- Milly Barker
- Jul 28
- 13 min read
Updated: Sep 24
We're back with the third article in the Investment Readiness series.
In this series of articles, we're learning about all the critical areas of your business that investors will inspect when you're going out and asking them for sweet, sweet piles of cash to build your dreams.
We're covering:
Strategy: how to define, refine, and document your path forward
Operations: assessing and optimising for genuine scalability
Finance: building robust models and projections that stand up to scrutiny (this article)
Data Room/Collateral: preparing comprehensive due diligence materials and data rooms
Coaching: getting ready for the tough questions with investment meeting and Q&A coaching
Investment Strategy: mastering cap table planning and investor identification
I'm writing this series (in part, I'm also writing it because it's really useful) because we just launched a new Investment Readiness service to help startup and scaleup Founders and Operators get the best raises on the best terms by honing their operational effectiveness - we call that service 'Op Eff It' because there are few things I love more than a cute play on words.
If this is the first article you're reading in the series, I recommend checking out the others here and here first, as they set the context for this one.
Or, if you can't wait for the rest of the series, why not get ahead of the game and take Op Eff It's free Investment Readiness Healthcheck to assess how you're doing right now across all 6 of the categories?
I’m very excited to say that this post has a guest co-author and is the first article in the history of this website to not be entirely written by me.
Will Herrmann, who has partnered with me on Op Eff It, has co-written this one and brought a huge amount of his expertise to the table. Will has over 20 years of experience in strategy, operations and finance having spent ten years in management consultancy with
Accenture before moving into COO/CFO roles in startup, VC and charity, so he brings broad and really rare perspective as well as extensive practical experience to the topic of Investment Readiness and I’m excited for you to hear his thoughts.
Okay. It's time to talk numbers, because, while your vision and how you execute it are absolutely vital to your ability to showcase how great an investment opportunity you are, finance is a lingua franca that you have to be able to speak fluently as a founder or operator.
Continuing my awful analogy from earlier in the series (because I know nothing at all about vehicles), think of your financial model as the dashboard in your car. It shows whether your powerful engine (operations) is actually hitting the speeds your map (Strategy) suggests, and whether you've got enough fuel in the tank for the journey.
This article is going to set out how your financial story only becomes truly believable and enticing to investors when it's firmly grounded in your operational effectiveness and proven scalability. Let's dive in.
What are ‘finances’ (in the context of investment readiness?)
When investors talk about your 'finances’, they're not just asking for your bank balance - they want you to weave them a compelling narrative.
They want to see a full, coherent, numerical story of your business - where you've been, where you are, and, most importantly, where you're headed. It's how they understand your past performance, current health, and potential.
This 'story' is told through a set of interconnected documents and models that paint a complete picture of your economic viability and get investors excited about how your company is the vehicle that can turn their money into more money.
Before we dive into the key ‘finances’ your company typically needs to provide to investors, here’s a super-quick rundown of three essential accounting terms:
P&L (Profit & Loss): Shows your revenues and expenses over a period of time and calculates your net profit or loss. It tells the story of your operational efficiency and profitability.
Balance Sheet: A snapshot of your company’s financial position at a specific point in time. It outlines your assets (what you own), liabilities (what you owe), and equity (what’s left for the owners - which is what you’re inviting investors to become). It reflects your financial structure and solvency.
Cashflow Statement: Tracks the actual movement of cash into and out of your business over time. This matters because a company can be profitable on paper but still run out of cash. Investors use it to assess burn rate and runway.
Together, these three statements form the foundation of any accounting system. They’re not usually standalone documents built from scratch - they’re different views of the same core financial data, structured to answer different questions about your business’s performance, health, and sustainability. You’ll see each of these views represented in the core financial artefacts we explore below.
So, what ‘finances’, or financial artefacts will investors typically need to see?
Your financial model.
