Most companies at some point needs funding from either a bank or equity investors, both types of funding come with their levels of scrutiny before funding happens.
We will look at aspects of a business that equity investors look at before deciding on funding. Some of the key areas they look at in detail are:
- Human Resource
- Information Technology
- Research & Development
This is the key area that an investor look at, and some of the aspects they look at are:
- Net profit – Net profit margin assists investors to assess if a company’s management is generating sufficient profit from its sales and whether operating costs and overhead costs are being covered
- Margins – Investors want to see your profit margins at both an overall and at an individual product level. They will also compare your margins against industry standards and competitors to evaluate your business prospects.
- Cash Flow – This is one of the most crucial areas, and a strong cash flow will allow you to handle unexpected problems and capitalize on new opportunities.
- Customer Acquisition Cost – Lower this is it is better, however, if you have a high acquisition cost, then churn rates need to be very low to compensate.
- Debt – High debt can be a red flag for investors, especially if the debt is not supported by cash flows.
- Accounts Receivable Turnover – The investors look into two important things. First, how quickly do you get paid? Second, how stable are your customers?
- Break-Even Point – Investors accept short-term losses, but sooner rather than later they want to see a profit and a return on their investment.
- Personal Investment – It is important to show that you have ‘skin in the game’ before going out to seek investments.
Typically, in a production unit, an investor will investigate the key reports which are:
- Machine Utilization
- Machine Downtime
- Production Effectiveness
- Part Production
- Production Efficiency
- Job Run Times
To that end, the operation is closely monitored and supported to maximize the throughput (revenue minus variable costs). which equipment are been used, and to meet customer needs what process are being followed to provide the best product, etc.
- Revenue per employee
- Cost per hire
- Time to fill
- Training spends per employee
- Training ROI
- Time to productivity
- Employee turnover
- Quality of hire
- Employee satisfaction and engagement
- Absence cost
Human resources are critical to the success of an organization and key areas such as:
- How are the appraisals validated to review the performance of the employees?
- Is sufficient training given
- How the company culture is maintained
- Are there any labor disputes and are the employees working in a peaceful environment
- Are documents been maintained properly (onboarding, legal, policies, etc,)?
Some of the key areas that an investor will look into are:
- Marketing strategy
- Market research
- Ad and email campaigns
- Expected outcomes
Investors may also analyze the sales growth Are you showing an upward trend, or did the beginning enthusiasm fizzle out? These will help them analyze sales and demand your product / service. Some aspects that may be looked into are:
- Number of goods sold
- Net sales
- Profits and customer acquisition costs
- Sales growth
- New opportunities