Funding & Investors – How Investors Decide on Projects
Funding & Investors always have to be wary of the companies they finance. This is because, in any investment, a certain amount of risk is always involved. Therefore, when an investor is dealing with the funding and is looking for a company to invest in, they are usually not looking to just make money on the deal. Rather, they want to find a way to get a good return on their investment and also ensure that the companies they finance will not go out of business, which is why the process of risk assessment is so important.
In most cases, when an investor invests in companies that they don’t know anything about, they put a great deal of focus on the financial statements. They will almost certainly ignore the things that are not reported in the financial statements such as inventory levels and sales growth. However, if the company is making enough profit to pay their expenses, and they have some type of a marketable product or service, then the interest of the funding partner, or private investor, will probably take a bit of a weight off the back of that company.
One of the things that is always looked at when investors are evaluating the different companies to finance is their overall profitability. The profit and loss statement should give the investor a good idea of the health of the company and whether or not it is growing at a reasonable pace. This is what makes it so difficult for some funding participants to fund companies, because they don’t know whether or not the business is growing according to the expectations of the funding source. If an investor is unable to see this, then they will probably look at the profit numbers and ignore the fact that most of the profits come from one aspect of the business and the costs of production are so high that the company can’t expand. Therefore, while many investors are eager to get funding, they are often unwilling to consider companies where their profit potential is only moderate to low.
Therefore, before a potential investor signs on the dotted line, they need to ensure that they fully understand the type of business that they are financing and that they have a very good understanding of the type of investors that they will be working with. Most commercial investors want a steady flow of money and do not want to have to wait on an investment for several years in order to see a profit. Therefore, if a potential funding source has plans to only provide the funding on a monthly basis, then it is imperative that the investor fully understands what their responsibilities will be once that funding is provided. In many cases, a commercial investor can negotiate a reasonable payment plan with a company based upon their personal financial situation.
When working with funding sources, the investor must ensure that they have thoroughly gone over the contract, the investment itself, and the terms of the agreement with the funding source. Every little detail must be taken care of in order for the investor to receive as much money as they are looking for. In the case of a loan, the investor must also be sure that all the necessary documents for the process of the refinancing have been gathered. These documents include the original mortgage, any existing lines of credit, and the original note.
Before approaching potential investors, the investor must determine how they are going to go about obtaining the funding. In many cases, investors who are looking to obtain a small amount of funding may contact various funding sources until they find one that they feel comfortable working with. The key to finding a good source of funding for a business is being able to market the business in a manner that persuades investors to invest in the business. If a business has a viable business plan and is able to attract a significant number of customers, they will have no problem raising enough funds to complete the required steps for starting the business and becoming profitable.
