Prep for money
Raising money for your new business is not always as difficult as some folks may lead you to believe; and while my intention here is not to paint too a rosy picture of getting the business start-up money – or – you need, the fact remains that if you are adequately prepared with the necessary documents and reports that should be presented in support of your business idea and venture capital request, it will be much easier than being unprepared or poorly represented document wise. This is true especially if you have an idea which could make you and your financial backer(s) rich.
Any time you want to raise money, the first – and perhaps most important – step you take must be putting together a well prepared prospectus (templates available on the Web) which should include a resume of your background, your education, training, experience and any other personal qualities that might be counted as positive attributes that support your potential success. It is also a good idea to list any personal loans you were approved for in the past; what those loans were for; and your history of satisfactorily paying them off.
Plan for money
It is important that you have a detailed plan outlining how the money you are requesting is going to be used; and whether or not it is for an existing business because, if so, you will also need a profit and loss statement for at least the preceding six months – although 12 months may be more helpful to your potential backer – and a plan showing how this additional will produce greater profits. If it’s a new business, you’ll have to show your proposed business plan, your marketing research and projected costs, as well as your anticipated income figures with a summary for each year, over at least a three year period.
The most beneficial strategy might be to base your cost estimates high, and your income projections should be based on minimal returns. This approach will enable you to survive through those predictably turbulent times (ups and downs) inherent in any start-up business. You should also describe what makes your business unique – how it differs from your competition – and explain any opportunities for expansion or development of secondary products.
Proposed ROI
Perhaps one of the most important area of your prospectus is the section dealing with your investor’s ROI (return on investment). You should outline precisely what you are offering the investor in return for the use of his/her money. S/he will want to know the percentage of interest you are willing to pay, and whether it will be paid on a monthly, quarterly or annual basis. Also s/he will want to know – and may even inquire – if you intend to offer any percentage of the profits; a percentage of the business; or a seat at the table of your board of directors.
Most investors use their money to make more money, and they often want to make as much as they can, regardless of whether the investment is made in a short-term or long-term deal. So in order to attract a good and reputable investor and get that person/entity interested in putting up the money you need, your offer may have to include the opportunity for a return of big profits; but the offer must also be precise and detailed, including support of your claims from your marketing research.
High-risk proposition
Venture money investors are usually quite familiar with “high risk” proposals, and yet they all want to minimize their risk as much as possible. Therefore, your prospectus should include a listing of your business and personal assets with documentation – usually in the form of a minimum 3 years tax returns. Your prospective investor may not know anything about you or your business, but if s/he wants to know s/he can certainly pick up a phone or open up a Web browser and learn everything there is to know within a couple of hours.
The point here is this: don’t ever try to con a potential investor. Be honest with him/her by laying all your facts on the table because, in most cases, if you have a good idea and you’ve done your homework properly, an interested investor will understand your position and offer more help than you dared to ask for. When you have your prospectus prepared it is important that you know how much money you need, exactly how it will be used, and how you intend to repay it. Only then will you be fully prepared and ready to start looking for investors.
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