An injection of outside capital is a pivotal moment for business growth – but how do you know when the time is right?
For self-funded LSPs who have developed step by step as cashflow allows, investment can unlock the potential to scale rapidly and push the organization to the next level.
It can also bring on board valuable strategic experience from investment partners, and position the founder for an eventual exit at a significantly higher valuation than would be possible without this boost.
We look at how business owners can know when the time is right to take this step.
Preparing a business for outside investment isn’t just a necessary step for actually securing the funding, it’s a highly valuable exercise in its own right. It’s not unusual for language services agency owners to uncover things during the process that help them understand the work that is necessary before the company will be ready to accept outside capital.
Whether you are actively considering funding or benchmarking how your business is currently running, here are some important checklist items to help you gauge how you rank:
1) Do you have a defined strategy?
A business strategy should help potential investors to understand the precise problem your business is solving and for which customers. In the LSP space, this is as much about what your company isn’t as it is about what it is. One the global issue of communication has been presented (i.e. helping end clients overcome language barriers in business), investors will need to know exactly where your company fits into the spectrum of technology and service offerings available to buyers of language solutions. A strategy should give investors detailed insight into topics such as brand identity, product/service differentiators, pricing, target vertical markets, workflow and technology integration, together with an awareness of competition and general market conditions. Critically, your strategy should illustrate how value will be created and realised for all shareholders.
2) Do you have detailed growth forecasts?
Growth forecasts show investors exactly how their money is put to work. Not only are investors interested in how fast and how far you believe you can grow with their input, they’re anxious to see how your company’s past performance data links into future growth models to substantiate projections. This means you need to lead potential investors carefully through the rationale for arriving at the numbers you do when building your model, and help them achieve a sense of confidence that your forecasts are founded on a steady base of supporting data – not cheerful optimism alone.
3) Is your team ready?
This can be easily overlooked as the number-crunching takes priority, but high on any investor’s own qualifying checklist is the leadership team of the company they’re reviewing. A hard-working and charismatic founder is a definite plus, but everybody runs out of bandwidth at some stage, and investors will be wary of a business that depends on the current manager making all of the major decisions or pulling all the strings. Not only should the company’s core competency areas such as sales, marketing, production and IT be covered by a capable team, investors should have confidence that the team is committed to the company’s long-term growth and success.
4) Does your plan have gaps?
At its most basic level, an investor’s appraisal of whether to commit capital to a new enterprise will rest on how clearly the business plan illustrates every step of the growth journey. This means showing investors that there is nothing (or at least very little) in your plan that is based on supposition or speculation. Business plans which depend heavily on growth from creation of new services or penetration of new markets can be less compelling than those which offer a clear and progressive path to scale through expansion of existing strategy.
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Adaptive M&A works with both passive and active sellers in the translation and localization industry, helping them explore market opportunities and connect with well-matched buyers for their language agencies.
You can learn more about Adaptive M&A’s services for sellers here.