One of the biggest issues relating to owning a business is getting the funding you need in order to get started or to expand. In many cases, small companies may need to increase their production so they can create bigger profits. However, it can become a vicious circle when you can’t obtain the funding, but can’t progress without it. Having a better understanding of the process and what to avoid… will make raising money a lot easier.
1. Timing is Everything
Although you may be eager to get the ball rolling, it is vital that you make applications for funding at the right time. Trying to persuade banks or investors to loan your business money when you haven’t prepared, will look bad and will make them less likely to consider your proposal - or even to look over it in many cases.
Part of "being ready to raise" is having an up-to-date and straight-to-the-point presentation prepared which answers all the major questions about your business proposition, as well as having your financials thoroughly calculated. The financials are important primarily for two reasons. One, it gives you a clear indicator about how much you actually need to raise, and two, it shows your investors how & when you are planning to repay them. The financial projections should typically be a healthy outlook on the company's performance for 3-5 years in the future.
This will give the people you are pitching to all the information they need and show them that you have done your homework.
2. Find the Right Investor
Investors will have their own reasons for putting money into a company. Some want to have a long-term return on their money. Others want to make money fast and then leave.
Whether you are building a business that you are looking to sell in the next 2 years or are looking to keep the company for another decade, grow it and bring more investors aboard through series A, B or even C funding, there are the right investors for you out there. You just need to do your homework first. That includes doing the initial research and then asking the right questions of the potential investors to rule out those, who are not suitable for your company's goals. If you don't and get right away into pitching and explaining the details, you will very likely end up wasting your time with people who are not a good fit and will not invest no matter how well you do - simply because of your exit strategy will not fit their investment goals.
This is something you first need to have sorted internally before you begin seeking external funding. Your overall strategy very much depends on it and any potential investors know that.
3. Raising Money... Takes Time and Money
Many business owners underestimate just how long it takes to get funding on board. Apart from legal fees, it can also cost a good amount of money in lost working hours and reduced productivity due to the lack of focus.
If you are just starting your business, you might quickly realize that a great amount of your or your employee's time has been taken up by preparing materials for your potential investors or the bank, and you are left with very little time to actually grow your business.
It is important that you factor in this drop in productivity and the length of time it takes, so you are not overstretching and falling into debt. Investors will be cautious and will take their time before saying “yes” or “no.” Don’t be surprised if the whole process takes from six months to a year, from beginning to end. Plan for the worst-case scenario and be positively surprised if things move at a faster pace.
4. Be Prepared to Disclose a Ton of Information
For an investor to put their money into a venture, they will need to know that you and the company are financially secure. This means they will often ask to see your personal as well as corporate finances. Many business owners can be concerned by this and it is important that you know this information will be treated correctly and is, in fact, a common practice with serious investors.
The confidentiality of your proposal should go without saying with professional investors but it's always a good call to discuss this with them in advance before you hand over any sensitive data. Especially if it includes a new product or service that is still in development.
5. Learn to Think Outside the Box
For some companies or companies based in certain countries with a low amount of risk capital available, the traditional sources of funding may not yield the results they want. They may not get any funding or less than what they actually need to get started at conditions they can accept.
In such situations, you may need to find alternative ways to get the money you need. For example, crowdfunding, which has become increasingly popular in recent years and the popularity keeps growing. It is also a good idea to approach potential investors who have knowledge of your business area - this can include potential clients who are experiencing the problem you are looking to solve firsthand. Even though you may not be able to secure all your funding from one such investor, seeking multiple smaller ones that know your market, can be the way to achieve your goal.
Raising money for your business can be stressful and time-consuming. However, the end result could and should be a growing company that will build a sustainable profit for you and your investors.