You’ve got a great business idea, the market is wide open, and you’ve got the time and energy to see it through. You’re confident that you’ll make money, but you still need some capital to get you going. How can you raise this? Unless you have sufficient savings to get you on your feet, there are two options: loans or investment.
Getting a bank loan, using your credit card, or remortgaging your house to fund your business are all options, but as banks and other lenders tighten up their regulations, getting money from them is increasingly difficult. It is still worth meeting with your bank manager and explaining your intentions. Find out what they can offer you; at the very least, they may have to be exceptionally understanding about your overdraft situation for the next year or so.
Family and friends
Friends and relatives may be prepared to loan or invest money in your startup business. If this is the case, make sure you draw up a legal agreement that you both sign so that everybody knows exactly where they stand. Don’t let them invest or lend you money that they can’t afford to lose as this could potentially ruin important personal relationships. You may need the emotional support of friends and family more than their money when the chips are down, so think carefully before going down this route.
Connecting with investors
Networking with other entrepreneurs and business people locally will help you make connections. Attend industry functions, hand out your business card, and get yourself known. If possible, you should invest a substantial amount of your own money in your business before approaching an investor. This shows that you are committed and not just looking for a free lunch.
Do your research
Find out as much as you can about your potential investor before meeting them. Try to discover what they look for in an investment. You need an investor who is prepared to stick with you for the long haul, rather than one that is looking for a quick profit. Warren Stephens is the CEO of Stephens Capital Partners, a private equity firm that looks for long-term investment opportunities in a wide range of industries. Stephens Capital Partners is attracted to exceptional companies with a clear view of how they can grow, preferably in multiple avenues. A quick look at Warren Stephens’ net worth shows that this policy has paid off very well.
Make a business plan
The main element to attracting an investor is your business plan. Work out your startup costs and your operating costs for at least the first year. Remember to give yourself enough money to live on. If in doubt, overestimate, and then add on a bit more for unforeseen emergencies. This should be balanced against expected profits, but be aware that your business may run at a loss for some time. This doesn’t mean that it won’t be successful eventually, but you will need supportive investment to see you through to that point.
A good business plan will set out its key points in an executive summary. This is what a potential investor will look at first, so it needs to be convincing. Set out your financial forecasts professionally in a spreadsheet showing balance, cash flow, and profit and loss, month by month for at least the first 12 months. If you need to pay a professional accountant or business advisor to help you draw up a convincing business plan, then it will be money well spent.
Figure out how you will brand the business. This includes coming up with a niche, identifying your target audience, and starting to develop your reputation. It is extremely important that your branding strategy helps consumers to relate to your business on a personal level, as no one wants to associate with a faceless corporation. Everything from the logo that you use to the font that is utilized on your website is part of your branding strategy. Keep in mind that although branding often involves trial and error, getting off to a good start is vital to your business’ survival.
Ultimately, look at your business proposition from an investor’s point of view. Imagine the questions you would ask about your business if you were considering investing in it, and come up with credible answers. Be professional but passionate, confident but realistic. Show them that you will do everything it takes to make your business a success.