Why shining a light on your finances is key to growth and getting investment.
What is it that consistently makes a great business stand out from the competition? What continually persuades investors to support one organisation over another?
Surprisingly, it’s rarely the company’s USP. Great products and services may get companies noticed, but they don’t get them bought.
What’s music to the ears of all investors is how a company manages its cash flow and plans its financial future.
Yet too many companies looking to get investment or make an exit neglect the numbers. Viewing tasks involving calculators and spreadsheets as chores to be endured rather than opportunities to grow and reel in investment.
So here’s why you should focus on the figures as much as you focus on your product or service.
Good finance is about acting, not reacting
At ValueMaker the most common fear business owners talk to us about is running out of cash. That nervousness stops leaders make brave decisions about the future of their business and leads to growth opportunities being missed.
This usually occurs because small companies often don’t have the right people in place to focus on things like cash flow and forecasting. Instead, finance departments are frequently set up to react (pay bills, chase late payments) rather than act (handle cash flow, plan for growth).
Shifting to a proactive financial attitude is one of the most significant and positive changes a company can make. Hiring a progressive finance leader is as much a game changer as bringing in a great product designer or expert marketer.
Good leaders create structure, which leads to consistency, which in turn builds confidence. Confident companies find it easier to build momentum and are the ones that ultimately succeed.
Cash (flow) is king, not profit
Virtually all companies experience challenges with cash flow. It’s part of being in a growth business. What’s key to overcoming this obstacle is to always shine a light on your finances, rather than try to ignore them.
A frequent mistake is to focus exclusively on profit, instead of on cash flow. It’s vital you have visibility of your cash at all times and one way of doing that is to always set yourselves cash flow targets.
Get your invoices out quickly and be clear about payment terms with customers. Ask yourself what you can do to make it easier for customers to pay. For instance, would an instalment payment plan for clients keep the cash flowing more smoothly? Keep asking questions and you’ll soon find what works for you.
Even if your business is healthy, you still should set cash flow targets. Cash flow discipline is central to how investors view your company, so get it right.
Young companies need to be as analytical as mature ones
Many startups delay implementing more rigorous financial processes until they reach a certain growth point. It may save hassle in the short term, but in reality it’s simply shifting the problem to another day.
The sooner you put in place robust financial structures and forecasting the better your company will function. Technology today means it’s never been easier to have a comprehensive view of your finances. Not only is there plenty of affordable software that allows you to efficiently and effectively stay atop your finances, these tools allow you to have real-time insight into your figures. Meaning potential cash flow challenges should be spotted before they happen.
In an increasingly fast moving global economy, real-time cash flow figures and forecasting tools aren’t a luxury, they are an absolute must.
Strong forecasting leads to better investment
Good planning and forecasting not only increases your chances of getting investment, it also means that you are more likely to get the right amount of capital injected when you do need it.
Few things are worse than winning investment and finding out six months down the line you need to go back to the well for a top up. This not only disrupts your work flow, it will also concern investors who will wonder why you were off the mark in the first place.
Putting forecasting and cash flow projection at the heart of your planning also ensures you and your employees understand the language and culture of investors. Making it easier to communicate with and work with those who can help your business step up to the next level.
Look ahead, not behind, to inspire investor trust
Going to investors requires opening up the inner workings of your company. It’s uncomfortable, but necessary. But it can often do more to seal the deal than any USP can.
A progressive financial culture will always inspire confidence in partners as an attention to detail and an accurate understanding of everything from your cash flow to your projected annual income will minimise the financial risk to potential investors.
So make your philosophy one of looking forward as well as backwards. It’s a mind-set investors will really buy into.
Written by Zoë Tibell and Anne Blanden