December 5, 2022

Capital is crucial to growing and scaling a business, allowing it to reach its fullest potential. Companies often turn to outside investors to help fill the gap between their existing funds and their future needs. However, jumping right to an outside investor won’t necessarily have the intended effect if your financials aren’t in order.

Taking the time to improve your company’s accounting and finances makes it more likely that you’ll successfully secure your funding. To help you do this, a panel of Forbes Business Council members shared 15 steps you should take before attempting to raise outside capital.

1. Prioritize Your Business Management And Operations

Raising capital doesn’t correct for poor business management or operations. A company’s true fundamentals and profitability exist with or without outside investment, whereas outside investment serves as a vehicle for scaling, growth and greater capture of market share. When in doubt, an accounting firm that specializes in your space and uses a transparent or tough love approach is money well spent. – Alex Argianas, Arginias & Associates

2. Review Finances With A Professional

A leader should thoroughly review the finances along with a professional (if available) to look for any issues. You don’t want anything strange brought up by a potential investor reviewing the finances. Make sure everything is good to go before moving forward. – Ari Chazanas, Lotus West Properties


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3. Get An Audit From A Third-Party Accounting Firm

Have your prior and current year financials reviewed (or preferably audited) by a third-party accounting firm. While it seems cost- and labor-intensive, it places a high priority on your company’s valuation and your integrity. An investor will never penalize a company for that valuable spend. It further reduces risk for investors and subtly speaks to your exit strategy. – Tej Brahmbhatt, Watchtower Capital

4. Forecast Your Company’s Future Needs

Forecasting is magical. If you forecast or mitigate even 25 to 30% of the situations that may occur, you can take decisions then and there. Companies, specifically new firms, usually forget to evaluate and re-evaluate the services and staff needed, and this puts them in this unusual spot. If these decisions are taken at the right time, this saves us from raising funds from outside sources. – Neha Madaan, Vanator

5. Set Realistic Assumptions

Assumptions are key. Merely asking an accountant to produce financial projections is not enough. A leader speaking with investors needs to be able to set realistic assumptions for scale. For example, assuming X number of hospitals adopt our SAAS platform at a yearly subscription rate of X, in the realistic timeline our team can deploy, when do we break even? Then, build out revenue streams for one to three years. – Silvia Mah, Ad Astra Ventures

6. Build A Culture Of Strong Financial Governance

The single most important thing for any organization is to inculcate a culture of sturdy financial governance across ranks. The ability to raise funds comes with the capability of elucidating the fundamentals of the business model, its goals and risks. Equally important is the necessity of a strong framework of financial integrity and credible forecasts that investors can rely on. – Lalit Ahuja, ANSR

7. Understand The Allocation Of Funds

Having a clear knowledge of the allocation of funds, particularly where it is going and how it is benefitting the company, is a basic understanding every CEO should have. If a company is bleeding money with what they already have, it will be nearly impossible to secure an outside investor to put up more money. Also, forecasting the future is an effective practice. – Gianni Cortes, Cortes Construction

8. Establish Documented Financial Processes

Before attempting to raise outside investment, a leader should ensure their accounting and finance teams have documented processes that include checks and balances throughout. Sharing these documents with potential investors will give them the confidence that your team is able to manage the outside investment appropriately. – Sissy McQuaig, Industry West

9. Clean Up Your Finances

Clean up your finances before presenting anything to an outside investor. It may be worthwhile to bring in an accountant to clean up your balance sheet, remove one-time anomalies and normalize financial reporting. Most investors want to see three years of clean financial statements to evaluate a company’s financial health prior to making an investment, so be prepared to show that. – Adam Coffey, CoolSys

10. Set Benchmark Goals

Leaders should maintain the cost budget and the financial budget, as well as measure the business earnings by setting benchmark goals. This would help in maintaining the cash balances and capital of the company. The leaders should also be apt in preparing and scheduling budgets for the financial year and try to reduce the costs for maintaining a healthy capital balance. – Caroline Lee, CocoSign

11. Automate Your Accounting Systems

One thing a leader can focus on improving internally is to automate their accounting systems with the right systems, technologies and checks and balances. Automating the accounting and financial systems not only minimizes the chances of committing an error, but also provides a way to align current financials with future projections and reduces the chances of financial misstatements. – Sidhartha Peddinti, Social Impact Ventures LLC

12. Know Where Your Money Is Going

Start by knowing where your money is going first and foremost. What is the money being spent on? How are those resources supporting the business? Are all of your necessary resource needs being met to accomplish your business requirements? Once that information is clear and as lean as possible, you can move on to data-driven forecasting and gap analysis. – Shannon Brooks, Shannon Brooks Consulting

13. Evaluate What You Can Outsource

Companies seek to raise money too quickly because they don’t take inventory of what they have and what they can outsource to experts. Take time out of each quarter to evaluate what your company is leveraging, why and what can you outsource. Often, you will discover waste that can be applied to other more impactful outcomes for your organization. – Emilia D’Anzica, Growth Molecules

14. Organize Your Financial Information

It’s important to be organized and be able to provide a clear snapshot of profit, loss and growth projections. If resources don’t allow you to have a full-time bookkeeper or finance manager, many skilled professionals can be engaged on a project basis, and there are also many sophisticated tools you can use to automate the process. – Muraly Srinarayanathas, Computek College

15. Get Accounting Support For Revenue And Accounts Receivables

I’ve helped lead multiple rounds of investment and have been on both sides of the transaction. It is really important to have an independent audit of the financials. That helps build trust from the capital firms. Be sure there is accounting support for the revenue and accounts receivables, as they are closely reviewed under due diligence. – James Langabeer, Yellowstone Consulting

https://www.forbes.com/sites/forbesbusinesscouncil/2021/09/17/before-raising-outside-capital-take-these-15-financial-steps/