Investor-Ready Financials: How to Prepare Your Business for Funding Success

Author

Steven Williams
April 27, 2023

Hi, this is Steven from Drop. If you’d like to see if we can help you grow your business get in touch today.

In today’s email:

  • Investor-Ready Financials: How to Prepare Your Business for Funding Success:

    • The Essential Financial Documents

    • Key Financial Metrics Investors Look For

    • How to Prepare Your Financials for Investors

  • Tools to help you grow

Investor-Ready Financials: How to Prepare Your Business for Funding Success

Securing funding is a crucial milestone for startups, and one of the biggest challenges is having investor-ready financials. Investors want to see your business's financial health, growth potential, and risk management before they put their money on the line.

Today, we'll outline the key financial documents and metrics investors expect to see and offer guidance on how to prepare these materials to maximise your chances of securing funding.

The Essential Financial Documents

Financial Projections:

Investors want to see your business's financial projections for the next three to five years, including revenue, expenses, and net income. These projections should be realistic and based on solid assumptions, as they'll play a significant role in determining your company's valuation.

Income Statement (Profit & Loss Statement):

This document shows your business's revenue, expenses, and net income over a specific period. It's essential to have an accurate, up-to-date income statement to showcase your business's profitability and growth trajectory.

Balance Sheet:

A balance sheet provides a snapshot of your business's financial position at a specific point in time. It outlines your assets, liabilities, and equity, giving investors an idea of your business's overall financial health.

Cash Flow Statement:

This statement tracks the flow of cash in and out of your business over a period. It's critical for investors to see your cash flow statement to understand your company's ability to generate positive cash flow and manage expenses.

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Key Financial Metrics Investors Look For

Revenue Growth:

Investors want to see a track record of growing revenue, as it's a strong indicator of a business's potential to scale. Make sure you can clearly demonstrate your company's historical revenue growth and future projections.

Gross Margin:

Your gross margin percentage demonstrates how efficiently your business is generating revenue from direct costs. A higher gross margin indicates better financial health and potential for growth.

Customer Acquisition Cost (CAC):

CAC represents the average cost to acquire a new customer. Investors want to see a reasonable CAC relative to your business's industry and size, as well as how you plan to optimise it over time.

Customer Lifetime Value (LTV):

LTV is the average revenue generated by a customer over their lifetime. A higher LTV relative to CAC indicates that your business can scale efficiently and generate more profits in the long run.

Burn Rate:

Your burn rate is the amount of cash your business spends monthly to cover expenses. Investors want to see a manageable burn rate and a clear plan to achieve profitability or positive cash flow.

Runway:

Runway is the amount of time your business can continue operating with its current cash reserves before needing additional funding. A longer runway demonstrates better financial stability and reduces the risk for investors.

How to Prepare Your Financials for Investors

Keep Your Financials Updated and Accurate:

Ensure that your financial statements are up-to-date and accurately reflect your business's financial position. It's essential to maintain organised records and use accounting software to simplify this process.

Hire a Financial Advisor or CFO:

If you're not confident in your ability to prepare investor-ready financials, consider hiring a financial advisor or CFO to help. They can provide valuable expertise and ensure that your financial documents meet investor expectations.

Benchmark Against Industry Standards:

Compare your business's financial metrics to industry benchmarks to understand your company's strengths and weaknesses. This information can help you identify areas for improvement and demonstrate your competitive advantage to investors.

Develop a Solid Financial Plan:

Create a comprehensive financial plan outlining your business's growth strategy, revenue model, and plans for achieving profitability. This plan should include a detailed breakdown of your financial projections, assumptions, and any contingencies. Investors will be more likely to fund your business if they can see a well-thought-out financial plan with clear goals and milestones.

Be Transparent About Risks and Challenges:

Every business faces risks and challenges, and investors appreciate transparency. Be open about the potential challenges your business may face and provide a plan for mitigating these risks. This honesty will help build trust with investors and demonstrate that you're prepared to handle any obstacles that may arise.

Prepare to Answer Investor Questions:

Investors will likely have questions about your financials, so be prepared to address their concerns. Familiarise yourself with your financial documents and metrics, and be ready to provide context, explanations, and additional information when needed.

Practice Your Financial Storytelling:

Just like the rest of your pitch, your financial story should be compelling and easy to understand. Practice presenting your financials in a clear, concise manner that highlights your business's strengths and growth potential. Remember, investors are looking for a strong return on investment, so make sure your financial story paints a picture of a business poised for success.

By having investor-ready financials, you'll be better prepared to secure funding for your startup. Remember, investors want to see a solid financial foundation, a clear growth plan, and evidence that you can manage risks effectively. By providing accurate financial documents, showcasing the key metrics that matter, and telling a compelling financial story, you'll maximise your chances of funding success.

If you’d like to see if we can help you grow your business get in touch today.

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