If you want to achieve certain growth objectives for your business, having recourse to investors might be the course of action for you. While approaching investors might be commonly associated with businesses that are just starting out, a business in any stage of its growth may feel the need for the kind of funding that investors provide.
Having recognised this need, many business owners find it difficult to figure out exactly how much they should be asking investors for in an investment proposal. Asking for too much, or even too little can turn investors off and erode your credibility. Knowing the right amount to ask for takes a lot of careful consideration and planning.
- How much your business is worth. It’s best to get help from professionals in figuring out the best way to value your business, as there are many different ways of calculating this. Some of the things that go into this calculation are your business’ assets, revenue, how big your team is, and how much potential you have for further growth.
- What stage of growth your business is in. If your business has been up for some time, you’ll be able to use your business’ valuation in calculating how much to ask investors for. A newly created business won’t have this valuation and may not be able to ask for as much.
- How much your operating costs are. Add up your operating costs such as equipment, payroll, utilities, and marketing. New businesses will also have to consider registration and related costs. Then factor in any fluctuations in your operating costs and determine a percentage of your total costs to add as a buffer.
- The type of investor you’re approaching. Different kinds of investors give out different amounts, so you have to be sure you’re asking the right one. If you’re asking for an investment of $1 million or less, for instance, you should approach an angel investor. If you’re hoping for an investment of more than $2 million, you’ll want to ask a venture capital firm.
- How many potential investors you have. Being able to secure investments from more than one investor affects how much you’ll be able to ask for. More potential investors mean being able to ask for more, and vice versa.
- How you plan on using their investment. Certain aspects of your business such as production or marketing may require more resources, which should be reflected in your investment proposal.
- How much their return on their investment will be. If you want to be able to provide an ROI of X% for instance, you’ll need to ask for X amount of dollars. Show the investors how much in returns they can expect if they invest X amount, particularly when you exit or sell the business.
- How much of the business you’re willing to let them own. One way to calculate how much to ask for as an investment is to consider offering a percentage of the ownership of your business. Then you could ask for X amount, plus Y% of your business equity.
Make sure you’ll be able to back up the amount you ask for with financial records, and that your estimate of your operating costs don’t fall short. Book a discovery call with us to get help with your investment proposal and get the funding your business needs, today.