5 Financial Red Flags Investors and Lenders Look For

If you're thinking about raising finance or attracting investors to your business in Rugby or Warwickshire, your financials speak louder than your pitch. Whether you're approaching a high street lender or an angel investor, they'll want to see a business that's stable, scalable, and in control.

At Redwood Accountants, we help local businesses prepare for funding with confidence—by eliminating red flags before they become roadblocks. Here are five warning signs that could turn potential backers away, and how to fix them.

1. Weak or Unpredictable Cash Flow

Nothing worries lenders more than the thought of not getting repaid on time. Even if you're profitable on paper, poor cash flow can signal risk.

Fix it:

• Maintain a rolling 12-month cash flow forecast
• Invoice promptly and chase debtors
• Avoid over-reliance on a small number of clients

We help businesses design cash flow reports that clearly show stability and seasonality to funders.

2. Excessive or Poorly Structured Debt

If you're juggling credit cards, bounce-back loans, and expensive overdrafts, it raises questions about how well your business is managed.

Fix it:

• Consolidate expensive debt where possible
• Keep debt-to-equity ratios within reasonable limits
• Show how new funding will be used to create long-term value

We help clients restructure balance sheets and prepare realistic debt service coverage ratios (DSCRs).

3. Declining Revenue or Inconsistent Growth

Investors want to see a growth story. Flat or declining turnover without a clear explanation can damage confidence in your business model.

Fix it:

• Identify and explain temporary dips (e.g. lost contracts, COVID impact)
• Show what actions you're taking to rebuild or scale
• Include forward-looking projections based on actual strategies

We help business owners build credible forecasts that align with past performance and market conditions.

4. Poor Profit Margins

If your gross or net profit margins are lower than industry benchmarks, funders may question your pricing model, efficiency, or cost control.

Fix it:

• Regularly review pricing strategies
• Identify underperforming products or services
• Benchmark costs against similar businesses

We help our clients understand where profits are leaking—and how to plug the gaps.

5. Lack of Financial Controls or Insight

If you can't produce timely accounts, don’t know your break-even point, or don’t understand your numbers—it’s a red flag.

Fix it:

• Produce monthly or quarterly management accounts
• Monitor KPIs (gross margin, debtor days, cash runway, etc.)
• Work with a proactive accountant

We turn messy spreadsheets into polished, funder-ready financial packs.

Final Thoughts

Whether you're applying for a loan, pitching to investors, or planning a sale in future, first impressions matter—and your accounts are a major part of that. At Redwood Accountants, we help businesses across Rugby and Warwickshire eliminate red flags and present a strong financial case.

📞 Ready to make your business funding-ready?
Speak to Redwood Accountants for a pre-lender financial review.

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