explanation beside the figures.
Separate the owner's personal spending from the company's. In many owner-managed businesses the two have run through the same accounts for years. Untangling them during someone else's review costs time and goodwill. Untangling them beforehand costs only time.
A plan with its assumptions written down
Write down what the business intends to do over the next year or two and what it needs to get there. Put the assumption next to each number: the price, the volume, the date a new contract starts, the hire that makes it possible. A careful investor tests the assumptions more than the totals, because the assumptions show how the owner thinks about the business.
Be specific about what new capital and new help would be for. "Growth" is not a use of money. A second production line is, and so is stock for a larger customer, or a finance function the business now needs. Each use should connect to a line in the plan, so the reader can see what changes if it happens and what changes if it does not.
The problems, named plainly
Every business has problems, and an investor who will help to run it is often joining because of them. A list of the real difficulties, written by the owner, does more for the first conversation than a polished presentation. It shows that the owner sees the business clearly. It also lets both sides judge early whether the investor can help with what matters most.
Include the uncomfortable items. A customer who pays late but cannot be lost. A dispute with a supplier or a landlord. A key person who might leave. A permit that needs renewing on terms nobody has checked. Problems that surface later, in the middle of a review, read as problems that were hidden, even when they were simply forgotten.
Who decides today, and what you want to keep
Before the first meeting, write down how decisions are made today. Who signs contracts, who approves spending, who hires and who deals with the bank. Then decide which of those you want to keep, which you would share and which you would gladly hand over.
An involved investor takes on part of the work of running the business, so the conversation turns quickly to who does what. An owner who has thought about this in advance can say where help is wanted and where it is not. The written agreement that follows is simpler as a result, because the hardest choices were made calmly and before anyone was negotiating.
The company's papers in one place
Gather the company documents in one folder. The trade licence and the constitutional documents. The register of shareholders. The main contracts with customers, suppliers and landlords. Any loan agreements. The employment terms of the people the business depends on.
Then read them side by side. Check that the company's name, address, activities and owners are the same on every document. A mismatch is usually harmless, but it has to be explained, and it is better explained by the owner before someone else finds it.
Preparation does not decide whether an investor says yes. It does mean that the answer, when it comes, is about the business itself and not about how hard the business was to understand.