Investors, not unfairly, largely care about money, when it comes to your business. And with good reason. This is why, when it comes to your pitch, the financials are perhaps the most important thing to get right.
Before even getting into the room with an investor you need to be certain that your management accounts and all things to do with your money, in and out, are in order.
Investors want assurances that, simply, you’re good with your money. Because if the pitch goes well, it’ll be their money too. If this isn’t the case then you will seriously struggle to find investment.
In this article I will explain what you need to know about getting your financials in order before a pitch.
The investors are wanting to look at the history of your finances and the essential way to show this is through your company balance sheet, income statement and statement of cash flow.
The balance sheet lists your business’ assets, liabilities and equity ownership. It’s an easy and quick way for the investors to see what your business owns and owes with the dates giving them a time frame.
It is essential that your balance sheet is accurate. Don’t be tempted into changing any details because a) that’s illegal and b) it will not be helpful in the long run. (But really you shouldn’t need to read past ‘a’).
The most appealing business for investors are those with a transparent balance sheet because it sets a precedent for honesty and clarity as well as giving the investor all the details they need to know.
The income statement (also known as profit and loss statement) does basically what it says on the tin. It lays out your business’ profit and loss over the year.
The statement will show your business’:
- Revenue
- Costs
- Gross profit
- Income
- Other expenses
- Taxes paid
- Net profit
The key to your income statement is clarity. It should be presented logically and be easy to understand.
The statement of cash flows shows all the changes in the business’ cash account during a given period. Investors want to see this because it shows how well the business’ account has been managed.
As it presents how your business has been able to finance expenses and pay off debt, it is a useful tool to see your company’s level of financial organisation.
You can also bring explanatory notes to your pitch which you can use to give greater details on any of the previous financials. This is not essential but can be used to good effect to emphasise clarity and your business’ transparency.
You may be reading this and asking what if you haven’t been trading for a full year? Can you still approach investors? In short, yes.
In this scenario what you need to do is forecast your future financials. Because of this however, you will have to work hard to convince the investor, as you wont have facts to back you up.
This just means you have to put in a lot of groundwork to make sure what you’re saying is possible and based in truth.
The reason for the financials is that the investors are looking for your; net profit, sales, margins, customer acquisition costs and debt so they can make an informed decision.
The net profit is because the investor wants to see if you’re making money or not. And to be clear, it’s not essential that it is but it is essential that you can show the trajectory to where there will be profit. Some companies may have profit already but it’s clearly unsustainable.
They want to see your sales because if you can prove that people are already buying what you’re selling then that will ease some of the investor’s concerns over risk.
Once you’ve proved that people will buy what your business offers, the margins are there to show that you will also make a good profit from the sales.
The customer acquisition cost is an important factor because it shows the investor how much it costs your business to gain a customer. You may have great margins but if it’s clear your business struggles to gain customers then that’s a turn off for investors.
Debt is a part of business and there’s no shame in it but it can be a cause of concern for investors. All you have to do is show the investor your actionable strategy to pay off your debt.
There’s no two ways about it. You have to work hard on organising your financials and you have to get them right. It’s what investors care about and can be the difference between achieving funding and not.
If this is proving difficult for your company then you can hire a part-time finance director to come in and help your business get on the right track with your financials.
