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How to raise money for starting a business
HOW TO RAISE MONEY FOR STARTING A BUSINESS
The task of raising money for a business is not as difficult as most
people seem to think. This is especially true when you have an idea
that can make you and your backers rich. Actually, there's more
money available for new business ventures than there are good
business ideas.
A very important rule of the game to learn: Anytime you want to
raise money, your first move should be to put together a proper
prospectus.
This prospectus should include a resume of your background, your
education, training, experience and any other personal qualities
that might be counted as an asset to your potential success. It's
also a good idea to list the various loans you've had in the past,
what they were for, and your history in paying them off.
You'll have to explain in detail how the money you want is going to
be used. If it's for an existing business, you'll need a profit and
loss record for at least the preceding six months, and a plan
showing how this additional money will produce greater profits. If
it's a new business, you'll have to show your proposed business
plan, your marketing research and projected costs, as well as
anticipated income figures, with a summary for each year, over at
least a three year period.
It'll be advantageous to you to base your cost estimates high, and
your income projections on minimal returns. This will enable you to
"ride thru" those extreme "ups and downs" inherent in any beginning
business. You should also describe what makes your business unique
- how it differs from your competition, and the opportunities for
expansion or secondary products.
This prospectus will have to state precisely what you're offering
the investor in return for the use of his money. He'll want to know
the percentage of interest you're willing to pay, and whether
monthly, quarterly or on an annual basis. Are you offering a
certain percentage of the profits? A percentage of the business? A
seat on your board of directors?
An investor uses his money to make more money. He wants to make as
much as he can, regardless whether it's a short term or long term
deal. In order to attract him, interest him, and persuade him to
"put up" the money you need, you'll not only have to offer him an
opportunity for big profits, but you'll have to spell it out in
detail, and further, back up your claims with proof from your
marketing research.
Venture investors are usually quite familiar with "high risk"
proposals, yet they all want to minimize that risk as much as
possible. Therefore, your prospectus should include a listing of
your business and personal assets with documentation - usually
copies of your tax returns for the past three years or more. Your
prospective investor may not know anything about you or your
business, but if he wants to know, he can pick up his telephone and
know everything there is to know within 24 hours. The point here
is, don't ever try to "con" a potential investor. Be honest with
him. Lay all the facts on the table for him. In most cases, if
you've got a good idea and you've done your homework properly, an
"interested investor" will understand your position and offer more
help than you dared to ask.
When you have your prospectus prepared, know how much money you
want, exactly how it will be used, and how you intend to repay it,
you're ready to start looking for investors.
As simple as it seems, one of the easiest ways of raising money is
by advertising in a newspaper or a national publication featuring
such ads. Your ad should state the amount of money you want -
always ask for more money than you need so you have room for
negotiating. Your ad should also state the type of business
involved (to separate the curious from the truly interested), and
the kind of return you're promising on the investment.
Take a page from the party plan merchandisers. Set up a party and
invite your friends over. Explain your business plan, the profit
potentials, and how much you need. Give them each a copy of your
prospectus and ask that they pledge a thousand dollars as a
non-participating partner in your business. Check with the current
tax regulations. You may be allowed up to 25 partners in Sub
Chapter S enterprises, opening the door for anyone to gather a group
of friends around himself with something to offer them in return for
their assistance in capitalizing his business.
You can also issue and sell up to $300,000 worth of stock in your
company with out going through the Federal Trade Commission. You'll
need the help of an attorney to do this, however, and of course a
good tax accountant as well wouldn't hurt.
It's always a good idea to have an attorney and an accountant help
you make up your business prospectus. As you explain your plan to
them, and ask for their advice, casually ask them if they'd mind
letting you know of, or steer your way any potential investors they
might happen to meet. Do the same with your banker. Give him a
copy of your prospectus and ask him if he'd look it over and offer
any suggestions for improving it, and of course, let you know of any
potential investors. In either case, it's always a good idea to let
them know you're willing to pay a "finder's fee" if you can be
directed to the right investor.
Professional people such as doctors and dentists are known to have a
tendency to join occupational investment groups. The next time you
talk with your doctor or dentist, give him a prospectus and explain
your plan. He may want to invest on his own or perhaps set up an
appointment for you to talk with the manager of his investment
group. Either way, you win because when you're looking for money,
it's essential that you get the word out to as many potential
investors as possible.
Don't overlook the possibilities of the Small Business Investment
Companies in your area. Look them up in your telephone book under
"Investment Services." These companies exist for the sole purpose
of lending money to businesses which they feel have a good chance of
making money. In many instances, they trade their help for a small
interest in your company.
Many states have Business Development Commissions whose goal is to
assist in the establishment and growth of new businesses. Not only
do they offer favorable taxes and business expertise, most also
offer money or facilities to help a new business get started. Your
Chamber of Commerce is the place to check for further information on
this idea.
Industrial banks are usually much more amenable to making business
loans than regular banks, so be sure to check out these institutions
in your area. Insurance companies are prime sources of long term
business capital, but each company varies its policies regarding the
type of business it will consider. Check your local agent for the
name and address of the person to contact. It's also quite possible
to get the directors of an other company to invest in your business.
Look for a company that can benefit from your product or service.
Also, be sure to check at your public library for available
foundation grants. These can be the final answer to all your money
needs if your business is perceived to be related to the objectives
and activities of the foundation.
Finally, there's the Money Broker or Finder. These are the people
who take your prospectus and circulate it with various known lenders
or investors. They always require an up-front or retainer fee, and
there-s no way they can guarantee to get you the loan or the money
you want.
There are many very good money brokers, and there are some that are
not so good. They all take a percentage of the gross amount that's
finally procured for your needs. The important thing is to check
them out fully; find out about the successful loans or investment
plans they've arranged, and what kind of investor contacts they have
- all of this before you put up any front money or pay any retainer
fees.
There are many ways to raise money - from staging garage sales to
selling stocks. Don't make the mistake of thinking that the only
place you can find the money you need is through the bank or finance
company.
Start thinking about the idea of inviting investors to share in your
business as silent partners. Think about the idea of obtaining
financing for a primary business by arranging financing for another
business that will support the start-up, establishment and
development of the primary business. Consider the feasibility of
merging with a company that's already organized, and with facilities
that are compatible or related to your needs. Give some thought to
the possibilities of getting the people supplying your production
equipment to co-sign the loan you need for start-up capital.
Remember, there are thousands upon thousands of ways to obtain
business start-up capital. This is truly the age of creative
financing.
Disregard the stories you hear of "tight money," and start making
phone calls, talking to people, and making appointments to discuss
your plans with the people who have money to invest. There's more
money now than there's ever been for new business investment. The
problem is that most beginning "business builders" don't know what
to believe or which way to turn for help. They tend to believe the
stories of "tight money," and they set aside their plans for a
business of their own until a time when start-up money might be
easier to find.
The truth is this: Now is the time to make your move. Now is the
time to act. The person with a truly viable business plan, and
determination to succeed, will make use of every possible idea that
can be imagined. And the ideas I've suggested here should serve as
just a few of the unlimited sources of monetary help available and
waiting for you!
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