HOW TO RAISE MONEY FOR STARTING A BUSINESS
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: Anytime 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 thru" those extreme "ups and downs" inherent in any
beginning business. You should also describe what makes your
business unique - how it differs from 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 directors?
An investor uses his money to make more money. He wants to
make as much as he can, regardless whether it's a 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,
an "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 need so 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 potentials, 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 with out 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 to 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 on 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 directors of an
other 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've 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 development 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 to invest.
There's more money now than there's ever been for 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!
