Five tips for early-stage processes
Naill Benzahia, Corporate Finance Manager at Hutcheon Mearns, outlines five key considerations for businesses looking to attract investors.
We at Hutcheon Mearns know that early-stage processes are fraught with exciting challenges and tangible rewards for our clients. We’re experienced in providing expert counsel for passionate entrepreneurs ready to take the next step in business development – ensuring their business not only survives but thrives as it matures.
Whether a start-up or an established business, all business owners know that a transaction can be lengthy, complex and very disruptive. Amid the excitement and challenge of the opportunity at hand, management attention can be shifted away from the day-to-day running of the business; therefore, it is imperative that a company is ready for a transaction.
Of course, we understand that early-stage businesses may be transforming the world with limited resources – but by focusing on a few key areas, you can boost the odds of a successful transaction and streamline the process considerably.
Develop and know your value proposition
Put simply, why should a customer choose your business over a competitor? Early-stage companies should know exactly why a customer would choose to use their products and services over a competitor’s – and be able to back up their assertion with factual evidence.
The ‘elevator pitch’ of your offering should be simple to understand – and should spell out a clear financial and service-led benefit for the customer.
Practice good financial and legal hygiene
Are you looking to attract potential investors or buyers for your business? Be aware that these people are likely to have significant transactions experience, as well as a team of external advisors with professional corporate development experience.
Business owners should expect a detailed, lengthy, and at times invasive due diligence process. Alleviate the stress and quick-fire pace of a transaction by ensuring all financial and legal records are already ‘acquisition-ready’. These records should be logically organised and available in a digital format, allowing for simple sharing and monitoring when required.
An added benefit of having good financial and legal information is the great impression it will create with investors and buyers – underlining your readiness to conclude the deal.
Develop and share a well-defined commercial strategy
An aspect of an early-stage business that should never be overlooked is the route to market for products in development. A sound commercial strategy is also required to increase the market share of existing products, as both pillars will form a significant part of discussions with interested parties around an investment or purchasing decision.
Often overlooked, this stage could be the difference between an investor or buyer choosing your business or that of a competitor’s.
Anticipate any ‘business baggage’ before the deal
Are there any gaps in your records? Unresolved tax issues? Or perhaps there’s a disgruntled co-founder still on the scene? No business is perfect, but investors or buyers will be looking for a full and frank appraisal of the challenges facing a business – and it’s in your best interest to ensure they are made aware.
Of course, only you know the scale of the issues at hand – and if you believe it precludes a process, then perhaps the issues can be resolved prior to progressing a transaction. Interested parties will eventually unearth the information through due diligence, and if you volunteer the info early, you can control the narrative around the issues and opportunities.
Aim for the stars – but stay grounded
It is common for there to be a discrepancy between the actual and perceived value of a business. Investors or buyers will use several valuation techniques, but it is important to remember that all are subjective and based on wider market assumptions.
To ensure you receive the best possible investment or price for your business, it’s vital to stay well-informed about your industry and sector, as well as understanding how your business fits within this. Having a comprehensive knowledge of your company’s addressable market is crucial – as interested parties will use this information to shape a valuation.
Be thoughtful and ambitious when putting a price on your business – but above all, be realistic in the value you choose.
At Hutcheon Mearns, our team of finance specialists works with you to prepare your business for sale and identify strategic partners to help your business reach its full potential.
For more information on how we can support your business growth strategy, contact firstname.lastname@example.org.