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KnowYour Numbers: 7 Numbers You Need to Know When Pitching to An Investor
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by Maker’s Row on February 12th, 2016 in BUSINESS, ENTREPRENEUR
If you are a fan of the show “Shark Tank” you know more than anyone that before you jump in you have to know your numbers up, down, left, right, and backwards. The Sharks are investing tens and even hundreds of thousands of dollars into your business, so they want to know that it’s sound. While pitching to an investor may not be as dramatic as the show, it is still a huge moment in the life of your brand. You want to make sure you get it right and one of the most important aspects of your pitch are the numbers. Make sure you know what numbers they’re going to ask for and have them prepared.
Revenue
This one is a no-brainer. An investor is of course going to want to know if the product is selling and how well. However, you also have to consider how many units are being sold, where they are being sold from, and if you are promoting them.
They want to know that you are making a product that can sell. Make sure you know how well it is selling, at what rate, and if your revenue is growing. If it is, give a reason. If it isn’t, give a reason.
Costs
Your product is selling; however, your investors are going to want to know how much it takes to make them. This will give them an idea of what your profit is. Even if you’re making a great product that’s selling well, it doesn’t matter if it’s costing you as much to make it as it does to sell it.
Also keep in mind that you should also include how much it takes to acquire a customer: advertising costs, promotional costs, etc.
Debt
How was your company funded? Do you have to pay back whoever you got the money from? Investors aren’t going to want to deal with paying back your debtors. If you do have debt, explain why you have it and how you’re paying it back.
Inventory
How much excess product do you currently have? Hint: The less you have, the better. Investors want to see that you are selling any inventory that you have. The less you have means that you are selling more and not having it sit around waiting to be sold. Excess inventory is dead weight. It’s product that you spent money on to make that you are not getting a return for.
Expenses
Not all your costs are tied up in your products. How much does it cost to run your company? Remember to take into account your office expenses, inventory expenses, and payroll.
Valuation
I am asking for an investment of $______ for a __% stake in my company.
This is how almost every “Shark Tank” pitch starts. You’re selling part of your company, however how much you sell that part for gives your investor a very important number: how much you think your company is worth. However, you have to back this up with facts. Whether you’re using a comparable company, your assets, or discounted cash-flows to get this number, you should make sure you know how you got it.
Projections
If you’re company is doing well, that is great and attractive to an investor. However, a huge concern is also where the company is going. Is your revenue growing? What’s your plan to keep it growing? How much will that cost? How much will you make?
Investors are very forward-looking. Not only do they want to know that their investment is going to make money, but also that is going to make more money. You have to prove that your company is a worthy investment. Knowing your numbers is the path to that.
Be sure to have everything from this checklist:
▪ Customer Lifetime Value (LTV)
▪ Customer Acquisition Cost (CAC)s
▪ Conversion rates
▪ Growth rate – For investors, growth rates typically represent the compounded annualized rate of growth of a company’s revenues, earnings, dividends or even macro concepts, such as gross domestic product (GDP) and retail sales. Expected forward-looking or trailing growth rates are two common kinds of growth rates used for analysis.
▪ Margin
▪ Revenue
▪ Profit
▪ Cost of Goods Sold
▪ Inventory levels
▪ Site Traffic – Either website traffic or brick and mortar office/store
▪ Existing Ownership breakdown of Company
Read the article: “Know Your Numbers” uploaded in a separate file.
Read the guide: “How to Write the Financial Section of a Business Plan” found here:
https://www.inc.com/guides/business-plan-financial-section.html
Answer the following questions:
1. What 7 Numbers do You Need to Know When Pitching to an Investor?
2. Is a business plan the same as a comprehensive accounting statement? Why or why not?
3. What is the most important reason to compile a financial forecast?
4. What is the value of including a business financial history as part of the financial section of a business plan? For whom is this information meant?
