How to Effectively Position Yourself for Funding
One of the challenges you will experience as a small business owner is accessing adequate funding to attain your business goals. Experienced business owners will tell you that accessing funding for a business is no easy feat. If it were, Africa would be littered with more thriving businesses than failed businesses.
However, being a pessimist is not an attribute you will find among successful entrepreneurs. Who knows? Some opportunities might just come calling, and you need to be well-positioned to secure proper funding for your business.
If you are a business owner looking to secure adequate financing from investors, here are a few tips that will help to position you for funding effectively.
1. Have an Idea of What Investors are Looking for
The first thing you should do to be well-positioned for funding is understanding how investors’ minds work. Typically, investors have three questions that you will need to answer to convince them that your business is a safe investment option. First, investors will like to know the people or person behind the business idea. Also, they will like to have a concrete understanding of your business idea and, most importantly, how are they going to get their money back?
A lot of businesses fail to secure funding because their idea is just not that great. They may have an exceptional team, but investors would only invest when they can prove that your idea is marketable. Investors are often skeptical towards committing their finances in a “one-man show”. This is because a team is an indication that your business is heading in the right direction. It is often proof that your idea can bring people together. Hence, a sign that it is in some way marketable.
2. Have a Well-Written Business Plan
It is almost impossible to access funding for your small business without having a detailed business plan. Why? For starters, most investors will not have the time to hear you talk about your long-term business goals and how you think you can achieve them. More importantly, a detailed business plan shows investors that you have carried out proper research about your business and that you have an adequate understanding of the most effective ways to run your business.
Your business plan must be detailed and well-written. Creating one may take some time and energy, but it is well every effort put into it. Why? Businesses with well-written business plans tend to succeed in two significant areas than businesses without business plans. According to a review by the Department of Economics, the University of Oregon, businesses with business plans increase their chances to secure funding by 15%. Since businesses without well-written business plans only have a 14% chance to secure funding, small business owners can increase their chances to 29% by creating one.
Secondly, businesses with business plans are better positioned for business growth than businesses without business plans.
3. Plan with Your Worst Financial Scenario in Mind
You may not have more than one opportunity to secure all the funding you’ll need for your business. So, it is safer to plan with your worst-case financial scenario in mind. This implies that you need to be honest and thorough with your financial projections. You have to think about every possible aspect of your business that will require money to function effectively.
For instance, as a small business owner, it is easy to fall into the trap of only including the equipment your business needs for production alone. Most small business owners fail to thoroughly plan for other important areas like marketing and customer retention when calculation their financial needs. Often, these areas tend to demand twice as much than what was originally anticipated.
Since accessing funding for your business is quite challenging, it is best to raise more than you think you need.
4. Identify your Target Investors
Now that you have carried out proper research about your business, it is time to conduct proper research on your target investors. You need to ask yourself a few questions like, “how much funding do you need to run your small business?” and “what type of investor has what it takes to raise the actual funding I need?”
Other questions you should ask include;
· Do these investors fund my kind of business?
· What are their funding requirements?
· Which investment company is most likely to fund me?
· What kind of long-term partnership am I looking for?
These questions will help you determine the type of investor that will be best suited for your overall business goals.
5. Serious Investors want Serious Investments
Let’s be honest with ourselves; the most important question in the heart of most investors is, “how can I get my money and profit back? This is why investors, unlike family and friends, carry out comprehensive market research and due diligence to ensure that a business is viable before deciding to commit finances towards it.
Raising funds from family and friends often comes with tons of downside risks like broken family relationships or friendship and hurt feelings. It is often impossible to raise all the funding needed for your business from family and friends. This is why most business owners prefer sourcing funds from private placements or a group of investors. However, to do so, you will have to find creative ways to present your business as a venture that is worth investing in.
As a small business owner, to effectively position yourself for funding, you have to ensure that you tick all the boxes listed above. However, you should keep in mind that these tips only increase your chances of securing proper funding for your business.
If you receive a negative response and have put much work into increasing your chances, don’t see it as the breaking point of your business. Stay motivated, revisit your business ideas and strategies and tweak the ones that need improvement.
If you want serious investors, you will need to present your business as a serious investment.