If you are considering raising money from investors down the road, watch how you spend money today.

Investors will expect you to care for their capital as they would. Here are eight areas they will examine:

1. Traction. Have you made real progress given the resources you’ve already burned?

2. Thrift. Did you make every dollar count or spend money frivolously? Are you overly concerned with image items like office space and letterhead, especially before there is a product to sell?

3. Measurement. When money is spent, are results measured and unproductive expenses cut quickly?

4. Skin in the game. Have you invested heavily in your own idea? “Heavily” will vary with means. Cash and sweat equity both count, but cash is more noteworthy. Using personal capital to get family and friends to invest earns partial credit.

5. Sacrifice. Does your personal gain come primarily from salary and benefits, or when the company succeeds? Paying yourself at par with your old corporate job is not sacrifice.

6. Reporting. Is the accounting set up correctly? Are processes developed to control spending? Are financials reviewed regularly and adjustments made?

7. Accountability. Who within the organization or on your board holds you accountable for good fiscal management?

8. Uses. How will new capital be spent? Are these proven investments such as marketing programs with known customer acquisition costs, or are you just hoping the money will help? Please don’t say the funds are necessary to make next week’s payroll!

Investors will assume your past habits are a good indication of future behavior. Lack of financial discipline creates an objection for future investors, while building a frugal and financially responsible organization will demonstrate good management and position your business for funding.

Read or Share this story: