Businesses that are just starting out or who are in their early years of operations almost always need one thing – capital. If you have reached a point where you need to consider raising capital to move forward, it’s time to consider a financial risk assurance audit. While it may seem counter productive to pay for financial audits when you need funding, you will find that the benefits you receive outweigh the investment. With a pre-investment or pre-financing audit, you will position yourself to appear as a solid investment to potential sources of funding.
1. Show Your Investors You Are a Solid Investment
When you are looking at raising capital, proving to your investors that you are a wise investment is your primary job. While you may feel that your primary job is to find sources of funds, consider the way your investors view you. All investors know that businesses, no matter what stage of the process they may be in, have their potential problems. You need to show that you have found those problems, dealt with them and present a good investment potential. No matter what type of investor you are seeking, whether traditional financing or an outside investor, financial audits will show that you do, in fact, have the potential the investor wants.
2. Put Yourself in a Better Negotiation Position
If you choose to pursue loans as a source of capital, you may face a need to negotiate for the terms of your financing. In these instances, being able to prove that you have done your due diligence to show that you are financially stable and have a solid business plan that makes you a wise risk.
With the facts of an audit behind you, you can enter the negotiations process with a strong foundation. The lender’s goal is to minimize investment risk. Showing that you have put forth your due diligence will help prove to the potential lender that you are not, in fact, a high risk investment. You will also be able to push for concessions on deal terms as you prove that you not too big of a risk.
3. Identify and Fix Perceived Weaknesses
If the pre-financing audit shows a potential weakness, you can take the time to address them before approaching potential investors about financing options. A full pre-financing audit allows you to find areas where risks will be identified, remedy those areas and then approach potential lenders or investors with the proverbial clean slate.
Another way to look at this is to consider it as a way to help avoid surprises when you approach lenders or investors. Surprises are a sure-fire way to see your potential funding source disappear. An audit before seeking funding ensures that you will not have any surprises. This gives you better footing to secure the funding you need.
4. Give the Investors the Right Information for Their Decision
Good decisions require the right information and the right context. This goes for your investors as well as your business. When you ask for funding, you put together a business plan with projections to use to encourage investors to consider your business.
This is an important part of the process, but it is just one part. After all, any business can put together projections that make them look good, and your potential investors know this. No one wants to ask for money when they don’t think they will be able to make income. An audit shows that your projections are accurate.
A pre-financing audit can push aside those doubts. By handing a potential investor the information from a third-party, neutral audit, you can prove that you have the financial stability, market need, competitive environment and other factors an investor wants in a potential investment. This gives the investors the right information they need to make right decisions, which hopefully means a decision to provide the funding you require.
5. A Neutral, Third-Party’s View of Your Company
Finally, a pre-financing audit gives the investors the benefit of seeing a neutral, third-party’s view of your business, its potential and its current financial position. The investors know that this data is not clouded by your view of your business.
When a third-party says you are a solid investment, it makes an investor stop and consider you even that more closely. By
passing an audit before seeking financing, and addressing any issues that were found satisfactorily, you turn your business into a risk potential investors are glad to take on.
Have you considered an audit as part of the process of raising capital?