How do you know when to take on a partner, angel or funding to get to the next level of your business?
When moving to the next desired stage of the business (growth), how do I know whether to take on conventional money (lending institutions/SBA) or angel investment, or invite perhaps a partner (with cash) to assist in the momentum of the company? I am seeking a checklist of sorts to assure I have examined readiness and desirability of that step.
I'm the Community Manager for Business.com. I see this question come up all the time. It takes a lot of preparation and guts to approach investors, so you want to make sure you are ready. The Business.com team published an article to help answer community member's questions on how to know if your business is ready to take on an investor. You can view the article here: Is Your Startup Ready for an Angel Investor?
It is important to remember not to rush approaching outside investors if you aren't ready. Take the extra time to gather data on your target market, develop a solid pitch, and practice with your team. As others have advised below, confidence in your business idea and how you express belief is key to getting the attention of a potential investor!
I'm not sure if you have already made a decision, but based on what type of business you have, if you have receivables a good alternative could be accounts receivable factoring. Factoring only works if your customers are other businesses as factors don't deal with consumers. The way factoring works is you get funded for your receivables the same day you invoice your customers giving you improved cash flow to help grow your business. It also allows you to outsource your a/r which will free up additional resources. Since you are selling your receivables you aren't taking on any new debt, and credit decisions are based on your customers' good credit, not your own, as a result there is no limit to the amount of funding your receive.
Interesting question, but without knowing what type of business you are trying to expand it makes it slightly harder to answer this question. That being said..
Before you contact anyone, or pay for anyone's services.
The first thing you want to do is price out all of your future costs. You want to make a detailed list of how much your expansions are going to cost you as a whole. Calculate all of your new expenses with your existing expenses so you know exactly how much your operating budget needs to be every month. In all honesty regardless of the business type if you can increase your current monthly income off of your existing business you could finance the expansions yourself. No need to find outside resources, you just need to become more resourceful. There are numerous ways to do that but yet again it depends on what type of business you currently have ??
Do you have a product you are selling ??
Or are you providing a service ??
It's easier to give someone a solution when I know what type of business it is. Because each business type has a specific target audience. Even without knowing this information I would say just focus on doubling or tripling your current customer base, while retaining your existing clientele. It adds a lot of work, but that's what a business is a lot of work. Also by learning how to increase your profit margins you will become self sufficient and maintain your sole proprietorship of your company. The amount of money you need does not matter the amount of time you are willing to invest in reaching that goal is all that matters. If you would like me to elaborate more please feel free to send me an E-mail
or you can text me ( 609 ) 442-7946
J Bailnisi 12:00 pm – 12:00am
When you contact me please put your name Michelle and MosiacHUB in the body of the E-mail or text message, this way I know who you are when you contact me thank you. Because I literally deal with hundreds of people on a weekly basis. I look forward to talking to you soon bye for now J Bailinisi
If you don't have the money to fund your project/business ideas, then you would seek investments from a partner/angel. If you don't have all the knowledge/skills, a partner or mentor could add their knowledge/skills/experience to your business.
Sometimes money does not add value or solve a problem as there have been many businesses with money "inheritance/funding/grants/loans" but they go nowhere because they don't know what they are doing and so knowledge/experience could actually make your project/business/ideas succeed.
You can also look inside the company for cash. Have an outside firm look at/ audit key expense items. Such as workcomp, merchant fees if you take CC, shipping. look at reducing taxes through Cost-Seg should you own the building, Manufacturing R&D taxes credits is another area.
The funny thing about expanding is that you'll have enough to expand. If you need help expanding, it's not time. We all know that Steve pulled off one of these with the iMac, using Microsoft I.O.U.s. But that's because he's Steve. You and me aren't there yet.
Get together all your assets, even valuable employees and put in as much as you can all afford - moneywise, timewise, ideawise. Interest rates have hit a watershed moment. Cash is tight. Solutions are abounding with information technology. Partnership is great but to form a consortium of companies would be better. Money isn't all you need, it's friends.
To me getting a partner or angel and having to give up equity just for cash is always the last thing i recommend. It is almost always way more expensive than just getting debt, if you can get the debt. Big exception for me is when the partner can bring something the business needs other than money - clients, reduced costs for inputs, etc. So my recommendation is look for the debt first and see if you can do that first to grow the business - it is also much much easier to find debt than an angel money too! - and use the partner route only if you need to.
1. Do it as LATE as possible. The more you can grow with your own resources or company-generated resources, the higher the percentage of your company you will get to keep.
2. Next, if you can afford to pay interest, try loans. Ordinary banks will probably not give loans to companies which are not proven, or can show healthy financial history. BDCs can give loans at higher interest rates.
3. If there is a person or company that can add value (on top of funding), then see that third.
4. Only as a last resort, go to angels. They will take a high % of your company by giving you as little as possible.
5. VCs come in the end, after you already got rounds of financing, and have history to show their MBAs and a show a quick path to IPO or other liquidity.
Hope this helps.
This is far too complex a question, actually two separate questions, to answer without vastly more information on your business. Even attempting to answer it here would be "malpractice" as perscription without diagnosis is malpratice.
There are many types of financing and all have a use for a certain situation. Anyone would need to know your business plan, potential margins, market, opportunity size, status of achieving traction/sales, team experience and far more to answer this question.
I think you need a highly experienced business coach to engage with you on this question for at least an hour. As for a partner, and I would never use that term to refer to a financing relationship, that is a very different issue that also has many factors to determine. What skills sets will you need to be successful, scale and optimize your business? Do you have that experience or do you need to add to the team as you go or with financing? Any real company/opportunity needs to build a team, anyhting else is a job really.
You can see my CEO Coaching program here: http://www.clevelenterprises.com/coaching.htm
Check out http://1m1m.sramanamitra.com/private-roundtables/
Srmana is a heavy weight in the investor/ entrepreneur community. The roundtable that is going on as I Am writing this is actually addressing your question. So perhaps when You get this note find the roundtable [April 21st, 2016] and fast forward to Ho Nam from Altos Venture.
Hope this helps a bit
Wishing You Well
Ask three questions:
1 What is my most important business objective(s) and timeline and which relationship type best fits that?
2 What kind of personal relationship and responsibility am I most desirous and comfortable with?
3 What are the consequences and process of getting out of a commitment that doesn't work? (buy back, buy-sell, repayment)
Partners, angels, capital investors have some overlap but are very different business arrangements and usually better fit to those three questions. The clearer you are there the more likely to make the right choice.
I would suggest that you should use your own finances as long as you are comfortable with it. Taking on other partner for finance or any way is a gray area where in you have to see the conditions under which the partner lends money. What are his wasted interest and what are his requirements or expectations from you to lend this money.
You should consult a business lawyer for this changeover.