Investors often ask for a range of numbers when looking at a potential business acquisition or opportunity. Knowing what they are looking for can help you structure your conversations and demonstrate that you really know what is happening in your business.
The first step any company should have is an understanding of what your product is and who the market is you are selling to. This is an absolute must before you even start chatting to anyone else. But when you start these conversations, what are some questions you will get asked by investors?
How do you acquire the customer and how much does it cost? When acquiring a new customer, there are a range of costs that you have to think about. Google AdWords, Facebook advertising, sales commissions, affiliate payments. How much are you spending on acquiring this customer? It starts to put everything into perspective when you start seeing how much it can actually cost you.
What’s the lifetime value of a customer? How much you make from a customer over their lifetime is critical to understanding what your future prospects will look like. Selling something online? What process do you have in place to measure and track how much gross profit they make you? Selling in store? Use a loyalty or rewards card. Think Flybuys and Everyday Reward cards when you walk into a supermarket. The value of the data about your spending habits helps them understand what your lifetime value is and is invaluable in them making business decisions.
What are your overheads? That is, what are the costs that you have that aren’t directly related to a product sale. Staffing, rent, utility bills, IT costs, they all give a great understanding not only on what your cost levels are but how you run your business. Do you run a lean machine or are things bloated with plenty of fat lying around. Just remember that the numbers tell a story in their own right.
Why is it important for you to be able to answer these questions? It comes down to you owning the business numbers. And by doing so, you give potential investors confidence that you know what you’re talking about and know where your business is at.
Do you have any questions about preparing your finances to sell your business?