(Cue Will getting visibly excited at just the mention…)
This is the big one. Without a solid, well-constructed, and compelling financial model, you
can’t (and shouldn’t) be talking to investors. At its core, your financial model is a dynamic, living tool (usually a spreadsheet or workbook) that projects your company’s future financial performance - typically over the next three to five years. It’s built on detailed assumptions about the levers that drive your business: revenue, costs, cashflow, and balance sheet dynamics.
But, it’s so much more than numbers.
Just like your Strategy isn’t a vision board (it’s your roadmap)your financial model isn’t about wishful thinking. It’s a structured way of showing how you plan to achieve your goals, grounded in assumptions you can justify.
It should give you confidence that you know exactly what needs to happen to hit your targets, and it’s a crucial opportunity to give investors confidence that you deeply understand your business model and its growth drivers.
Your accounting platform.
(Cue Will looking less excited…)
An investor probably won’t ask for access to your accounting platform - Xero, QuickBooks, Sage, FreeAgent - early in a process (possibly ever), but we give an honourable mention here because they may. More importantly, without a well organised accounting system, you can’t get to the critical artefacts below (although, scarily, we’ve seen people attempt it!).
An accounting platform is software that helps businesses track, manage, and report their financial transactions. It automates key tasks like invoicing, expense tracking, payroll, and generating financial statements such as the P&L, balance sheet, and cashflow. It connects with your bank and is a source of truth.
Your management accounts.
Your management accounts are likely the first thing an investor will ask to see. They provide a clear, user-friendly view of your financial performance - typically including your P&L, balance sheet, and cashflow - produced on a regular basis (usually monthly).
But if they’re just that, you’re missing a trick.
Best-in-class management accounts don’t just report historical performance, they interpret it. They should clearly link what actually happened to what that means for your financial trajectory going forward. That means tracking performance against forecasts, highlighting key variances, and ideally connecting those insights back to your broader strategy and operational plan.
Crucially, they should also include operational and financial KPIs that reflect how your business really works. These might include metrics like Customer Acquisition Cost (CAC), Lifetime Value (LTV), Gross and Net Retention, Average Revenue Per User (ARPU), Burn Rate.
Including this layer of analysis shows you understand your drivers - not just the numbers, but what moves them. It transforms your accounts from passive reporting into active business intelligence, and gives investors confidence that you’re running a data-informed, scalable operation.
Your financial statements.
Your financial statements, commonly referred to as your "accounts", are the formal, statutory artefacts that you’re legally required to file with Companies House and HMRC. These include your year-end P&L, balance sheet, and cash flow statement, prepared according to recognised accounting standards.
While management accounts are designed to interpret performance and support decision-making, financial statements are a compliance artefact - an official snapshot of your historical track record. They’re less detailed, less frequent, and less contextual but still essential.
Investors will almost always ask to see them, typically covering the last one to three years depending on your stage. They use them to assess the credibility of your projections, without the narrative, nuance, or forward-looking optimism you rightly include in other materials.
Depending on your size, your accounts may be unaudited or filed under micro/small company exemptions, which limit the level of detail.
Suffice to say, not having your financial statements ready is a red flag - and often a deal-breaker.
If you’re just starting out with your work towards investment readiness, this might seem like a lot. But they’re all important. Each of these 4 elements works together to build a really robust financial narrative that either convinces an investor you're a solid bet or sends them running for the hills (I think it goes without saying, but we really, really want it to be the former).
Why do your finances matter to your investment readiness?
Now that we’re clear on what the breadth of the word 'finances' actually means for investors, let's take a moment to look at why these artefacts are so incredibly critical. It’s really important to understand that this goes beyond telling a good story - it's about trust, the law, and the brutal reality of actually running a functioning business.
Investors hear hundreds of pitches. A brilliant idea and a passionate team are great - but they’re not enough. Your finances are the universal language through which investors assess whether your Strategy and operations are translating into real, scalable value.
Your financial model, management accounts, and statutory filings help answer three fundamental questions:
Do you understand how your business makes money?
Can you scale that in a predictable, capital-efficient way?
Are you financially disciplined and trustworthy with other people’s money?
