The top 5 pitfalls to avoid when looking for business funding
From finding an investor who's passionate about your start-up to getting your books in order, find out how to ensure a smooth path to raising finance
Every business needs money, whether you’re a start-up making those first tentative steps into the business world, or a well-established small or medium-sized operation planning to expand.
Having a financial backer or a good line of credit with your bank or capital investor means you can reposition yourself and your business on a much stronger footing. You’ll also have a little more peace of mind knowing there’s enough money in the account to pay the bills and grow the business.
But before you dip a toe into the murky financial waters, you need to make sure that there are no sharks circling, or that you’re not making an error that could leave you broke and your business on the floor.
So, here are our top five pitfalls to avoid when you’re looking for business funding.
1. Be realistic about how much money you actually need
It’s all too easy to either over or underestimate exactly how much capital you need. Don’t pick an arbitrary number out of the air because it ‘seems about right’. Do your research and work out exactly how much investment you need, down to the last penny. Don’t forget to factor in things like interest charges, solicitors and accountants’ fees, equipment depreciation and even simple things like utility bills.
If you go into an investor’s meeting with a carefully laid out plan that shows them exactly where their money is going, they are more likely to say yes.
2. Find an investor who is passionate about your business
When you’re looking for an investor, you’re not just looking for someone with deep pockets. Money may be your primary concern, but it really helps to find an investor who is actually interested in your business too, rather than one that’s focused on how much they’re going to get back from their initial payout.
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Don’t be tempted to try and ‘hide’ anything from an investor – if they’re putting capital into your business they want to know that their money is going to be used properly and that you are not simply trying to ‘bail out’ a business that’s in financial trouble.
A passionate investor will not just put financial worth into your business, but will also bring experience and expertise to the table, such as marketing and branding, or a foothold into a new marketplace. Experience like that is worth just as much to your business as the funding.
3. Make sure your angel investor isn’t actually a devil in disguise
Don’t think for one moment that ‘angel investors’ are putting money into small businesses out of the goodness of their own heart. They are experienced and successful entrepreneurs for a very good reason – they understand business and how to pick ones that make money.
But don’t feel that you have to yield to demands of 50% equity in return for a business loan, no matter how attractive the offer may seem. Angel investors know a business with potential when they see one – just make sure that you see the potential in your own business too and keep control of the reins, even if finances are tight.
Sometimes it’s actually better to walk away from a deal that doesn’t seem right, rather than compromise your control over your business for the sake of a few thousand pounds.
4. Presentation is everything
You may have a fabulous business idea, a strong customer base and a unique product or service, but if your pitch isn’t perfect then your potential investors will simply walk away.
Keep your audience focused on the positives of your proposal by ensuring your presentation skills are honed to perfection. That also means ensuring your equipment doesn’t let you down at an inopportune moment. The best way to really keep your audience engaged is to deliver an interactive presentation using real ‘hands on’ equipment such as a multi-touch interactive flat panel displays to encourage audience participation.
Keep your delivery short, targeted and energetic, and make sure your tech doesn’t scupper your chances of getting that investor to say yes.
5. Get your books in order
If you want an investor to actually commit to a long-term relationship with you, whether that’s the bank, an angel investor or any other source of financial business support, then you have to show you can keep your books in order. Chaotic finances are the easiest way to disengage a potential backer and send them running for the hills. If your finances are a mess then an investor will see you not as a potential business partner, but someone to be avoided at all costs.
For someone to be persuaded to commit financially to your business, you have to demonstrate that you can be trusted to use their money wisely. The first thing they’ll want to see are your company accounts, so make sure they’re absolutely spot on (to the last penny), and up to date. This also allows an investor to forecast accurately your business’ projections for the next few years.