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Don’t SPOOK Potential Investors with Messy Financial Records

Halloween is right around the corner, and many kids are getting excited to wear their costumes and go door-to-door looking for treats from the neighbors. Even if your business isn’t planning any Halloween activities, it might be a good opportunity to see if you are inadvertently scaring away potential investors.

Bringing investors into your small business is a significant step to help your company grow in the future. But, it is essential that you find the right deal that will set your company up for success. Picking good investors is important to ensure that you are ready for the growth that is possible in your company.

Do You Need Business Investors?

It is a big decision to bring investors into your company. Whether you are in the start-up phases or you have been in business for several years, you need to consider the impact that it could have to bring in investors who are interested in your company.

The main reason that you should consider accepting investment money is that your company is poised for growth and you want to take advantage of a great opportunity. These funds can help to launch the company into higher levels of success. If you don’t have the cash flow or employee base to support this growth, the investment money might be the right solution.

Before you make this decision, it is important that you talk to experienced financial advisors for more information. For example, ongoing accounting services are important so that you can see the financial history of your company. This information will help you track the progress and identify if you are ready to bring in more help and cash flow.

Pros and Cons of Business Investors

As you consider the investment money that is available, look at the pros and cons of bringing in investors. Benefits of investors include:

  • Human Element: Investors don’t always have the same requirements as banks or other financial institutions. If an investor is passionate about the work that you are doing, then they might be interested in trying something new. They want to look at the numbers, but they also want to see the vision of the company. Most investors are established entrepreneurs who are willing to take a little more risk with their funds compared to a bank. If an investor can see the potential of the company, then they won’t be worried about making a larger investment.
  • No Loan Repayment: If you take a loan from the bank, then you will be expected to repay the money regardless of the success of the company. On the other hand, investors are taking a portion of ownership in the company. So, you won’t need to pony-up the cash if the business fails.
  • Higher Odds of Growth: Not only are you receiving money from the investor, but the person might be able to offer insight into business strategy. These investors are usually experienced business players, and they can improve the future growth of your company through their advice and expertise.

Even though there are advantages of business investors, you might run into a few drawbacks as well:

  • Higher Expectations: An investor might be willing to throw in with an unproven business model. Even though they have a higher risk tolerance, this tolerance often comes with higher expectations as well. They want to make money on the deal, not just donate it to your ideas. Most investors want to know the anticipated rate of return that is available.
  • Giving Up Future Earnings: Since you hand over a portion of the ownership to an investor, you will also give up a portion of your future earnings. The deal will be negotiated on the amount of money that the investor puts in. If you experience huge business growth in the future, then you need to consider the amount of earnings that you will need to pay the investor.
  • Hand Over Full Control: During the start-up phase of your company, you have full control over the decisions that are made since you are the sole owner of the business. When you hand out partial ownership to investors, then you are giving up some of the ability to make these decisions. Most investors don’t want to take a hands-off approach to their business dealings. So, you need to be ready to allow them to participate in future decisions that can affect the company.

Investors vs. Bank Assistance

Just because you need financial help, doesn’t mean that you need to hand over some of the control of the company to investors. Some business owners want to maintain as much control as possible, so they look for other financial opportunities instead.

For example, if you are in a bind with cash flow, then you might consider the option to talk to the bank for a small business loan. If you can show the growth of the company and the future success that is possible, then it is likely that your bank will be willing to lend the money to help you continue.

Many small businesses turn to traditional banks, community credit unions, and other financial institutions for the capital requirements of running a company. But, there are times when these financial options won’t be enough. If you talk to the bank and you can’t get enough money to meet your requirements, then it might be time to bring in investors.

What Will Business Investors Be Looking For?

Before you pitch the investment opportunities, you need to be sure that your accounting reports are ready to show. If your books are a mess, then people won’t trust the management of the company. They will view the opportunity as a risk, and walk away.