They show investors whether your strategic map and operational engine can actually generate sustainable revenue and, ultimately, profit. They demonstrate that you understand your unit economics (I’m sure you’ve heard this term before, it’s the fundamental profitability of each customer or product) and that you can scale those profitable units. Fuzzy numbers or a poorly constructed model will immediately flag your business as high risk, no matter how compelling your vision.
But here's a crucial point often missed by founders: investors, especially those managing funds (like VCs or institutional investors), have a fiduciary responsibility to their own investors - the Limited Partners (LPs). These LPs are typically things like pension funds, university endowments, family offices, or wealthy individuals. They've entrusted their hard-earned (or softly inherited) money to the fund manager with the expectation of a significant return, and fund managers are legally and ethically bound to act in their LPs' best financial interests.
This means that every investment decision is scrutinised not just by the fund manager, but potentially by their LPs too.
Unless you’re speaking exclusively to very independent Angel investors, the people you’re meeting with, the ‘investors’ are often just a part of the whole. They need to demonstrate to the rest of the group that their investment choices are sound, well-researched, and backed by robust data.
Your clear, justifiable financial projections, grounded in operational reality, give them the data they need to prove they've done their homework - and you need to make that homework as easy as possible. If your financials are sloppy, unrealistic, or lack a clear operational basis, it doesn't just make your business look bad; it makes the investor look negligent to their own LPs.
So, when they're digging into your numbers, they're not doing so to trip you up or stress you out; they're fulfilling a fundamental duty to the people whose capital they're deploying. It's about demonstrating you're a safe, smart bet for their investors' money.
How do you get your finances into a state of investment readiness?
Unfortunately, like all things worth having, getting your financials in order for a raise is going to mean a lot of work. But, to be fair, if you’re asking for millions of pounds from people you’ve never met before - well, it does make sense that you’d have to work hard for it.
Here’s a look at what you need to tighten up across those 4 key financial elements we looked at above:
Your financial model.
This is your business Strategy in numbers.
You need a dynamic model that projects realistically - usually three to five years out - with every assumption clearly stated and rigorously justified. Investors will stress-test your revenue drivers, cost structures, and growth rates. In fact, many will try to rebuild your model themselves unless you give them something clear, robust, and credible enough that they don’t feel the need to.
Your model should include simple views of cashflow and balance sheet, not just the P&L. Your P&L should present both monthly and annual views, breaking down the metrics investors care about most- like top-line revenue, gross margin, contribution margin, key cost types, and ultimately EBITDA and/or net margin (probably a whole other article in itself to explain all that - one for Will!).
A great model is also a planning tool. It should be flexible and easy to update as your business evolves, letting you test assumptions, run scenarios (e.g. What if CAC rises? What if churn doubles?), and stress-test your plan before investors do.
In short: a good model is both your internal command centre and your external proof point.
Think of it as a gripping novel, not just another spreadsheet.
Your Accounting Platform.
Your accounting system should be structured, reconciled, and up to date. If it’s messy or lagging behind, you can’t produce reliable management accounts. And if an investor asks for access to your platform because they don’t trust your reporting, you’re already on the back foot.
Here’s what ‘in good shape’ looks like:
Clear chart of accounts, correctly mapped. This is the list of categories used to track income, spending, assets, and liabilities. Most founders ignore it, but a quick conversation with your accountant to set this up well can save big headaches later. Dumping everything into broad categories makes meaningful analysis near-impossible, and we see this all too often.
Bank feeds fully integrated and reconciled. If they’re not, your numbers are out of date - especially your cash position. Investors spotting a mismatch between bank statements and reported balances is never a good look.
VAT filed, expenses properly categorised, and no mystery ‘suspense’ entries hanging around.
No one expects perfection. But if your books are chaotic, investors will assume the rest of your business is too.
Your Management Accounts.
Management accounts should do more than report the past - they should interpret performance and help predict the future.
At a minimum, they should:
Be updated monthly (quarterly at a stretch).
