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: Any time 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
through" those extreme "ups and downs" inherent in any beginning
business. You should also describe what makes your business
unique---how it differs form 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
directories?
An investor uses his money to make more money. He wants to make as
much as he can, regardless whether it's 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, and "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 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
potential, 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 without 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 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 of 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 directories of another 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're 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 developing
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 invest. There's more money
now than there's ever been for a 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!
