Raise It Right: Fundamental Mistakes Business Owners Make When Fundraising

Business.com / Funding / Last Modified: February 22, 2017

The right funding solution can help any business. The key is to approach the process in the right way and to be prepared. Learn 5 ways here.

Building a business is hard.

According to widely published research, around 90 percent of businesses fail early on.

It takes a lot of persistence and the right strategy in order to get your whole proposition to work for the market.

But many entrepreneurs make the task more difficult for themselves by under-resourcing their business.

Typically, this is by trying to create a successful business without a funding solution in place, especially given the fact that starting and growing a business can be expensive.

This approach makes it much harder for you to build a sustainable and successful business.

Every business will need an infusion of capital at some time or other in its lifecycle. Ideally this investment ought to come at a time of growth as opposed to at a time when the business is flailing.

Related Article: 5 Critical Mistakes to Avoid When Raising Money With Investors

Having access to capital can help your business in a number of ways. Some of these reasons include:

  • Scaling up your sales and marketing effort in order to attract more customers.
  • Assisting in completing and launching a new product or service.
  • Allowing you to build a team that can help support your growth more quickly.

However, many businesses and entrepreneurs go about fundraising in totally the wrong way or have an irrational fear about the process, or the wrong perception of what it means to raise money for your business.

The fact is that the right funding solution can help any business, no matter how small or large, and no matter what sector you are in. The key is to approach the process in the right way and to be prepared.

There are a number of key mistakes entrepreneurs make when it comes to fundraising. 

1. Not Having a Strategy 

This is the carnal sin of business and one of the main reasons that such a high proportion of businesses fail early on. The impact of no strategy is even more debilitating when it comes to fundraising because it doesn’t allow you to put the funding into any context with regards to your longer term plans.

As such, it prevents you being able to articulate this strategy to any potential funders. Having a clear and coordinate plan when it comes to fundraising is critical to success.

Related Article: Inside Equity Crowdfunding: The Quire Difference

2. No Business Plan

The best way to articulate your strategy, and your funding proposition, is through having a powerful business plan. Frighteningly, there are many businesses I see that don’t even have a business plan. There still remains a misconception and negative attitude amongst some entrepreneurs when it comes to business plans. However, your business plan is only as relevant and effective as you make it.

A weak business plan will undermine your business and de-motivate you; a powerful business plan, however, can be the backbone of your business’ growth and make the difference between success and failure, especially when it comes to fundraising.

3. Not Understanding the Importance of the Numbers 

Having a strong understanding of your financials, including your assumptions, is critical for you as a business owner. However, this is also of significance for funders. An entrepreneur who knows his or her numbers provides a lot of comfort to funders. In addition, it helps justifies your growth plans, and your funding needs, allowing funders to see what you propose building, and how.

4. Approaching the Wrong Funders 

Not all funding sources are created equal. As such, not all funding sources are right for all businesses, but there is the right funding for every business, irrespective of size, nature of business or sector. The mistake entrepreneurs make is simply approaching funders they are most familiar with.

The problem with this is that your business may not be at the right stage of growth yet to qualify for that funding. There are an increasing number of funders funding all sorts of businesses these days. The important thing to realize is that all businesses can get funding if you identify the right funder for your business.

Related Article:What is FinTech and What Does it Mean for Small Businesses?

5. Pitching Poorly 

Assuming your business has got to the stage of entertaining funders, irrespective of the type, the mistake entrepreneurs make at the final hurdle that scuppers their chances is a poor pitch. The problem with a poor pitch is not only do you not receive the funding, but you put all the efforts to get to this stage to waste, and can tarnish your credibility in the process.

The secret to pitching for success is to focus on telling your story relevant to your business. This is a much more convincing approach than "selling" through a formal pitch. A story also remains memorable and packs a bigger punch.

By ensuring you don’t make these mistakes, and by ensuring you have a convincing story to tell about your business, you will be on your way to securing funding for your business, which means helping accelerate growth. How can you afford not to get it right?

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