Insights / BGF explains: How long should it take to prepare your business for investment?

BGF explains: How long should it take to prepare your business for investment?

Securing investment for your next stage of business growth takes preparation. Few businesses are investor-ready from the outset.

The first step is to consider what investors look for in a business. Generally, they look for a good financial position, a strong management team and a well-thought-out growth plan, among other things.

Here are the stages of the process, with some guidance about how long to set aside for each part of the journey.

What is your growth strategy and plan?

Businesses typically seek investment to finance growth through expansion, which may include research and development into new propositions, new plant and equipment, or to finance the costs of launching in a new market. Alternatively, the investment may be required to fund growth using a buy-and-build acquisition strategy.

Whatever your growth strategy, it should be underpinned by a detailed step-by-step plan, which should be supported by as much evidence as you can gather. This may include market data, financial projections and more. The plan should highlight your vision for the business, your strategy, the opportunities and returns that will be generated, and the resources required.

Ideally, you will already have a broad business plan that you use to keep the business on course with its vision and strategy. It is important that this broad plan aligns with your growth objectives and with the objectives of your audience of potential investors.

It is possible to create an investment growth strategy in a matter of days, but it may be wise to spend longer on the process, say six to twelve weeks. It is important that your plan is thorough enough to inform and impress potential investors.

Building a management team to deliver the strategy

An investment is a relationship, and relationships depend upon people. Your growth plan should identify the leadership, technical and professional skills of your top team. Your investors must have confidence that you have the right people to deliver your plan.

For example, if your plan focuses on product development, investors may expect to see an expert in research and development on your management team. If you are planning a buy-and-build strategy, it may help to have an acquisition-driven CFO with experience in buying and merging businesses.

You may decide to recruit new members of staff before seeking investment. If so, consider that experienced and effective managers are in high demand. It can take months to hire the right people, taking into account factors such as notice periods and gardening leave.

Develop a credible financial plan

The due diligence stage of the investment process is crucial for determining success or failure. If your financial reports and accounts are in the wrong format, insufficiently detailed, or in any way non-compliant with legislation, no one will want to invest.

Professional advisers can help to draw together the necessary information, and create sales and cashflow forecasts to support your growth plan.

You can make assumptions in your plans, but they need to be reasonable and supported with evidence. You should also make every effort to explain and quantify risks, with mitigation measures included where possible. You may be asked to share detailed supplier and customer details including contracts, market data and historical records going back many years, possibly to when you were founded.

Depending on the nature and complexity of your business, this process can take up to six months. However, if there is a tax or market window to exploit, your financial management system is both detailed and agile, and your advisers are fast workers, it is possible that your financials could be completed in a matter of weeks.

Targeting the right investor

There are many investors on the market. Some have specific expertise in market sectors, some are generalists; some are known for seeking returns in a short timeframe, others are more long-term in nature. You should aim to engage with those that would be a good fit for your business.

A professional adviser may be able to help choose the right investors for you. Assuming you have access to advice, then identifying the investors with the right fit should take weeks, not months.

Is your business ready for growth?

It is important to sense-check your plans. This includes asking questions such as:

  • Is the business ready for growth?
  • Is the infrastructure in place to cope with a rapid rise in customer demand?
  • If an acquisition strategy is planned, then can the company integrate several acquisitions in swift succession?

If you are uncertain, then you must allow extra time to build the necessary capacity and include it in your plan. This could take you many months.

So, how long does it take to become investor-ready?

If everything falls into place and is aligned, a small number of nimble and well-managed businesses are able to achieve investor-readiness in a matter of weeks. However, a timeframe of at least three to six months is more common, possibly up to twelve or more if you have a lot of work to do.

Of course, there is nothing to stop you having initial conversations with potential investors while you are in the process of becoming investor-ready. If a potential investor sees your business as a good fit, and they are willing to take a long-term approach, they may even be willing to assist you in your journey.

How BGF can support your growth strategy

BGF invests patient capital, meaning we support companies in our portfolio to grow sustainably at a pace that suits them, without insisting on hard exit timelines.

We are a minority investor that backs businesses we believe in, without seeking to take control. We operate from 16 offices across the UK and Ireland, making initial investments that are typically between £1-15 million, with the potential for significant follow-on funding.

BGF’s offering is “different by design”, and we are the most active growth investor in the world in terms of investment volume, averaging about one investment a week.

 

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.

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