15 Things to Put in Place Before Seeking Financing
As you build your business, growth will be largely contingent on your ability to access funds. Whether you seek financing from venture capitalists or a loan from a financial institution, there are a few things you’ll need to have before you get started. If you have these 15 things ready when you start searching for financing, you’ll find the process will go much smoother.
From the time you start your business, you should be focused on bringing in revenue. You’ll have bills to pay each month, so it may be difficult to keep your cash flow positive early on. Set your rates according to industry standards and gradually raise those rates as your business grows. When you do try to land an investor, you’ll be able to show a history of gradually-increasing profits that will impress.
One thing that can delay your funding request or have it denied outright is a lack of responsiveness on your part. When you’re asked to submit information, respond as quickly as possible and provide all of the information requested. If you’re completing an application, be careful not to leave anything blank. Financial institutions have been known to deny loan requests due to incomplete applications and investors may see you as lacking the follow-through they expect in an investment.
Great Credit Score
As you build your business, it’s also important that you work hard to boost your business’s credit score, even if your personal credit score is stellar. This is especially important if you plan to approach a financial institution as a loan, since they’ll want to see that you have a positive history with creditors before they agree to let you borrow money.
A Clean History
When you ask for funding for your business, lenders and investors will dig into your background, so it’s important that you have a clean history. If you have a history of failed businesses, this will come into question, so be sure you have a good explanation for each of them. Some of the most successful entrepreneurs have failed businesses in their pasts, so don’t assume this is a kiss of death. You just will need to show how this business will be different, preferably with consistent cash flow to back up those claims.
Along the way, you’ll build relationships with colleagues and other industry insiders. Make note of any contacts who might later be great resources when a lender or potential investor asks for references. If you’re growing your business the right way, you’ll quickly accumulate multiple contacts who would be more than willing to attest to what a great investment your business is. This is especially true of any colleagues for whom you’ve helped out.
Your business’s bookkeeping will be scrutinized very closely when you’re being considered for financing. If you don’t have an accountant on your payroll, you’ll have to keep these books yourself. This is easy with today’s tech tools, but it isn’t enough to merely automate the process. You’ll also need to keep up with changes in accounting procedures by reading top websites and publications on these issues.
Every business will experience slumps. Investors and lenders will want tangible evidence that you can support the business if you come up short for a couple of months. If this means dipping into your personal savings account or using personal assets as collateral, you’ll need to make sure you have everything in line with your personal finances before you begin seeking financing. The best option, if you can swing it, is to set reserves aside for those difficult months and have those already in place when you approach lenders.
Solid Business Plan
A solid business plan is important, especially if you’re approaching investors. The Small Business Administration (SBA) can help you build your business plan with its step-by-step guide. There are also templates available online that you can use. In order to create your business plan, you’ll need to first know your business’s mission and the steps you plan to take to achieve that mission, so you should have this information in mind before you get started.
Even if you’re a startup operating out of your home, your business has assets. The furniture and office supplies you use each day are assets, as well as any other property you own and use for business. You can list these assets as you seek financing or lending and leverage them as you meet with lenders.
Before you even start seeking financing, you should already have sources in mind. If you’re asking for a loan, know the best financial institutions to approach. Often credit unions and local banks are more open to offering money to small businesses than multinational banks with locations across the world. If you’re seeking investment dollars, conduct thorough research on investors and venture capitalists in your area. Ask friends or use online tools designed to connect startups with investors who are aggressively seeking investment opportunities.
Utilize Existing Connections
As you hone your list of investors and institutions to approach, take advantage of any existing connections you have. Approach the bank or credit union where you have your accounts currently for a loan before you go to competing institutions. To locate investors to approach, leverage your existing connections. Ask colleagues to recommend potential investors who might be well suited to your type of project.
If you’re going it alone, you may feel completely lost. You don’t have to be. There are many resources available to help startups and small business owners with the many questions they have. Organizations like the Small Business Administration can work with you to refine your business plan and help you identify potential revenue sources in your area. Local networking groups may also provide workshops on the subject, since it’s become a hot topic among small businesses in recent years.
One of the best ways to get started on your search for financing is to have a mentor by your side through the process. There are many professionals with years of experience who are interested in helping out entrepreneurs who are starting out. You can access these mentors through networking groups and professional organizations. Even if you don’t have a mentor you can call whenever you have questions, you can still find mentorship among professional groups through in-person meetings an online forums. With this option, you’ll be able to ask questions as you have them and get a variety of expert tips.
A Great Pitch
Before you approach investors or banks for funding, you should create and hone your pitch. What you say will be far more important than what is contained within your business plan. Make sure you can sum up the most exciting features of your business in just a few short sentences and lead your meeting with those sentences in case your investor cuts you short. Most importantly, practice your sales pitch in front of trusted colleagues and ask for their feedback on ways you can make it stronger.
Keep Your Business Clean
Whether you’re preparing to seek funding or you’ve already earned it, you should strive each day to keep as clean a record as possible. Pay your bills on time to keep your credit score healthy and work hard to form long-term partnerships with colleagues and potential investors. Every business can use extra funding from time to time and these relationships could lead to funding opportunities you weren’t even seeking.
If you see financing in your business’s future, you need to start preparing today. You’ll be required to show proof that you have healthy cash flow and you’ll also need a healthy credit score, especially if you plan to seek financing from a bank. These behaviors will not only be good for your future financing requests, but they’ll make your business stronger as a result.