Getting an investor or a loan for your small business can be an exciting prospect until the time comes to consider the intricacies involved in actually getting the financing. The reality of startup financing is that a considerable amount of planning and organization is crucial to the process of securing funding, whether it is venture funding you seek or whether you are looking to build your finances from the ground up at the initial stage.
If you are at the point where you have completed the legal formation of your business using a service such as qualitycompanyformations.co.uk/ and your focus is on building your finances from the ground up, it is best to start by reaching out to your personal networks. This is because a significant number of startups starting from the ground up seem to find the greatest success in obtaining funds from within their personal networks. If however, your personal network does not prove to be a successful source of funding, other promising options you could consider include crowdfunding, getting personal loans from people you know, angel investors or if it comes to it, getting a business loan.
Before any interested investor takes the bold step of offering you finance, you will need to prove that your business is financially viable otherwise your investors may not feel sufficiently assured in lending you money. To help you prove that your business idea is viable enough to attract investor financing, here are a few key points to help you keep your business idea investable.
1. Check that your business idea fulfills an identified need.
To prove to investors that your business idea is viable, you need to be able to show that there are customers who actually desire your product. This might sound obvious, but it is easy for entrepreneurs to be so overtaken by a passion for their ideas that they neglect to consider the practicality of these ideas in the real world.
Before you think about financing, it is important for you to understand your potential customer demographics, and then build your service or product around their biggest problems. Apart from getting a good understanding of the customers you wish to serve, it is also important to gain a deep understanding of your product or service, for you to be able to market it to your customers.
Once you have developed a good understanding of the needs of your ideal customer, as well as the potential for your product/service to address those needs, you need to formulate a realistic plan for addressing the market needs and positioning yourself as a credible player in the market alongside your competition.
2. Product testing
If you are seeking funding for a physical product, it is imperative that your product is at a stage where its features can be demonstrated to your investors.
You should be ready to demonstrate a deep level of understanding of the product, backing this up with research, data and even reviews obtained from real customer tests. Most investors and lenders need to be convinced to part with their money, and if your presentation is not up to par, you may need to return to the development stage in order to be able to bring your product up to the level where its potential can be adequately displayed and understood by potential investors.
3. Business strategy and planning
Your business strategy will usually be made up of a business model (telling the investor what the business is) and a business plan (telling why the business exists).
The business model should provide an overview showing your revenue-making activities, and your business plan should demonstrate in greater detail your plan towards actually achieving the projected revenue. The business plan should clearly demonstrate a clear link between the gaps you have identified in the market and your projected profit if funded. It should also include details of the key players in the day-to-day running of the business, the legal structure of the business, staffing, equipment, marketing and more.
The aims of both the business model and the business plan are to offer the potential investor proof that your venture is based on a rational, feasible plan.
4. Financial budget
In the course of your quest for business financing, you will need to be able to demonstrate to your potential investors how you intend to use the money you are seeking. Most investors will request for a detailed budget before releasing funds to entrepreneurs so you need to be able to elaborate on your plans for its expenditure. Part of this includes demonstrating that you have a fixed figure in mind, justify the requirement for this figure as well as your plans for spending it.
This will provide your proposed financier with the assurance they need that your business idea is not just financially viable, but also sustainable enough to ensure that their funds are allocated wisely.
5. Reliable team structure
No matter how adept and knowledgeable you are about your business idea, you will need to come to terms with the fact that you cannot do it all yourself. To make a success of your idea, you will need the assistance of a competent, reliable team to help with the daily operations of your business.
If you do not already have a team in place before seeking financial investment, you should have a plan for recruiting a competent team as soon as possible. This is crucial especially if you don’t have a deep level of experience in the field, as experienced team players or even mentors can help you fill the crucial gaps in your knowledge.
The ability to identify and create a suitable plan for filling the gaps in your knowledge could be potentially quite appealing to your financiers.
6. Financial responsibility
As an entrepreneur seeking financing, you can never underestimate the importance of maintaining a good financial record. A good financial record helps to set the stage for not just obtaining business finance, but also securing it with better terms and rates. For this reason, it is important for you as an entrepreneur to put yourself in a financially trustworthy position with the aim of building your financial credibility with potential lenders.
The path to building your financial credibility begins from your personal lending habits, whether it is obtaining finance from friends, family or crowdfunding. You should aim to pay these loans as soon as you start seeing some returns in your business as this counts towards showing potential investors your capacity to repay debts. This, in turn, gives them some basis on which to make the bigger financial decision to finance you.
In addition to this, to help your business leave a positive financial footprint, you can take small immediate actions like getting a credit card in your business name, and make regular, timely repayments to boost your credit score. This, coupled with a good personal credit history will put you in a favourable position for small business financing.
If on the other hand, you have not already built up a good credit record, you should make every effort to repair your credit score before you begin to seek financing for your business. This means obtaining a personal credit card, purchasing small items and paying them off immediately. This should reduce the chances of you forgetting to make repayments, and also increase your credibility with your credit card company, ultimately affecting your credit scoring positively.
7. Network with professionals
Not only does networking with the right people help you grow your business exponentially, but the benefits of business networking also extend into the world of business financing. If you play your cards right, networking professionally can put you in prime position to secure the funds that you seek for your new business venture.
8. Learn from experienced investors
Seeking out experienced investors in your locality and learning from them could pay you some huge dividends and prevent you from learning through mistakes. Experienced investors will not only be able to show you what worked for them when they were in your shoes, but they could also point you in the direction of the right sources for investment with the best terms.
As many experienced investors are always looking for opportunities to invest in young, profitable startups with potential, you could be lucky enough to have the business idea which directly appeals to a willing investor.
By implementing the suggestions above, you should be able to feel prepared enough to confidently approach investors with the hopes of securing some funding for your great idea.