There are key performance metrics that investors and lenders need to see in the financial statements of a company before investing. These key metrics are looked by investors, so work with your services to track and improve them. Business accounts are nothing but the financial report card which shows how well is your business going on.
Net Profit for Investors
The financial statement of a company will reveal the net profit of a company. Net profit is the money left over by an organization after all expenses have been paid. “Did you make money?” is often the first question asked, but this is just a starting point. Unsustainable profits are bad and if you are on track to sustainability when you scale up, losses can be good. However, as many business owners still do not have a clear understanding of their net profit, this is a good starting point.
You may have a product or service that is objectively great but the real question is, are customers willing to buy it? When you build a sales record before searching for investment, investors don’t take the risk of not understanding the answer to that question. Sales growth is also a matter of concern to investors will you have an upward trend, or has the initial excitement fizzled?
Sales don’t make sense if you’re not making money. Investors also want to see the profit margins on both the total and the individual levels of the product. You will also compare the margins to industry standards and other investment opportunities available to them. By fact, higher margins result in a better return on investors. If you have low margins you will have to demonstrate a plan to improve them. In early-stage companies, the response is usually to show how economies of scale can reduce costs as you grow.
In business, cash is king. A solid five-year plan does you no good if all your employees will walk out if you can’t make payroll next week.
Investors perceive the bank’s cash as a sign of being able to deal with unexpected problems and focus on new opportunities. Free cash flow, the amount of cash left after each period you make up your expenses, is a sign of sustainable operations. If you’ve got both, investors won’t have to worry you might get under any time.
Customer Acquisition Cost
The cost of acquiring customers tells how much you have to invest to get a new customer. It’s calculated by dividing your spending on marketing by the number of new customers. This can sometimes be a very large number for a small business. For most established companies, this number can be combined and popular by regular and recommended customers who are expected to be easier to acquire.
Acquisition cost is significant because if you have trouble getting people to purchase it, a commodity that’s competitive from a resource and labor perspective may not really be profitable. This problem will arise in super-niche areas where it is difficult to spread the word about your company, or in hyper-competitive places where there is fierce advertising competition.
As with other steps, it may be more relevant for you to consider economies of scale or otherwise lower the cost than the actual number.
Investors Churn Rates
A low churn rate will account for a high cost of acquisition, and if you have stable repeat business, it is often a sign of less risk for investors. High churn rates can, of course, be the standard in industries with long purchasing periods and/or heavy competition.
There are two reasons that debt scares investors. One is clearly that if you exit the company, debt holders are getting their money back before equity holders have a chance to claim what’s left. The second, and more significantly, is that the cash eats up debt payments. High debt payments will hinder the ability to meet payroll and other expenses during slow periods.
This may also mean that you have less cash available to calm you down with a sudden surge of orders or a repair in emergency equipment. The fast debt ratio — current assets divided by current liabilities — is one of the most important leverage metrics. A fast ratio of 1 indicates you should fulfill your commitments perfectly, and the more versatility you get, the better it is above that.
Accounts Receivable Turnover
Accounts receivables performance shows how long it takes for companies to collect money. Which suggests two important things to investors.
First, are you able to do what’s needed to ensure that you get paid? Many new business owners feel bad about asking for money, and never get paid. An investor looking for a return does not want to deal with someone who is not good at tracking down payments from the customers.
Second, just how secure are your clients? A slow turnover combined with a large percentage of write-offs could indicate that many of your clients lack financially sound operations. This adds risk to your business model and investors will want a higher return to compensate for it.
Investors accept short-term risks, but they want to see sooner rather than later an income and a return on their investment. Your break-even point says what it takes to get it all handled. The break-even point is often a clear revenue goal, which will meet your costs and lead you to profitability. You can also draw on other assumptions, such as economies of scale, improved efficiency of manufacturing or lowered marketing expenses, as long as you can describe them in a way appropriate to investors.
For the hard work it takes to get your business running, you earn sweat equity, but many investors will want to see that you have made an investment in financial assets. If you have money at stake, investors think you’re going to do what’s needed to protect it. If you’re not at risk of losing financial capital, investors might be worried you’ll see them as a blank checkbook and eat them into cash without placing enough focus on protecting their money. Choosing the right Investment portfolios also does play a key role in doubling your investments made. So, read all the related documents and regulations of the portfolio before investing.
You should discuss with your controller services the different ratios which exist in each category of analysis. If you are willing to look for investing, this will help you to undergo the importance of Financial Investment where you can easily find the investors. Seeking ways to improve the business models and and company financials will attract investors interest.