Making the leap from a small or medium sized business to a large company, competing for industry leadership, requires a great deal of planning, organisation, and investment. Many businesses are, unfortunately, more concerned with getting growth capital than they are with finding the right investors for their business.
Before they’ll consider a potential investment, good investors need to get the idea that your business has what it takes to apply new funds efficiently to produce growth. That means maintaining a clean balance sheet, building a lean and productive organisational structure, and selecting an innovative and forward-looking leadership team.
Ideal investors—who will take an active interest in your business’ success while also sharing in its values and vision for the future—are even more difficult to attract. To do that, an already successful business needs to convert potential investors into true believers. That means convincing them of your values and your plan for the future, so that they’ll become supportive partners in your enterprise, rather than a third party that tries to change your business to match their own vision.
Clean up your balance sheet using off-balance sheet financing
All investments carry an element of risk, however few investors will be willing to gamble on a financially unstable business. Because of this, it’s critical to clean up your business’ balance sheet before seeking new investors. This can be tricky, because many companies rely on credit to manage cash flow interruptions of all kinds. By using credit-free financing tools, such as invoice finance and supply chain finance, businesses can keep these types of temporary liabilities off their balance sheets.
Both of these financing tools are off-balance sheet, meaning they don’t involve the business using them to take on any new assets or liabilities. Invoice finance is a way for a business to convert an existing asset, an outstanding invoice, into cash. By using it, the business can give itself an advance on future revenues, allowing it to cover a short term budget shortfall at a moment’s notice. Supply chain finance, on the other hand, is used as a way to extend a supplier payment term so that a business can temporarily redirect existing capital to deal with a cash flow interruption.
Promote diversity and manage gender balance
Investors are increasingly looking at social factors and culture in businesses as indicators of their innovativeness and potential. Because of this, it’s important to have policies in place to address diversity issues, and to keep organisations diverse at every level. Depending on the business’ industry this might be difficult to accomplish, so it’s important to be able to compare yourself to competitors to understand how well you’re doing.
A great deal of research has shown that gender diversity, in particular, is correlated to higher levels of productivity, and increased innovative potential. The World Economic Forum’s 2018 Gender Gap Report highlights that, on average, companies that are considered gender diverse enjoy a 48 per cent higher operating margin, a 42 per cent higher return on sales and 45 per cent higher earnings per share for investors.
In Australia, company-specific data on gender issues, for example the pay gap and the proportion of women in leadership positions, are monitored by the Workplace Gender Equality Agency. Businesses who want to find out how they are doing compared to competitors and the economy as a whole can download a Competitor Analysis Benchmark Report from their website. This gives them an idea of how they’re tracking with regard to diversity, and potentially provides them with an additional selling point for investors.
Choose investors that fit your business
Showing that your business is well organised and ready to grow is often enough to attract investment. From this point, however, businesses need to be able to select the investors that are right for them. Taking just anyone can easily backfire, because a willingness to invest doesn’t necessarily come with support for the business’ current vision and trajectory.
To ensure that the investments your business receives don’t result in investors exerting an unwelcome amount of influence on the business’ future, investors need to be convinced that its current vision for the future is already the right one. Usually, this is a matter of defining and communicating that vision well. That means creating a detailed growth plan, outlining short and long term objectives, and showing how and when the business intends to meet these. This shows potential investors what the business’ current leadership is planning, and gives them the chance to provide feedback. This allows the business to determine which potential investors will be a good fit, and which are better left alone.