So, you need to be sure that you are consistent with all the bookkeeping and accounting tasks, allowing you to provide accurate reports when you are ready to bring in investors. The easiest solution is to hire an outsourced accounting team, such as Easier Accounting, before you are ready for the investment money. These services can create the foundation that you need so that you can attract the investors that will set your business up for growth in the future.

In addition to the financial reports, investors often want to learn more about the overall structure and daily activities in the company. Most investors don’t rely only on the financial reports. They want to know about:

  • The problems in the industry and how you are overcoming these issues.
  • The types of acquisitions and mergers that might be available.
  • Retention of top management and key employees.
  • Staffing issues and employee satisfaction.
  • Current and upcoming trends in the industry.
  • How future political and economic factors will influence sales and growth.
  • Inventory and supply flow.
  • Cash flow on a monthly and annual basis.
  • Business assets and liabilities.

How to Find Business Investors

If you make the decision that you need to bring in investors, where do you start? The best solution is to look to your current business community to see if anyone in your network is interested. Talk to a few trusted people, and they will be able to help you connect with parties who might be willing to add their money for the business opportunity.

Another option is to talk to business capital brokers. These brokers stay networked in the community and business world. You can tap into a group of potential investors, and the broker will help you navigate the options to find a good fit.

The potential investors will research your company to see if they are interested in the opportunity. At the same time, you can do your research to see if it is someone that you want to work with. Make sure that you know your investors, and don’t be afraid to ask the right questions regarding their experience and background.

Be ready with detailed financial reports, as well as a fine-tuned pitch for people who might be interested. Know the motivations and interests of the investors, and cater your information to match their preferences. If you have insight into your audience before the meeting, then you can make adjustments with your pitch to increase the likelihood that they will be interested in the investment opportunity.

Don’t forget to bring a solid business plan to the meeting. Potential investors will want to see the history of your company, as well as the possibility for growth in the future. Having a professional business plan will help them see that you are serious about your business efforts.

Where to Find the Financial Support that You Need

Do you feel like you are in over your head trying to keep up with the financial requirements for your company? Then it might be time to hire a team of accounting professionals to help with some of the most important tasks of running a company.

Here at Easier Accounting, we are happy to support your business efforts. Whether you are just getting your start-up off the ground or you are ready to expand with investors, we are here to help. Contact our company to learn about the accounting services that are available: (888) 620-0770

Why is it Important to Categorize Expenses in Your Business?

Have you set up a business financial system to track expenses and income? When this system is put in place, it is important to be careful about the categories that you are using for business expenses. These costs are inevitable, and the right tracking system can give you full transparency about how the money is being spent.

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What are Expense Categories?

Expense categories are general topics that can be used to group transactions for tracking purposes. These expenses can range from rent and utilities to employee wages or office supplies. It might seem tedious to set up multiple categories for your company. But, a little work in advance can be very beneficial for long-term success.

Take some time to evaluate the way the money is spent, and look at the major categories of spending. Make a list of the expenses that you have a regular basis, and identify how these things can be grouped together or separated into unique categories.

If you are having a hard time identifying the right categories for your company, then you will find it beneficial to work with an experienced accountant who is familiar with best-practices. An accountant can be invaluable to help you set up the right system and manage the ongoing financial tracking for your company.

Categories Show Financial Transparency

To maximize profitability, you need to know where the money is coming from and how it is spent. Without this information, it is difficult to make effective decisions for your business.

For example, you might have a number that shows the total amount of money that was spent last month. But, you are missing a lot of information if you don’t have a breakdown of how the money was spent. It is possible that you are over-spending in certain categories, and this overspending could easily be curbed if you were informed about the spending patterns.

These categories are also beneficial to help you set up a budget and stick to it. Make sure that you are spending less than you are bringing in and review the financial reports to see if there are any areas where you can cut back spending.

At Easier Accounting, we are here to assist with your business financial needs. We know that it can be a hassle to manage the accounting tasks within a company, which is why our team offers the assistance that you are searching for. Let us take care of the financial system and tracking, so that you can focus on other responsibilities within your company. Call us today for more information about the services that are offered: (888) 620-0770