Monday, December 13, 2010

Raising finance for a new business


Raising finance for a new business is often the most challenging task of the entrepreneur. No one enjoys asking others for money (well almost no one) and going hat in hand to your local bank or investment firm is perhaps similar to a trip to the dentist. But it does not to be that hard. Using business plan services should be seem as your first real opportunity to see whether you fist of all can communicate your idea effectively an secondly whether other professionals see the opportunity in the same light that you do. Its one thing convincing friends and family, who after all are often interested in seeing you in a good mood, vs convincing the people to such an extent that hey will invest money into the idea. Granted that if you are one of the lucky few, friends and family may be the same people who will be finding the business in the first place.

In general, raising finance for your business can be divided into 6 simple steps.

1. Seeking out the Investors

This is arguably the hardest part of the process. If you are someone who regularly runs to stay fit you will know that the hardest part is to put your shoes on and start running. Once that is happening the rest sort of happens by itself. Most people start within family circles, friends, business associates and other acquaintances. Others may go directly to the bank or government institutions proving grant or loans for start-ups.

Once you find the right contact willing to finance your business, a well written business plan should normally take care of the rest. The first step often takes the longest so don’t loose fath when I takes longer that expected. Is your idea is viable and it excites you then the right investor or investment body will come along.

2. The Approach.

During the approach, two things must happen. As with any new relationship its always useful to start by breaking down the barriers between you and the other party. In his classic book, How to Win Friends and Influence People, Dale Carnegie talks about finding some thing in common with the other person. A common interest can help you to get to know the other party in question and help them to start understanding that you are actually not to different from them. Remember that the first thing you may have in common is that you may both be interested in meeting the right venture partner. Secondly you need to make the other person believe that you know your subject area and that your business idea can also help them with other own goals fr the future. Simultaneously be building a degree of kudos. The venture source needs to invest capital, and you need to raise capital. Fulfilling your mutual needs is the task you must accomplish together.

3. Choose the most suitable source

once you have identified suitable funding sources, list the reasons why they would be interested in funding your business. Always consider the ‘WIFM’ concept. When listening to your proposal or business concept the other party will be listening through a filter of ‘What’s In It For Met?’ Not everyone invests in the same deals for the same reasons, as certain benefits among the features will be more important to individual capital sources than others. In fact, the same plan is likely to be supported by different people for different reasons. You need to identify the needs and reasons for investing of your potential money source. Study the background of the various funding sources, ideally considering the other businesses they have invested into.

4. Presenting the Business Plan.

During this stage you can really show of your knowledge and passion for the industry and the business that you are intending to start or grow. This is an area where most entrepreneurs actually do well in. Do remember however, that your presentation need to reflect the investors interests and answer questions that thy may have. If you have already build up a relationship with the investor it may be easier to understand and address their concerns. If not, be sensitive to any body language or signs form the investors as to which areas you need to focus on.

A rookie mistake at this stage is to over value your business or present and half developed concept. Unless your market research has show exceptional interest from potential clients, investors will be looking for working concepts. Remember that they are thinking, what can go wrong with this, is it a good investment opportunity. They are not interested in simply paying your salary for the next two years while you further develop your concept.

5. Address their concerns confidently.

Don’t be taken aback if there are allot of questions or objections. These merely indicate that the investors are interested and want their doubts put to rest. They may ask about your income potential and how you came up with the amounts mentioned. Real sales is of course the ideal at this stage as it takes the doubts out of business. "What are you going to do that's different, and how are you going to do it better than what is already being done?" In handling objections, the first thing to avoid is to be defensive. Instead, acknowledge the comment, and respond to the objection in a sincere way. See objections as a support mechanism. If investors have objections or doubts then so may your eventual clients. These may be people who have been involved in start-ups before and its really an opportunity for some very valuable free advice. Don’t be afraid to ask questions of your own.

6. Getting to a yes.

If the first five steps was executed well then this final step should take care of itself. Look for definite answers and commitment, if there is a maybe, discuss next steps and how you could potentially turn the last objections into a yes. Remember, apart from your business plan, your enthusiasm and entrepreneurial spirit are two characteristics that investors will value most.

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