Want to Impress Investors? Understand The Way They View Risk.

One of the greatest testaments of business success is the ability to grow your company and either sell it for a tidy profit or continue operating the business yourself and enjoy ongoing financial security. However, some businesses have to turn to the deep pockets of angel investors or lenders that can provide the funds you need to grow and stay competitive.

What I’ve found that isn’t always as clear is how exactly to acquire those funds.

It requires more than asking your bank for a loan or reaching out to investors with a good pitch. Anyone or any entity that considers giving or lending money to further your venture is doing so for their own interests. And when given the choice, investors will always choose less risky investments over those that are riskier — it’s just human nature.

I believe it’s also worth mentioning that even if you’re not currently trying to attract the interest of investors, understanding the risks in your business is critical to your success. As a business owner, you have a fiduciary duty to your staff and customers, and identifying potential threats in your business can help you to prevent its failure.

One solution I recommend is conducting an internal risk assessment. This not only helps you identify where the gaps are in your company, but also shows any potential investors you may approach down the line that you took steps to fill the cracks.

And if you want to take it a step further, understanding how investors perform risk assessment can help you to put your best foot forward when asking for funding, identify and fix potential gaps in your business, and achieve an optimal outcome.

What is Risk Assessment?

The high-level definition of risk is an event, consequence, or change in circumstance that creates uncertainty in achieving business objectives. Risk can cause expected results to deviate from forecasts and projections, and without a deep understanding of the risks that lie ahead, it can be difficult to map out strategies for success.

Identifying and managing risks allows you to control (and often prevent) the organizational, financial, and legal consequences they create.

As a business owner or executive, one of your most critical roles is to identify weak areas that may cause your business or fail, or at the very least, make you less profitable. From finding cash flow leaks to managing your reputation, risk wears many masks that can affect how all of your business’s moving parts work together.

Successful businesses prioritize risk management as part of their operating strategy that allows them to identify and mitigate issues before they can become problematic.

Types of Risk in Business

In truth, both business owners and investors share many of the same common goals and interests when conducting a risk assessment. Lenders and investors want to see your business succeed just as much as you do because their investment is also at stake.

To mitigate their own risk, investors conduct a risk assessment of your business to discover what could potentially result in the loss of their investment. This assessment will usually include the following areas:

Business Risk

From big corporations to small family-owned restaurants, all businesses carry risk. Investors will look at the overall feasibility of your business model and how well your product fits in the market to determine whether you’re a safe investment.

Financial Risk

Investors look at more than just incoming revenue and your bottom line. They also care about the “in between” figures, such as cash burn compared to incoming revenue, projections, and long term viability. They’ll also review your debt picture and how well you’re managing payments.

Operational Risk

Even with a viable product in the right market, much of your business’s success will hinge on how your company operates from day to day. This includes the way you manage projects and employees, the efficiency of your processes, and the likelihood of key equipment breaking down that could create bottlenecks in production.

Other Forms of Risk

Risk can take multiple forms in any business. Regulatory compliance (e.g. new regulations that have been introduced that may affect how you conduct business) and legal compliance (e.g. not leaving gaping holes in contracts) help you avoid potential fines and fees that can destroy your profit margin.

In our digital age, I’ve noticed that cybersecurity is also playing an increasing role in risk assessment. Protecting user data can provide peace of mind to employees and customers alike and avoid the fallout of a security breach. Businesses must now comply with GDPR standards or risk incurring fines.

There’s also the general reputation of a business to consider. Does the public perceive the business as a trustworthy company they want to do business with? Do your online reviews reflect a positive persona? Are your employees embroiled in scandals or generating negative press?

Finally, investors may take into account the physical risks associated with your business. Things like fire hazards in the office or a lack of data backup can create disastrous consequences if left unaddressed.

I acknowledge this is a lot to take in all at once, especially if you haven’t been diligently performing risk assessment in your business. But as the old proverb says, the best time to plant a tree is 20 years ago; the second best time is today.

How to Identify and Manage Risk with TABS™ Score

Companies who are seeking the interest of lenders or investors can give themselves a competitive advantage by first conducting their own risk assessment. This allows you to view your business from an investor’s perspective and identify problem areas that could prevent you from receiving funding.

One tool that can provide these deeper level insights is the TABS Score™ (developed by a consortium of multi-exit startup founders, Fortune 500 executives, and a handful of angel and institutional investors) as a comprehensive risk assessment tool for small to medium sized businesses across all industries. The assessment covers 100 evaluation points across 8 categories to simplify your due diligence and mitigate risks as you grow.

After completing the assessment, you will receive a final score and comprehensive report that explains your scoring for each section, along with suggestions on how to improve problem areas you can work on to improve your score. From there, it’s a matter of applying what you discovered to improve your business’s health. And if the time comes that you need to impress investors, you’ll be ahead.

An assessment like the TABS™ Score is a perfect example of a way to show potential investors that you are taking the necessary steps and precautions to ensure long-term success and a desire to protect their capital.

Remember, in the scary world of startups, disaster is ALWAYS right around the corner. The question is, will you be ready when it hits?

— — — — — — — — —

To learn more about TABS™ and obtaining your TABS Score™, visit www.tabsriskgroup.com or contact us at connect@tabsriskgroup.com .

DaaS (Diligence-as-a-Service) platform providing a holistic & in-depth qualitative evaluation of an early-stage venture. Powered by FSLTD. www.tabsscore.com