Financing a business may seem like a cakewalk because there is so much money being poured into new businesses.
Some venture funds put an average of $1.6 million into startups, which could be the startup money you need to be a raging success.
Business loans, family and friends’ investments, and angel investors are just a few avenues you can take when you’re looking for investment funding.
Would you like to learn more about what it takes to finance your startup business?
Keep reading to find out.
1. Start with a Business Plan
Any bank and investor will want to know more about you and your business before handing over money to you. When someone makes an investment or loan of any time, they’re taking on a lot of risks. They want to protect that risk.
That’s why a business plan is so important to have when you’re financing a business. You want to show the inner workings of your business, like how you plan to be profitable.
2. Check Your Personal & Business Credit
A big part of assessing risk for banks and investors is to see how responsible you are with money now. Part of that will be to see what your credit report looks like for both your business and personal lives.
A good credit score will show that you can handle money and you’re likely to use that investment wisely. A bad credit score could raise red flags for both banks and investors.
3. Target the Right Financing for Your Situation
There are dozens of ways to finance your business. The way that’s right for you depends on your situation. Do you want to get financing for new equipment or do you want to hire staff?
What does your credit situation look like? If you have good business and personal credit, you’ll have more options available.
What if you’re in Canada and you have bad credit, it may seem like you won’t be able to finance your business. You actually have more options than you think. There are options for installment loans in Canada that are just for people with bad credit. Read this helpful article for more information.
4. Create a Captivating Pitch Deck
A pitch deck is a presentation deck that allows you to walk investors through your business. Think of it as your business plan in 20 slides.
You’ll need to convey to investors that your business can do amazing things with the investments. You’ll need to show how you plan to scale your business, and increase profitability.
The goal of the pitch deck isn’t to get investment on the first try. This isn’t Shark Tank where investors will decide to invest in your business on the spot.
The true goal of the pitch deck is to generate enough interest to get another meeting with the investors. They’re very quick to say no, and they’ll look for reasons to do so. Your one job is to present your company in a way so they can’t possibly say no.
5. Get Ready for a Grilling
Investors: “What’s your EBITA? What’s your exit strategy?”
You: “I’m sorry, what?”
Earnings before interest, tax, and amortization is what EBITA means. There’s also EBITDA, where the D means depreciation. This is how investors determine your company’s profitability.
Your exit strategy details how you’re going to cash out of your business. Investors don’t see an investment partnership as forever. They want to be able to cash out on their investment as soon as they can. Common exit strategies are selling the business to a larger competitor or going public.
If you’re going to ask for money, you’ll need to know basic financial terminology. It’s vital that you’re prepared to understand these questions and be able to answer them with confidence.
Investors will also pepper you with questions about the profitability, operations, and organizational structure of the business. They want to be certain that they’re investing in a sound business.
6. Get Sound Legal Advice
Before the first investment offer is made, you want to make sure that you have a good legal team in place to help you manage negotiations.
There are many types of attorneys out there, and you want to hire one who has extensive experience working with startups in who seek investments.
These types of attorneys are aware of the value of your company and can provide valuable advice. For example, they can tell you how much of your company you should give to investors in exchange for investment.
7. Interview Potential Investors
Investors and banks are going to ask you tough questions about your business. Just because you’re asking them for money, doesn’t mean that they have more power than you.
Financing a business is really a form of partnership. It’s not a one-sided thing. You have to recognize that and stand in your own confidence and power. Otherwise, you’re going to give away too much of your business to the wrong people.
Investors and financing partners need to be on board with your vision, mission, and values of your company. Don’t be afraid to ask tough questions of investors, too.
Ask investors about past investments – when they were made, why, and how much. Ask them how they work with company executives after investing and how your business fits in with the rest of their investments.
Financing a Business Takes Work
If you’re ready to take your business to the next level, you’re likely to look at ways to finance your business.
Financing a business isn’t as simple as filling out an application and hope that you get approved. Even if you’re applying for a loan, you need to make sure that you can show the profitability of your business. Otherwise, people are going to have trouble seeing how you’re going to pay back the loan.
Once you get your business financing, it’ll be time to get to work to grow your business. Ready to get started? Check out these keys to build a successful future for your business.
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