Note: This month I am passing on the advice of SCORE mentor, angel investor and CFO extraordinaire, Hal Shelton. Hal’s 11 commandments for writing a business plan extract the most important thinking and actions of the business plan process.
The number one search term for new entrepreneurs is “How do I get funding?”. This week we provide a few tips on how to be more likely to get that investment you need to start, or grow your business.
7. When requesting funding, ask for the amount of money you truly need supported by financial statements.
Investors need to feel that you value their money and will spend it carefully. A consistent focus on the numbers demonstrates that you are likely to lead with the financials. Create financial statements (cash generation and expenditures) complete with assumptions and even scenarios to demonstrate you have a thoroughly thought-out plan.
8. Use of funding proceeds should be primarily for investments, purchases and marketing that will generate the products, services and sales.
Investors assume that you will contribute “sweat equity”. While some of the funding may be needed for critical staff salaries, the majority should be used for assets and activities that will generate sales. A growing sales pattern with positive net margins means that you have the cash flow to pay back loans and eventually have a “sellable” business. Examples of reasonable funding requests are for product production equipment, protectable, proprietary software development and marketing programs with a direct or channel partner sales focus.
9. Surround yourself with advisors and mentors and talk through your business ideas with them.
You’ve heard the sobering statistics: more than half of all startups fail in their first five years. No one person can have all the knowledge, experience, or even perspective, to handle every business situation. Gain from the skills and experiences of others. Ask for advice from similar type companies in different geographic markets, or non-competing suppliers to your same market segment. Talk with experts in functional areas such as marketing, sales, finance, and operations. Join industry groups or entrepreneur mastermind teams. Express your questions and roadblocks and then listen openly. You will feel less isolated and confused, and investors will feel confident they have a fluid team of resources to grow the business.
Next week: It really is – all about the money.