When you are going to try to get investors money you really need to be armed with all the right stuff. In this article, we will cover the top-level concepts that investors will want to see before signing a check.
First…. You need to get your CPA to present a Profit & Loss (P&L) for at least the last three years if possible. If you have not been in business that long then do what you have. One important thing is to make sure your CPA has the correct categories shown and summed up. One of the most important sections is known as G&A (General and Administrative) [A general and administrative expense (G&A) refers to expenditures related to the day-to-day operations of a business.]; which are the costs to run your business like: Rent, Overhead expenses, Phones etc.
It will be very important that you have your G&A called out as for the financial projects we must account for the percent of G&A to revenue. This will be high in the first months of the upstart as you are spending lots to build up your revenue. However, as you build up your sales the % G&A to Revenue, it will be coming down to a normal level. Investors look at this number to insure you are running your company correctly, so you can see how this financial item is so important for investors.
Second…. You need to have an “Ebitda” line in your financials. Here is a direct definition “Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.” You also must have a line for percent of Ebitda to revenue as well.
Third…. You need to predict your next four years P&L. Plus the cash flow prediction’s over the which is known as: “source and applications of funds”. Investors want to understand your cash flow so they can provide you with what you need at the time you need it and not before.
In closing, you need all these items to be able to show prospective investors. Also, you should make all your excel forms “formalized” so you can change base numbers and everything is automatically calculated. Investors are not homogenous as they might want to see your projects with different inputs; thus, formalized excel worksheets are extremely important.