Tips on How to Secure Finance for Your Business
The majority of business start-ups rely on finance. Established businesses may require additional funding further down the line to grow. The finance needed will come from the savings of the persons setting up the business and also outside lenders and investors. Also, business owners or potential business owners will secure loans from banks and other financial institutions by proving their business can be profitable and by having the collateral to give their lenders security. Investors differ from lenders in that they might want a say in a business as well as expect healthy returns on their investment over time. This will be as opposed to interest paid on a loan.
So, now for some tips on how to secure finance for your business from outside sources.
Improve Your Presentation Skills
When you have a meeting with lenders or investors, selling the potential of your business to them will be no different from selling one of your products. You will be demonstrating that you know all about your business and its finances, as you would about your product. This demonstration of knowledge and what you understand about your area of business and the business world will play a significant part in gaining trust and securing the money you need to finance a business venture or grow a business.
Some tips for coming over well during a presentation will be to show your passion for what you are explaining and the idea that you are selling. Also, to focus on what is important. To have in your memory what is important, too, so that it is more convincing than just reading it out. Look at the people that you are trying to encourage to invest and be ready for the kinds of questions you would want to know if investing. Such as when a return is likely. Honesty is best if you believe that it might take a while. Lots of investors are in it for long-term gain. They just want to feel that they are in secure hands and that the rewards will be worth it in the end.
To know your business inside out, as it were, you will need to have conducted thorough market research to know who your potential customers are and where they are. Without this, how can we possibly know that there will be enough of them to sustain a business? So, demonstrating your markets will be key to convincing investors as much as yourself that your business is a good idea. Not to mention the fact that you will need the information to project your figures for a potential lender or investor, which we will talk about next.
Work Out Budget Projections
An investor, whether they be a private individual or a bank, will want to know your figures. They will want to know firstly that you know your figures and secondly what your figures are. They will want to know them for at least the next 3 years. This gives them sufficient time to judge your potential progress and direction as a business.
We can project our figures for the next few years by thinking about how other businesses in similar markets have grown, and how we are likely to gain customers through recommendations and wider use of advertising. Also, by expanding our empire gradually as we can afford to reinvest in our activities. Everyone will agree about starting small and growing the business. This will be expected. So will the fact that you might make a loss or merely break even in your first two years in business. However, it is your potential to make money in the future that lenders and investors will be interested in. They will want to see interest payments easily capable of being met or greater returns possible in the longer term so that their money has worked for them better than it would have done just being left in a low-interest savings account.
Use a computer package to produce your budget projections because it will look for professionals and perform many of the calculations for you. Excel, for example, is a spreadsheet package that is widely used in business. This will mean that there will be plenty of people to ask if you get stuck with it. Creating a formula is as easy as typing in the cell something like “=SUM(C4:C12)” if wanting to add up all the numbers downwards from C4 to C12 and gain a total for that column. At first, you might want to check them on a calculator and not trust the spreadsheet, but if your formula is right then so will your total be. It is just so much easier to use spreadsheets and be computer literate about running a business than using paper and a calculator and ending up adding up everything twice to check it.
Make a List of Potential Investors and Moneylenders
Before approaching anyone for finance, make a list of all the potential money lenders. Include your regular bank as a possible moneylender, with whom you will have already hopefully established a good relationship with in terms of your finances.
Compare interest rates of the money lenders to weigh up whether it is better to have a moneylender loan you the money or have someone actively invest in your business. It depends if you also require their expertise and how much your want those loaning you money to get involved in your business. You may value the expertise or conversely detest the interference.
In summary, to effectively secure finance for a business, know or learn how to present your ideas effectively, be prepared to work out projected figures as a business for at least the next 3 years, possibly 5, and make a list of both investors and moneylenders who could potentially help fund your business. The key is deciding between an investor or a moneylender. A moneylender simply offering a loan will be more like a sleeping partner and not desire to take an active role in your business beyond offering some early advice. Whereas, an investor may want a say in how the money that they have invested is going to be used. So, give some thought to what either option could offer your business.