How to be fit for investment
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Posted: Mon 29th Nov 2021
Lynne Brooke of The Brooke Consultancy is a legal consultant who specialises in advising SMEs and social enterprises.
In this blog, Lynne delves into how you can make sure your business is fit for investment.
If you'd like a free discovery call with Lynne for any further business support, you can connect with him here.
5 areas of business that need to be healthy
It’s important to build enterprises on firm foundations.
To be fit for investment, there are five key areas of your business that need to be healthy:
The entity you choose for your business: self-employment, limited liability company, or some form of social enterprise
Trading conditions you have for the supply of your goods and services
How you trademark your brand and protect your know-how
All employers must have employment policies, procedures and contracts of employment
Corporate governance, or ESG (environmental, social and governance): it needs to be clear how you’re running your business
Let’s have a closer look at the above areas to make sure we take all the necessary steps for that all-important healthy foundation.
The entity you choose for your business
There are many ways to structure a business, including the following:
Partnership
Charity
Community interest company (CIC)
By law, you should structure the business in a way that is tax-effective, and there are tax-driven investment incentives contained in legislation.
You’ll know whether you want to create conditions that will allow you to exit the business by either a merger, a sale or public listing.
A business exit strategy is a plan you, as the owner, make to sell your company (or your share of the company) to other investors or firms.
Trading conditions: relationships with suppliers and consumers
You need to regulate the terms on which you supply goods or services, whether it’s to consumers or other businesses.
Your trading conditions need to specify:
the product/service
payment
delivery
passing of risk
what you’ll do
what you want your buyer or user to do
warranties
You’ll have to comply with directives that regulate online trading and have appropriate policies and training. Your website should include terms and conditions, a privacy policy, your complaints procedure, and more.
Trademarking your name and logo
Intellectual property (IP) is, according to GOV.UK, something you create using your mind – for example, a story, an invention, an artistic work or a symbol. It’s an asset that is not physical in nature.
Trademarks, brands and logos have become some of the most valuable business assets, and often exceed the value of physical assets.
You need to trademark your name and logo. If it’s an invention, you’ll probably want to patent it, but you’ll certainly want to protect it by confidentiality and non-circumvention agreements (CNCA).
If you have a trademark and know how that relates to your product or services, you can license it for use in other countries and make income in royalties.
You may well find that your trademark and branding is the most valuable asset on your balance sheet. Anyone who invests in or intends to buy your business will want to see that it’s properly protected.
Employment agreements, policies and procedures
These are necessary to deal with:
grievance and disciplinary procedures
equality and diversity
sickness
capability
The policies will also need to deal with:
bribery
data protection (after Brexit, this is in the shape of GDPR)
issues of money laundering
Since more companies are adopting remote and hybrid working practices, many have chosen to implement a bring your own device (BYOD) policy that allows employees to use their own personal laptops, smartphones and tablets for work.
The agreements need a non-competition clause that requires careful drafting because if it isn’t reasonable, you won’t be able to enforce it, even against rogue employees.
Environmental, social and governance (ESG)
This is all about making sure a corporation conducts itself fairly and accountably in all its dealings.
Corporate governance is the framework of rules, relationships and processes within a business (a corporation), by which authority is exercised and controlled.
Articles of association are a set of rules company officers must follow when running their companies. They outline the conditions and restrictions relating to the way the company is governed, operated and owned.
Corporate governance deals with such matters as what happens if a company director dies, wants to leave, becomes bankrupt, loses the capacity to run the business, and so on.
Pitching to investors
A pitch deck is a presentation with up to 20 slides, designed to give a short summary of your company, your business plan and your vision.
You prepare a pitch deck so investors can feel secure and comfortable in the knowledge that the fundamentals for growth and managing risk are in place.
It’s essential that you have three years of financial projections prepared by a reputable, qualified accountant. The projections must be be based on fair and reasonable assumptions as to the future, and prepared on a consistent basis.
Aquis: a market for growing companies
After reading about the fundamentals for growth and pitch decks, let’s briefly mention Aquis.
Generally, a founder of a business, their families and friends can invest in the business, but usually only with very limited amounts of money. As a result, the company needs support to access new sources of capital to achieve its ambitions for growth.
Aquis (AQSE) is a market that caters for growth companies. The AQSE Growth Market is a regulatory framework specifically designed to meet the needs of small and medium-sized companies, allowing the company management to concentrate on growing their business, while protecting investors.
For this, you’ll need a corporate adviser. They play a key role in assessing whether your company is suitable for admission to the AQSE Growth Market and preparing your application.
Next steps
Lynne is offering small business owners a free 30-minute consultation. You can connect with him through his Enterprise Nation profile today.
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