All businesses currently face a challenging economic environment, and growth businesses are no different. Fuelling the UK’s growth economy, these dynamic businesses are perfectly positioned to seize opportunities and manage challenges ahead in a measured way.
However, ambition alone is not sufficient. Like any company looking to scale, innovative and entrepreneurial companies must be well prepared regardless of their market segment, with robust business models in place and compelling growth prospects. Many businesses turn to external investors to provide the funding, experience and expertise needed to help them overcome financial and operational challenges and realise their ambitions.
Investors are often well positioned to continue investing throughout the economic cycle, forming long-term partnerships with companies and supporting them over time as they grow, providing consistency and continuity despite the challenging backdrop.
With the investment climate proving more challenging, and investors understandably scrutinising every last detail of a deal, it’s essential that growing and ambitious businesses are ready to approach the market with every I dotted and every T crossed.
Securing investment for the next stage of a business’ growth takes preparation and, the truth is, few are investor-ready from the outset.
The first step is to consider what investors look for in a business. Generally, they want a strong management team, good financial performance and a well-thought-out growth plan, among other things.
Businesses typically seek investment to finance growth through expansion, which may include research and development into new propositions, new plant and equipment, hiring people or to finance the costs of launching in a new market. Alternatively, the investment may be required to fund growth using a buy-and-build acquisition strategy.
Whatever the motivation, there are a number of key things to consider when preparing for investment:
Growth plans
Whatever a business’ growth strategy, it should be underpinned by a detailed step-by-step plan, which should be supported by as much evidence as possible. Many companies struggle to articulate what their business’ USP is and how they will scale to the next level. Easy access to management information and business data is also vital in proving the case for funding, as is the ability to refine your business and set KPIs that will help to drive business growth.
People
An investment is a relationship, and relationships depend upon people. A robust growth plan should identify the leadership, technical and professional skills of the top team. Investors must have confidence that a business has the right people to deliver their growth plan. After all, people are the bedrock of success for just about every company, and a strong management team (without exception) must all have the ability to inspire and lead.
Credible financial plan
The due diligence stage of the investment process is crucial for determining success or failure. If financial accounts and supporting analysis are in the wrong format, insufficiently detailed, or in any way non-compliant with legislation, no one will want to invest.
Good data
Gathering accurate insights about a business’ performance is critical to easily identify and respond to any problems before the damage is done. The best companies will have embedded systems and reporting tools that allow management to view financial data and in real time. Another benefit of having robust data at your fingertips is in helping to maximise profitability.
A sustainable proposition
Business models based on short-term trends and crazes, will often enjoy short-term success but risk stagnating as interest wanes over time, or excess supply comes into the market. Investors will look to invest in strong concepts with proven longevity, to ensure customers will come back time and time again.
Scale
It’s one thing to find a couple of good sites and operate them well, it’s another to replicate that success at scale. If you’re a growing multi-site business you need to have appropriate team structures in place, allowing decision making and responsibilities to be delegated. It also needs fit-for-purpose back-office systems and software. This can become challenging the further you move away from your heartland. Another key point on multi-site businesses is ensuring you can demonstrate short payback periods and return on capital. When a business is expanding, investors want to see that each new site recoups its set-up costs within two to three years. If it takes longer, an investor will question whether the business model is viable in the long term.
The right investor
There are many investors on the market. Some have specific expertise in market sectors, some are generalists; some are known for seeking returns in a short timeframe, others are more long-term in nature. Businesses should aim to engage with those that are a good fit for their business – alignment around goals is key.
Timing
If everything falls into place and is aligned, a small number of nimble and well-managed businesses are able to achieve investor-readiness in a few months. However, a timeframe of at least three to six months is more common, possibly up to 12 or more if a business has a lot of work to do.
