As 2018 is starting off, many people are thinking of pursuing an entrepreneurial endeavor. The biggest obstacle that many face is the question of how to finance their business.
Being prepared is the key to attracting the right investor for your business. I recently spoke at an event about what you need to have in place before meeting the banker. However, meeting the banker is not just about going into an actual bank. There are other forms of financing through venture capital, angel investors and private lending. Any one of these potential sources of funding are going to require a detailed business plan and a confident entrepreneur.
Here are a few tips to get you prepared before meeting your “banker”.
1. Your Personal and Professional Profile
First impressions count, from how you are dressed, to your attitude, to how you present your business. It is one thing to be passionate about your business, however, maintaining professional etiquette and a smile can go a long way.
How do your skills and experience relate to your business venture? A potential investor is not just investing in your business idea but also in you. Having some sort of background or education in the industry in which you operate can give an investor confidence to give you their money.
2. Your Credit Score
Knowing your credit score is important, especially when asking for a loan from the bank. Prior credit history can impact the interest percentage rate or even if you get the loan at all. Maintaining a good credit score will let an investor know that you are dependable and pay your bills on time. Having some sort of collateral can be beneficial to securing funding. Potential investors want to know that you have “skin in the game” so to speak. They want to know that you are also invested in this business because that tells them that you are all in!
Planning is more than just having a business plan document. It is being prepared and adaptable to change as your business circumstances change. When preparing your business plan, leave room to be flexible. There are many external factors that can affect your business, such as technological advancements or even new legislation.
By going through the planning process, you learn so much about your industry and how your business fits into the market. You have a better understanding of your competitors and how to differentiate yourself from the crowd. Having this knowledge will build confidence in your business and your ability to see it through to success. This will also instill confidence in the investor who decides to take a chance on you.
5. The Company
What does your business do? What product or service do you provide? These are questions that you will have to answer for yourself and for your potential investor. You must know your purpose and prepare a mission statement. This ensures that you stay on track when presented with opportunities to grow your business that may or may not be in line with your mission. Any investor will want to know what they are putting their money into and that your business has what it takes to succeed.
6. Sales Forecast
Although it is impossible to predict the future, it is important for you to figure out how much you think you can make in your new business. Consider how much you spend a month and how much you need to bring in to cover your costs. Look at what your competitors are charging for similar products or services and use those numbers as a benchmark. Take into account your business’ special competitive advantage and if it makes your product more valuable. Perhaps you found a way to save your customers money in the product or service that you offer and can undercut your competitors’ price. These details let your investor know that you have fully thought about your pricing strategy and that you can reach the projected sales numbers that you outlined in your sales forecast.
7. Marketing Plan
This is where you discuss who you will be selling to. Who is your target customer? Why would they buy your product as opposed to your competitor? You must understand your customer (male or female, age, location, salary range, etc.) and why he or she will buy your products or services when there is so much variety out there. This will take some research on your part. Finding statistics on your target market is easier now with the internet than it was many years ago. Take the time to really know who you should be selling to and how you will reach them via advertising and distribution. Having a solid marketing plan will be beneficial to your bottom line.
8. Operations Plan
Running the day-to-day operations of the business is something that needs planning as well. You cannot just wing it. You must have a system or many systems in place when it comes to dealing with orders, shipping, customer service, bookkeeping, administrative tasks, etc. Some of these things can be outsourced but others need a more hands-on approach. Knowing which system will be better for your business requires some detailed thought and preparation prior to opening the doors for business. A serious investor will be interested to know that you have taken the time to think about all aspects of how the business will run on a daily basis.
9. Exit Strategy
We all will like to believe that our business is destined to succeed, however, it is likely that your first attempt may not be the success that you thought it would be. This does not mean that you have a bad business idea, it just means that there may be some tweaking or pivoting that needs to happen within your business. If you have adjusted and there is still no profit, it may be time to close the doors. If so, what will you do? Will you sell everything at a discount sale or move it online? Will you sell your inventory to your competitors? These are things that you need to consider in case you are not successful. Investors want to know that you have some plan in place to recoup some of their money in case things go south with the business.
The final thing I would like to leave you with is this: you don’t have to do everything in your business yourself. Recruit people to help you along to way. Think of building a team to start the business venture with and who can share the risks and rewards with you. It seems overwhelming when we think of doing it all ourselves but that does not have to be the case. Teamwork can be the key to making your entrepreneurial dreams come true. Whether it be an employee, investor, or family and friends, you will need help along the way.