Once you’ve secured your seed money for your small business, you’d hope to be left alone to get on with things, only reporting to your investors with financial updates.
But some investors are a little more hands on, wanting to know how their money is spent.
So how often do you need to report back?
While much of it depends on things like your relationship with the investors and any details in the initial agreement, as a rule of thumb you should be offering at least a yearly update.
This usually comes in the form of an annual general meeting and annual report. This will gather all the shareholders and investors together with the business owners to report on the previous year and give some targets for the coming year.
But sometimes you’ve got investors who’ve put a little more than other shareholders into the company and feel they want a little more in return.
For those who’ve invested least – say around 1% of the company – they get the basic treatment. But for people investing anything over 3%, you’ll need to be a little more courteous. This could include a monthly update and quarterly meetings or call.
For young companies
If you’re a young company that’s still finding its feet, the investor might not just be useful for their money. They might want to offer advice and guidance along the way while also needing regular check-ins to make sure you know what you’re doing with their cash.
In this case, you could agree to update them monthly for the first six months or until you’ve hit a specific financial target, such as breaking even.
Some investors, especially those investing in start-ups, will be looking to make a quick return on their cash so will want regular updates to see if you’re hitting targets. For example, if your company reaches a certain valuation, or has started to attract interest, they will want to be informed.
Out of courtesy
If you are feeling generous, you could set up regular video conference and email announcements and news releases to your investors to keep them happy.
Give them the opportunity to opt out of them if they don’t want to receive regular news.
There are a number of scenarios when more regular updates might be required for investors. These include:
• Potential takeover or buyout from another company
• Big projects, with updates to make sure it’s going well
• Troubled times. Updates can help put their mind at rest that you’re handling any issues.
Posted by Andrew Issott