Attracting investors can be a lucrative opportunity to cash in on your hard work and support continued growth. Make sure it is lucrative for you, though, not just those you bring in…
There are many reasons why you may be looking to attract investors in 2025. Perhaps raising funds for future growth or new product releases, diversifying the skills of the business leadership, or as part of your exit strategy. Sadly, tight economic conditions may be forcing you to sell out.
Either way, the competition for investment is fierce. There is no shortage of businesses for an SME investor to examine.
The following tips serve as a checklist for making your business stand out from the pack and attracting the right kind of investor.
1. Clarify investment needs
Before seeking investors, determine what you want from them.
There are numerous means of investing in a business, each with their own pros and cons – for the investor themselves, for the business within which they are parking their dollars, and for you as its owner.
Ask yourself: Are you seeking silent investors to raise funds? Partners to take an equity stake? Co-directors to assist with running the business? Buyers to assume full ownership, allowing you to either exit entirely or stay on as a salaried employee?
Some strategies lend themselves to shorter-term cash injections, others typically deliver better value longer term. The right option will depend on the needs of your business and your personal goals and aspirations – both now and in the future.
2. Get a valuation
Just like you get agent appraisals before selling a property and a valuation when remortgaging a loan, having a business’ valuation helps determine its market worth. This is powerful information to support your negotiations with prospective investors and determine whether you are getting a good deal or being walked over.
A valuation should consider all business assets, including: physical assets (property, equipment, inventory, vehicles, office furniture etc.); intangible assets (patents, intellectual property, brand, partnerships, goodwill etc.); customer/client databases; revenue sources; and profitability.
It should also factor in liabilities, such as debts and loans, contractual obligations, accounts payable, unpaid tax, outstanding payroll and super contributions (including your own), any director’s loans etc.
The business’ workforce is another factor. Labour is a significant expense (as every employer can attest), but the employees’ collective skills, qualifications, client relationships, performance and productivity can be a considerable asset. This is especially the case in niche markets and when, as now, unemployment remains low, making it more difficult to replace staff.
3. Think like an investor
You know your business better than anyone – its strengths, weaknesses and future potential. Unless you communicate that clearly to an investor, however, they won’t.
Consider what you want to see when investing your own money, including:
Overview: what does the business do? Where does it trade? What is the market context? Who are the competitors?
Good housekeeping: up-to-date records, accounts, payroll etc. If payments are late or records missing, you would wonder whether the root cause of the problem is poor management or poor business fundamentals.
Profit-and-loss statements: a clear and complete overview of the numbers – past, present and projected.
Revenues: clearly articulated revenue sources and opportunities for growth.
Inventory: an itemised list of everything the business owns and can monetise (including products, equipment, supplies, assets etc.)
Customer databases: current records of who uses the business, what value is derived from them, and whether this database is growing.
Protections: insurances, back-ups, contingency plans and procedures etc.
Ownership structure and governance: who owns what.
The more you can clearly show investors, and the cleaner it looks, the more value they will recognise in the business as an investment opportunity.
4. Consider your timing
Timing is crucial when seeking and onboarding investors.
Try to avoid the distraction of dealing with investors during peak trading seasons, when your focus is needed within the business, and when sub-optimal conditions restrict the business’ value (cash flow lulls and market downturns).
Tax time, summer holidays and seasonal influences can cause investors – and yourself – to be absent or distracted, instead of prioritising the investment negotiations.
Remember, too, that we have a federal election due by May this year, which can put investors into a holding pattern until an outcome (and the related election promises) are known.
5. Consider a range of sources for investors
There is no one source for finding a business investor. It will depend on what you already have at your fingertips and what makes you most comfortable. Options include:
- Business brokers
- Accountants/business advisers
- Your business mentor(s)
- Industry networking events
- Peak industry bodies
- Trade and small-business media
- Angel investor groups
- Crowdsourcing platforms (such as Kickstarter)
- Your own contacts
6. Explore in-house alternatives
Your contacts can be particularly powerful, given you already have an established relationship with them. They may even be customers, suppliers or staff, who already appreciate the business’ offering and its future growth potential.
You may not need to look for outside investment – allowing you to retain full ownership of, and dividends from, your business.
For example, self-managed superannuation funds (SMSFs) can legally carry on a business, provided its trust deed allows this and the business is operated solely to provide retirement benefits to its members. SMSFs can also purchase the commercial property your business uses, so the business pays rent to your super instead of to someone else. SMSFs aren’t for everyone, though, with considerable compliance requirements and costs to weigh up.
Alternatively, you may be able to seek buy-in from relatives, transforming you from a sole trader to a family business. This has the advantage of diversifying the risks and labour requirements while retaining revenues and ownership within the family. Plus, it can create an ongoing legacy and source of income for future generations.
7. Consider their reputation
Investors are people and it’s important to consider how those people fit into the business.
Strained relations with employees can lead to a staff exodus – valuable knowledge and experience walks out the door, potentially taking customers with them.
Poor engagement with suppliers could cause them to inflate prices, deprioritise your orders or cut off supply altogether.
Tensions between you and/or fellow directors can delay strategic decisions and erode trust.
None of this is conducive to profitable operations, and can stifle the value of the business for everyone.
Additionally, having established investors can affect your ability to on-board new ones. Some prefer exclusive relationships; some are reassured by other investors having already contributed money.
8. Protect your own interests
Above all, remember: The business is as much your investment as anyone else’s. Make sure you get the greatest value out of that investment. And don’t let it bleed your personal finances dry.
Consider also whether investors are the right way to go in the first place. If the goal is temporary cash flow support or funds for asset acquisition, SME finance options or commercial loans may be more appropriate than trading away ownership of the business.
There is no substitute for good advice to help with your decision-making. If you are seeking investment, reach out to your financial adviser, accountant and other specialists to ensure you maximise investment opportunities, minimise tax and avoid letting someone else unfairly reap the fruits of your labour!
Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.
This article first appeared in issue 47 of the Inside Small Business quarterly magazine
