Growing a successful business takes money, and often that means you need to be able to attract investors prepared to put their money to work to help you make it. That can be easier said than done, and typically Canadian investors are fairly conservative with their money.
Investors are Risk-Averse
It’s not that there’s any shortage of funding opportunities. Apart from the traditional banks and angel investors, other forms of getting finance listed on the government’s Canada Business Network page include government grants, secured and unsecured bank loans, and a range of others. A 2015 report by the Business Development Bank of Canada, however, shows that [quotes]established small businesses with above average growth find it particularly challenging to get financing from the risk-averse market. [/quotes]
Getting in Shape
What this means for business owners seeking growth finance is that your policies and management processes need to be in tip-top shape to convince investors that you are worth taking a chance on. Here’s how to do that.
Know Where You’re Going. This might sound like we’re stating the obvious, but it’s not just about having a sound, long-term strategic plan in place (although you need that, too). It’s also about being comfortable with the idea of growth.
For many business owners, growth means a need for expansion, new technology, product innovation, recruiting talented employees, deploying marketing expertise and managing greater responsibility overall. This causes increased stress and often results in owners choosing to hit a certain “plateau” and remain there.
[rquotes]The better stability and peace of mind brought about by being successful can actually be counter-productive to company growth, [/rquotes] for this reason. Experienced business investors know how to recognize this, so it’s paramount that your long-term planning includes comprehensive risk assessments and contingency plans.
Find the Right Type of Investor. Before you can go out searching for financing, you must have a clear vision of what you need to finance and how, and who to approach. This includes identifying the type of investors you need, and making sure your company fits the profile they prefer.
Start-up financing, for example, is higher risk than other types, so “angel” investors need to generate high enough returns from their winning investments to offset the losers. These type of investors are typically looking to multiply their investment by five to 10 times, so your business needs to be able to demonstrate that level of growth potential to attract their interest.
Be Ready for Investment. Investors typically look for opportunities that are in the commercialization stage, rather than the concept stage. So while you might think you have a brilliant product, few financiers are likely to fund your R&D process. [rquotes]You’re more likely to get support from government grants and non-profit investors for that purpose, [/rquotes] and to obtain venture capital investment for a big production run.
Have Your Policies and Procedures in Place. This is the single most important factor in attracting investment to your business. Few investors are likely to fund a company with haphazard accounting processes, inadequate governance and poorly maintained operations.
[quotes]You can have the most brilliant ideas in the world, but poor execution will scuttle your hopes and dreams faster than you can blink. [/quotes] An experienced business coach or management consultant can help you ensure you’re operating according to accepted best practices.
Structure Correctly. Planning for business growth requires your company structure to be streamlined and efficient if you’re to optimize your profit margins and deliver effective results. Any potential investors will want answers to certain questions, such as:
- Can your company handle expansion, or is it working at full capacity?
- Do you have the resources and systems in place to carry on with your existing business while targeting growth opportunities?
- If new initiatives are likely to disrupt existing performance, how will you ensure your customers don't lose out?
Research your preferred investors before making your approach to find out what aspects of management they value above all else. Then make sure you can answer their questions satisfactorily to take the discussion to the next level.
Get Help – You’ll Need It
[rquotes]Obtaining investment financing for a growing business is important to your success, so if you’re going to do it, do it right. [/rquotes] Take the time to do the strategic planning, the systems development, the comprehensive team development and the sound management practice. Not only will these help you find the financing you need, but will also contribute to your ability to grow the business and ultimately to getting the price you want if and when you sell the company.
The rigor and thoroughness of the due diligence by professional investors and financial institutions before lending usually exceeds the internal expertise and documentation you’ll need. That is why having experts in tax, finance, business practices and procedures and law on hand will typically pay off in a faster and more certain close on the financing you want.
The best part? By bringing in outsiders, your company will typically be not only more profitable but you’ll discover areas for enhancing performance that will pay off year after year.
If you’d like to discuss how we can assist you in getting ready for funding, let’s talk. We are experts at structuring businesses that investors love. Call: USA: 877.433.6225 or Email: feedback@focalpointcoaching.com
Sources:
https://www.bdc.ca/EN/Documents/analysis_research/high-impact-firms-accelerating-canadian-competitiveness.pdf
http://www.techvibes.com/blog/canada-risk-aversion-cultural-shift-propel-forward-2014-04-23
http://www.canadabusiness.ca/eng/page/2868/
http://www.infoentrepreneurs.org/en/guides/assess-your-options-for-growth/
