You'll need to get the 'when,' 'what' and 'how' just right to fund your business.
Launching a business is an exciting time. However, it can be extremely overwhelming, especially when funding becomes a top priority. New entrepreneurs quickly find out how fast a business eats through starting capital, and how difficult it is to pitch to investors. Knowing how to allocate funds, when to acquire funding and how to pitch to investors will significantly boost a small business owner's chances of acquiring the capital needed to lift the company to the next level.
1. Time it right.
Start by identifying if funding is even necessary at the current stage. Many entrepreneurs rush to obtain additional funding when the company may not have the infrastructure to handle a large, sudden onset of funds. Determining whether funding is needed can save your business headaches and protect your finances. Analyze the current financials of the company and compare them to your business plan to verify the timing is right to accept funding.
2. Choose the right source.
Venture capital is one of the first targets determined entrepreneurs set their sights on, but it may not be the best option for your specific business. Small business owners should be busy networking, and at these events, converse with entrepreneurs in similar industries to see how they funded their ventures. Every business is unique, so conduct thorough research on all the available funding options to find the best fit.
Luckily for entrepreneurs, there are many avenues to funding, including Small Business Administration loans and lines of credit as well as venture capital. The challenge is selecting the right path.
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SBA loans are one of the most reliable funding options, with their generous repayment periods and low interest rates. Since the loans are guaranteed by the government, they provide very favorable terms for borrowers. However, they take a long time to acquire. You will need to plan far in advance if you plan to gain funding through this option.
Lines of credit are great options for companies that need a boost to their daily cash flow. This funding option gives you enough money for what you need, and you only pay interest on the capital you use. Lines of credit have long repayment terms with reasonable interest rates, and they are a reliable way for new business owners to build their credit ratings.
Perhaps the most sought-after funding route is venture capital. When a venture capital firm backs a startup, it provides a large injection of funds in return for ownership. The venture capitalist will then collaborate with you to rapidly grow the company. While this may seem like winning the lottery, it is not the best option for every business. Also, be wary of vulture capitalists who ask for too much ownership and end up taking the company for their own.
3. Perfect your pitch.
If your business is in a strong position to acquire funding from an investor, your presentation is essential. Prior to building the pitch, research potential investors so you know who they are and what information they will want to see. Keep the pitch brief, starting with a quick, engaging story of how your business began, such as how you discovered the problem it solves. Give concise, defining examples of the problem and the solution your company provides. After the gripping story, round out the presentation with details that demonstrate early growth, a concrete business plan and a strong management team. The entire presentation should be 10-15 minutes.
Researching the available funding options and which one is the best course will ensure the best possible outcome for your budding business. Expect to fail early pitching presentations, but use those experiences to hone the pitch for the next investor. The journey to entrepreneurial success is littered with barriers, but resilience, research and determination will help you overcome the obstacles.