In today's business environment, finding financing for expansion can be a long and frustrating experience. Those who take the time and effort to prepare before approaching potential funders usually find the process faster and less frustrating than those who don't. Fortunately, there is a step-by-step process to follow - and we're here to help you every step of the way. Call us at 519-332-1820 or email Fraser Parry or Matthew Slotwinski. They would be pleased to speak with you.
1. Develop a business plan
You must document clearly what you plan to do, when you are going to do it, who you need to help you, and how much it will cost. It is virtually impossible to get financing without these things in writing.
In your business plan, you have to answer the questions a potential funder is likely to have. Explain your business concept in brief. Describe how you intend to produce and sell your product or service. Give a lengthy explanation of how the team you've put together is qualified to execute the plan-and how your success will pay off for the funder. Most funders say their major concern is the company's ability to execute the plan. As one angel investor puts it: "I bet on the horses, not the wagon".
What does a business plan look like?
2. Establish clear financial requirements
Well-documented and well-prepared financial projections are essential for any form of funding. These projections will combine facts and estimates. (It is always better to have more facts than estimates. For example: it is acceptable to estimate future sales figures or utility costs-provided you can show how you arrived at those-because there is no way of knowing the true figures in advance. It is not acceptable, however, to estimate the cost of capital equipment or rent, because you can get real quotes for these things. If you are not at a stage where you can get those quotes, then you are probably not ready to look for financing.)
Your projections won't be exactly correct (that's almost impossible), but they should be close. If the funder doesn't think your numbers are realistic, he or she will doubt your ability to execute the plan, and you won't get financing. We have a great deal of experience helping people put together this information, and can coach you through the process.
3. Assign funds appropriately
Once you know how much money you need-and what you need it for-you should begin to match your sources of financing to the uses of funds. For example, if you require a certain amount of money for capital equipment, that money should probably come from your bank in the form of a term loan or equipment lease. Banks lend money at relatively low rates for equipment.
It is in precisely this kind of situation that many companies make mistakes. Business owners sometimes spend their own money on equipment, then look to the bank for working capital. But banks aren't in the business of providing working capital, and so business owners can spend weeks or even months going from institution to institution in search of someone to help out-often unsuccessfully.
While sources of working capital do exist-and we can help you identify them-generally speaking, this kind of money comes from equity investment, either from the principals of the company or outside investors.
Equity investment from outside a company tends to be much more expensive than bank financing because a much higher risk is attached to it. Consequently, it should be used only as necessary. Before an equity investor will put money into a business, he or she will need a realistic exit plan: something that explains how the investment-and an acceptable return on that investment-will be extracted from the business over time. You need to develop this plan well before approaching potential investors. Many entrepreneurs ignore this step, or give it only token attention, and turn off potential investors before they get a chance to make a real pitch - or even worse, lose a potential investor who is otherwise interested.
4. Hone your pitch
Practicing your pitch is also an important step that is often glossed over. No matter what form of financing you seek, a concise and well-crafted approach will increase your likelihood of success. Many people suggest rehearsing an "Elevator Pitch," which describes your opportunity (what it is, who your customers are, and how it yields a return) in the time it takes to ride 10 floors on an elevator. It's a challenging process, but well worth it, and really helps you get a firm grasp of your value proposition.
5. Identify potential lenders
Make up a list of potential lenders and investors to approach, one that reflects the financing structure you've chosen and the nature of the opportunity. As a general rule, the people who will invest in an opportunity are those who are either acquainted with the industry, or who have an interest in seeing you succeed. These may be people who have recently retired out of the industry, who work in a similar industry, or who supply to or buy from the industry. Based on their experience, they can evaluate your business plan without incurring huge due diligence costs-and will likely have an interest in what you propose to do.
People who have an interest in seeing you succeed may be family or friends, but they may also be suppliers who want your business, or customers who need your product to make their business run better. These people are usually smaller investors, but they can be valuable because they don't have a need to see you make a big profit quickly. They can be patient and, even more important, the return they seek is often more than money. This can be an important balance for the other investors.