Growing your business without financing can be extremely hard. There are of course numerous stories of entrepreneurs who have built a business from nothing, but there are plenty of others who have secured financing to drive their businesses forward. Quite often it is in the early stages of a venture that investment can be the difference between success and failure.
Finding sources of finance doesn’t need to be as difficult as you might think if you follow the right steps.
Writing a detailed business plan can seem time consuming when you feel like there are more pressing issues in your company needing your attention on a day to day basis. However, having a plan for where your business is going will prove extremely valuable when it comes to raising finance and helping you set goals for growth.
It is very rare that a potential investor will take you seriously without a detailed plan that addresses where you aim your business to be in the future, how much financing you will need to get there, and how you will get past any possible problems now and months and years ahead.
A detailed business plan helps you evaluate whether your growth plans are realistic, as well as how much financing you need. It reassures anyone that might possibly lend you money that your business is a safe investment. Not only this, but it also stops you making mistakes by investing your time, effort and money into something that might not work.
Raise enough finance
There is no point securing finance for your business if it isn’t enough to grow the business comfortably. You don’t want to get half way towards your goal and then run out of money, you need to raise enough finance to give you the best possible chance of succeeding.
There are nearly always more costs than you might think, so plan for the unexpected in your forecasts. If your forecast predicts you need a certain amount of capital, increase that again. Remember that you need to keep your business going until it breaks even. You will generally find that you always have too little money, rarely too much.
Sources of finance
The first step is usually to try to raise finance from personal sources. Your own savings or asking family and friends if they would be willing to invest, as well as securing a loan are common ways to raise money. Sources of credit include credit cards, personal loans, logbook loans on your car, or equity loans on your property.
Governments and other organisations offer various schemes for small business finance. For example the UK government provides government funded loans for entrepreneurs in the UK.
If these options aren’t available to you then you can approach banks or private investors who set up funds to invest in businesses. These types of funds will normally look to invest in your business and take an equity stake in the company.
The equity stake that an investor will take depends on the value of the company and how much capital the investor is putting into the business. This equity is very much a negotiation based on the possible expertise the investor could bring to the company, how much they are investing and the needs of the business owner at that time.
What is your business worth?
Understandably business owners can tend to over value their business. They have often built the company up themselves and see worth in it that a potential investor looking at the cold facts might not.
You can get a good idea of the value of your business by looking at a few key points. The value of your business now, the potential future value once the forecasts in your business plan are met, the length of time it will take to create that value and how realistic it is that the business will succeed.
This is why it is so important to have a detailed business plan, so any potential investors can get a clear picture of the business to help them make decisions.
Obtaining finance for your business can be a rigorous process, especially if it involves banks or investors. Those investing in the company need to know that their investment is as safe and potentially profitable as it can be. As a small business owner you need to be clear about where your business currently is and where you want it to realistically be in the future.
About the Author: Patrick Martin writes for Varooma , a logbook loans company in the UK.