So far we’ve looked at the aspects that are table stakes for potential investors in your business — profit potential, IRR, and early cash flow. We also discussed quantifying risk and reward.
Let’s say a potential investor hasn’t screened you out yet. What does she do next after setting down her calculator? Can she make a decision now?
Probably not. We’ve found that investors cannot answer all of their questions just by examining your financial statements. Here are some of the questions most frequently asked by potential investors:
- Why are you seeking investment?
- What is your vision and business strategy?
- Who are the target customers, and how successful is the business in reaching and selling to these customers?
- How satisfied are your customers? What is the reputation of the business?
- Is the business threatened or not profitable?
- How long has the business existed? Is it a growing business?
- How many years has the current owner operated the business?
- How easy is it to replicate the business?
- How competitive is the industry?
- Is the industry growing and by how much?
- What are the quality of the location and facilities?
- Are this business and industry attractive to other investors?
The interesting thing is that only two of these questions are financial in nature! Some of them do have numerical answers, but they aren’t numbers internal to your business and don’t explicitly appear on your financials. Looking outwards to get the answers is imperative.
THE BOTTOM LINE: Your business plan can’t just be financial statements. You need an accompanying narrative that answers the many non-financial questions that investors will be sure to ask.