“Overcoming the Challenges of Raising Money for your Business in the Current Economic Climate - Three Key Actions you Need to Take to beat the odds!”
So then - Where’s all the money gone?
If your company seeks investors, it’s not good news to learn that investors are still running for cover. Confidence in the stock markets shows hesitant promise, but investors in early-stage or start-up businesses, where investing is risky at the best of times, remain ultra cautious. Investors are increasingly concentrating on preserving capital rather than on simply earning a return on capital.
You may have noticed that the banks aren’t lending either. Their capital bases have taken a hammering, disproportionate amounts of their loan assets are in default, and in cases where they do lend, their criteria have tightened considerably. So, if you need to attract finance into your business, what must you do to attract funding?
There are 3 key factors that can help a company to attract funds, from either investors or banks. In good or bad economic times, these principals apply:
1. Preparation
2. Having a Viable Business Model
3. Understanding the Mindset of the Financier
PREPARATION
Too many business owners seek out investors or banks before they are ready. Being prepared for meetings with financiers of any description is an absolute prerequisite for success. Have you prepared coherent financial projections? Have you conducted any market analysis? Do you have a Business Plan? Have you assembled your executive team? The list is endless. Whether you approach an investor or a banker, they are going to ask you many questions about your business. If you cannot answer them, you won’t inspire confidence. If you don’t inspire confidence, wave goodbye to the cash. You simply must be fully prepared. Understand every aspect of your business. Don’t approach the money people until you have done all your homework.
HAVING A VIABLE BUSINESS MODEL
I have always maintained that it makes sense to spend some time and a bit of money to determine whether you have a viable business model or a hobby. There’s absolutely nothing wrong with having a hobby, but it may be unrealistic to persuade a financier to put money into it. Before you spend money on anything else, just make sure that you ascertain the viability of your business before you invest your life savings into it. Many do and they lose everything because they never had a truly viable business to start with.
The definition of a business model is quite simple: “How does this business make money?” If a financier cannot see a clear answer to this question, you’ll be fortunate to get the money. It’s not enough to tell the financier that you’ll be generating $x million in revenues in three years time. He or she wants to know how you are going to achieve it and what it will cost you to achieve it. Financiers are more interested in profits than revenues. Does your business model clearly show the scalability of the business, its potential value down the track? Have you figured out all the costs that the business will have to incur to get where you want to go? This list barely scratches the surface. Are you confident about your business model?
UNDERSTANDING THE MINDSET OF THE FINANCIER
Recognizing that investors and bankers are in the risk evaluation business rather than just the money business is a helpful insight. Banks and investors are evaluating the risks associated with putting money into your business before they make a decision one way or another. If they recoil, it is almost always because they cannot reconcile the perceived risks with the returns they expect to derive. Financiers need to be reassured that you can identify the risks, you understand them, and know how to manage them. Every investor accepts there is no such thing as the risk free business; however, containing and managing risk is fundamental to any company’s survival and prosperity. If you can satisfy the concerns that financiers have about the risks pertaining to your business, then your prospects of obtaining funding will be transformed.
Whilst space does not permit me to provide an exhaustive list for you, I can reassure you that if you keep these three concepts uppermost in your mind before you approach funders, raising money for your business will be a lot easier.
About David Stacey
David Stacey is a public speaker and consultant to entrepreneurs and business owners across the country . He specializes in helping his clients to structure robust business models that facilitate the raising of capital or bank finance for their companies.
With over 35 years as an international banker and consultant, David brings a wealth of wisdom and experience to his clients, audiences and readers. By approaching everything from an investor’s and a banker’s perspective, he is able to provide valuable insights that help business owners to achieve financial goals for their companies.
Find out more about David and his company: David Stacey International, LLC by logging on to his website: www.DavidStaceyInnternational.com or by calling him on 407 834 8419.
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