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

Few businesses are investor-ready from the outset. BGF, the UK and Ireland’s most active investor, explains how to secure investment for your next stage of growth.

Draw up a detailed growth strategy

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

It’s 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 12 weeks, so that the plan is thorough enough to inform and impress potential investors.

Build 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 (R&D) on your management team. If you are planning a buy-and-build strategy, it may help to have an acquisition-driven chief financial officer (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 cash-flow forecasts to support your growth plan.

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

You can make assumptions in your plans, but they need to be reasonable and supported by 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’s possible that your financials could be completed in a matter of weeks.

Target 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 essential to sense-check your plans. This includes asking questions such as:

  • 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, you must allow extra time to build the necessary capacity and include it in your plan. This could take you many months.
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 12 or more if you have a lot of work to do.

Of course, there is nothing to stop you from 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.

This article originally appeared on the BGF Insights Hub.

About BGF

BGF provides growth capital to SMEs across the UK and Ireland, investing across sectors and in every region.

BGF is a minority investor that invests in businesses we believe in, without seeking to take control. We invest patient capital meaning we don’t set hard exit timelines, allowing companies in our portfolio to grow sustainably at a pace that is appropriate for them.

BGF typically makes initial investments of between £1m and £15m. The combination of being a minority investor of patient capital that makes investments of this size is distinctive and distinguishes BGF from most of the private equity industry. For this reason, BGF’s offering is different by design.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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