Raising finance for your business is likely to be one of the more painful things you'll experience in life. The process of raising funds usually takes much longer than many entrepreneurs realise (at Envestors we'd allow 3-6 months), and often the most challenging and time consuming part is moving the conversation from 'Yes' to 'Cheque'.

Ensuring your business is properly ready for investment entails more than just knocking together a business plan and financial forecasts. Funding sources, whether individuals or funds, get a feeling very quickly whether a business is in the right shape for raising money (you'd be surprised how quickly!) so it's important you communicate your proposition and funding requirements clearly.

As a minimum, you need a business plan, financial forecast and some kind of short investor presentation. Depending who you are talking to (whether a business angel, investment fund or lender), you might consider tailoring these to suit the approach.

Keep the main body 10-15 pages long (20 pages max). In-depth reviews of the market or technology can be pushed to an Appendix.

Clearly articulate the 'problem' and therefore how your product or service addresses this problem. Make sure you don't sound like your business is a solution looking for a problem.

Divide the market in to targetable segments, and describe how you will access these different segments. Match your target segments with your major revenue streams in your financial forecasts.

Describe the management team (CVs in the Appendix), operational aspects that are important (if it's that kind of business) plus details of a realistic exit route / comparable exits.

Produce a distributable working spreadsheet showing 3 to 5-year monthly forecasts. Some entrepreneurs get all jittery about handing out spreadsheets but that can send out the wrong messages to investors and raise concerns about things being hidden in the 'real' numbers.

As a minimum, the spreadsheet needs to

i) Show the basis for the assumptions used to grow sales

ii) Permit an investor to flex the key assumptions himself

iii) Show detail of staffing and salaries

iv) Include a monthly cash flow forecast summarising sales, direct costs, salaries, and overheads / central costs plus show annualised P&L and the balance sheet.

It should also make clear a few key pieces of information:

- When do you breakeven?

- When do you run out of money?

- What the investment is being spent on and when does that money flow out?

Overall the financial model should be an illustration of how your business operates and makes money. It's your business plan, in numbers, and will help an investor understand how your business works. Consider building a separate 'clean' model just for investors, and retain your more detailed budgeting and financial planning spreadsheet for your own purposes.

1. Valuation

Investors receive equity in return for their investment. How much equity gives an implied valuation for the business. This can be a contentious issue for many entrepreneurs, but it's important to be realistic in your valuation expectations. Most entrepreneurs have over-inflated views as to the value of their business and start out with too high a valuation (i.e. they expect to part with too little equity).

There are established market values for early stage deals, and an investor will compare the risks and returns of your deal against other deals being evaluated (even if they are from different sectors). If your valuation is too high, you will receive a lot less interest and find it harder to raise the money. Speak to people who are experienced in raising finance and you will get an idea of what kind of valuation you should be looking at. Don't forget it's better to have a small share of something large, than a large share of something small!

2. Funding Amount

How much you are trying to raise often has serious consequence on the valuation of the business, (see above). Raising £1m for a pre-revenue or very early stage business will always be challenging as you have instantly valued the business at more than £2m (the investor is unlikely to want more than 50% and take control). An investor wants you to raise only what is required and certainly won't pay for 'fat' in the system. Even if your longer-term funding requirements are likely to total £1m, it might be worth thinking about raising a smaller amount initially, and raising further amounts once you have reached some demonstrable sales milestones.

3. Momentum

Make sure when you communicate with Investors that it sounds as though your business has momentum. Too often at Envestors we receive business plans where the concept is waiting for funding before moving forward. Investors are looking for entrepreneurs who don't see a lack of money as a barrier, who are prepared to go out and sell the product when it hasn't really been developed, and who can juggle many tasks at once and are prepared to take a risk.

It can take several weeks to move forward with an investor once they have shown interest. Try to keep them drip fed with a steady flow of good news about sales, product development or positive changes in the market.

4. It's not the Product!

It's common for entrepreneurs to get stuck in 'sell' mode and spend too long highlighting the product or service to an investor. You aren't trying to sell the product but the investment opportunity and it's crucial to recognise the difference. Assuming you have done a good job on the Business Plan (see above), Investors will 'get' the product quickly and want to understand how the business grows. It may seem harsh but ideas are cheap – its finding the people with the ability to execute that is difficult.

For more information on raising finance and Envestors, please visit www.envestors.co.uk