Track actuals vs budget or forecast.
Include commentary on key variances.
Integrate KPIs relevant to your model (CAC, LTV, churn, gross margin, burn, etc.). For SaaS businesses, for example, a CAC payback period under 12 months and an LTV:CAC ratio above 3x are typically seen as strong signals of efficiency and scalability.
This is your chance to show investors you're financially literate, operationally informed, and running a tight ship.
Most companies produce management accounts. Great companies use them. In the best businesses, they’re a cornerstone of internal reporting and decision-making. Leadership teams don’t just glance at them, they rely on them.
That means team leaders understand how their work drives financial outcomes. It’s not just about staying within budget - it’s about seeing the connection between functional performance and business performance. Picture your Head of Product coming into a meeting ready to explain how funnel improvements boosted sales and having a plan to build on that momentum.
Your financial statements.
These are your legally filed, statutory accounts. While they’re often less detailed than internal management accounts, investors still want to see them because:
They’re independently verifiable.
They show whether your historical story matches your narrative.
They indicate compliance and financial discipline.
At a minimum, be ready to provide two to three years of accounts (or however long you’ve been trading). If you’re claiming rapid growth or operational control, but your filings suggest chaos, that’s a major red flag.
Getting all this sorted out and ready for people to examine and judge is no easy feat. It requires a blend of financial expertise, operational insight, and laser-sharp attention that frankly, most founders are too busy building the actual business to master perfectly (call me, yeah?).
Are YOUR finances showcasing your investment readiness?
Okay. Now that you've absorbed a million lessons on why these numbers matter, and you've had a look at what it takes to get them in order, here are 10 questions you can ask yourself to determine if your company's financial story is genuinely ready to be put in front of investors.
Answer these ten questions honestly to start to get an answer on where the current gaps are.
Is every single assumption in your financial model clearly laid out, justifiable, and not just a wild guess based on optimism? Investors can smell unsubstantiated optimism a mile off.
Do your revenue projections directly link to specific, measurable operational drivers (like customer acquisition rates or product usage), and how those drivers scale? If your income just magically goes up in the shape of a hockey stick, it's not a model, it's a prayer.
Have you meticulously accounted for all your costs, both direct and indirect, and do they align with your operational plans for growth? Hidden costs or underestimations are a massive red flag.
Can you clearly articulate your unit economics (what it truly costs to acquire and serve a single customer, and how much profit they generate over their lifetime)? This is the bedrock of scalable profitability.
Do you have an accurate cashflow forecast that shows your burn rate and how confidently can you predict how long your current funds will last? Cash is king, and running out of it is game over.
Are your historical financial statements (P&L, cash flow, balance sheet) clean, reconciled, and easily verifiable by an external auditor or investor? Messy historicals suggest a messy business.
Have you run sensitivity analyses on your financial model to show how changes in key assumptions (e.g., churn rate, pricing) impact your bottom line? It shows you understand the risks, not just the best-case scenario. Be a realistic optimist or an optimistic realist, but make sure both sides balance.
Do your financial projections align logically and consistently with your overall business Strategy and your operational capacity for growth? Contradictions between your numbers and your plans will get picked apart.
Can you confidently explain why your projected growth rates are achievable and how your operations will realistically support that level of scale? Fantastical growth numbers with no operational basis are just that: fantasy.
Are you regularly tracking a focused set of financial and operational KPIs that truly indicate the health and progress of your business towards its goals? If you're not measuring it, you're not managing it.
Take the time to answer these questions honestly. Your answers will give you a pretty good indication of whether your financials are robust enough to attract the right investment, and more importantly, to actually execute and scale your brilliant idea without running out of steam.
If you’re struggling to answer any of them, or want any additional help, just give me a shout via the link below or why not get ahead of the game and take a free Investment Readiness Healthcheck to assess how you're doing across all 6 of the categories?
Otherwise, I'll see you next time we'll be diving into how your data room and investment collateral contribute to your investment readiness.
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