When Do You Reach Out to Investors?

Written by Darcie Harris Published in

Thought Leader Blog Post

Shayla is convinced she needs an investor. A business colleague introduced her to me, thinking I could help her with some coaching and by making a few connections. So I took a look. On the surface I saw a woman who has been in her industry fifteen years and knows her target market well. I saw a small business with a novel twist and plenty of opportunities to expand in her market. I loved her business model and all the clever ways she was implementing to increase revenues and profits. Looking closer, a different picture emerged.

Her books were a mess. She's not using financial software and does everything in Excel spreadsheets. Don't get me wrong, she's good at math. But without a clean set of books there's no balance sheet. A year ago, she had problems with her landlord and was actually out of business for six weeks, creating cash flow problems. She had a previous investor who put in quite a bit of money. Together they embarked on an aggressive growth strategy. It's now 70% complete, but she's still not seeing the benefits. They had only a casually written agreement. No formal legal document had been signed. After a personal setback, he disappeared and doesn't return her phone calls. Unable to get a really good grasp of her financials (because she can't print out financial reports), I asked to see last year's tax returns. They still weren't done. Her CPA had health problems and went out of business. Did I mention that her personal credit history was bad? This is really a sad situation.

Shayla is a hard-working woman who knows her industry well. She sees what's possible and believes in her business with all her heart. But she has immediate cash flow problems and without an investor she might just have to close the doors. Yes, there's an opportunity there. But finding an investor to step into this situation would be nothing short of a miracle. Investors don't invest because you need cash. They invest because they want to make money. Usually, they want to make lots of money. If you go to an investor with a laundry list of crises, I can guarantee they will be thinking, "What's going on for you that you seem to always be in crisis?"

What turns investors off?
• Investors don't want problems. They want profits.
• Investors don't want drama. They want effectiveness.
• Investors don't want crises. They want to maximum return for minimal risk.
• Investors don't want excuses. They want results.
• Investors don't want to rescue someone. They want growth opportunities.

When is it time to reach out to an investor? When you have a small success that can be a big success. When additional capital and maybe some additional expertise can lead to growth. Your business doesn't have to be perfect. Every business has faced problems. Maybe you experienced a market shift and need investment dollars to adapt. Maybe it's time to update equipment and technology. Maybe you face the loss of key person. This is nothing to be ashamed of.

But get your house in order and go with the right expectations.
• Don't go to be rescued.
• Don't go with crisis.
• Don't go with excuses.
• Have your financials in order. A clean set of books and current tax returns are essential.
• Get your legal documents up to date. Dotting all the i's and crossing all the t's often falls to the bottom of the priority list. Make sure your operating agreement, your board minutes and any contracts are current.
• Clean up messes. Tie up loose ends.

I'm still rooting for Shayla. She's not a quitter. She's tough and resilient. I hope she gets through her immediate cash flow crisis and buys herself enough time to clean up the other messes. When she does, I'll be happy to introduce her to a few potential investors, and say, "Wow, this is one incredible women. She faced all these problems and overcame them on a shoestring budget. Just imagine what she could accomplish with your backing!" That's the story you want to bring to an investor. A small success story that could be a big success story.

©Darcie Harris, 2013 An international speaker, trainer, and award-winning consultant, Darcie Harris is a champion for women. She loves bringing out the best in female entrepreneurs. Darcie founded EWF International®, a company offering peer advisory groups, coaching and consulting for female entrepreneurs and executives, and the Alpha Mare Academy™, an online educational resource for women business owners.


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