How to Know When Your Business Ready for Financing
SEEKING FINANCE FOR YOUR BUSINESS? 9 FACTORS TO CONSIDER
In order to raise external finance for you business, you must be able to convince potential investors that your product or service is of high quality, that your business is viable and that they will receive a worthwhile return on their investment.
There are several options to consider when you are ready to finance your business, including loans from friends and family, angel investment, bank business loan or even crowdfunding. Whichever route you decide is the best for you and your business, a significant amount of preparation is needed to prove that your business is a worthwhile investment. Here we look at some of questions you need to be able to answer to establish if your business is ready for investment so that you can approach investors with the best possible chance of success.
1. Are You Ready to Sell Equity in Your Business?
Are you ready to share ownership of your business with investors and committed to working hard with them to ensure the continued success of your business?
Some new entrepreneurs struggle with accepting external investment as they feel they are giving away part of their business and may lose some control over decision making. If you are at the stage of considering seeking investment in your business, it is important that you view potential investors as people who can work alongside you to help you grow your business and take it to the next level.
2. Does Your Business Idea Fill A Gap In The Market?
What was your motivation for starting your business? Did you see a gap in market for your product or service, does your business fulfill a need or solve a problem for potential customers? Have you done enough research to prove that there is a market for your product or service? If you can show that your product or service fills a gap in the market for a substantial number of customers, then investors are much more likely to be interested in giving you their money.
Have you identified potential competitors in the market for your product or service and created a product or service that stands out from the crowd. In order to make your business attractive to investors you will need to have developed a Unique Sellling Point (USP), something that makes your product different and therefore, more likely to attract customers, thus increasing your chances of acquiring investment.
3. Is Your Product/Service Ready?
Is your product or service fully developed and ready for market? Have you identifed your Target Market for the business, tested the product on them and resolved any issues which have arisen? It is beneficial to have a working prototype to show to potential investors and even better if you have already produced a Minimum Viable Product (MVB) tested the market and achieved some sales or pre-sales to prove that people are willing to buy what you have to offer.
If your business idea is original and qualifies for patenting, have you acquired the patent? Your company also needs to be registered before you approach investors, you can do this quickly and easily at https://www.qualitycompanyformations.co.uk/.
4. Do You Have a Viable Business?
You may have a great product or service but in order to attract investment you must also be able to show that you have a strong and viable business. Many people make the mistake of focusing too strongly on the product when pitching to investors and while a great product is essential, if the investor is not convinced that you are a good business person, they will not give you their money.
5. Are Your Finances In Order?
Potential investors are likely to carry out a thorough check on your financial history, as they will want to know if you are responsible and can be trusted with their money. Do you have a good personal and business track record and credit history?
In business, you can build your credit rating by using a business credit card or business overdraft facility with your bank and ensuring all payments are made in full and on time. If your business is already established ensure your accounts are in order, ready to be examined and that all monies due are paid up to date.
When trying to get investment, you must be able to show investors exactly where the money will be spent and how it will be used to generate income for the business.
You should also be able to account for all money spent on the business to date as investors will want to be assured that you are spending money in a resourceful and efficient way which enables good profit margins and returns.
6. Do You Have A Detailed Business Plan?
Before you think about approaching investors, you will need to have completed a detailed business plan. The business plan should contain a summary of all elements of the business in a way that is straight forward and easy to interpret. It should give details of the Target Market for you business and show evidence of market research carried out to show that there are enough customers out there willing to buy your product or service at the price you are offering it to create a strong and sustainable business.
In your business plan, show all possible streams of revenue (sales of product or service, after care, licensing etc.). Show details of the costs of the business such as rent, rates, salaries, cost of raw materials. Be able to show your gross and net profit margins.
The business plan should contain details of financial performance of the business to date and financial projections for at least three years into the future. Potential investors will want to know when they can expect a return on their investment and what rate of return they can expect, before making a decision to invest in your business.
All the details in your business plan should be accurate, genuine and based on a solid foundation, potential investors must be able to trust you implicitly.
7. Do You Have A Marketing Strategy?
Prior to seeking investment, it is a good idea to have a detailed marketing strategy completed so that you can show investors how you plan to let people know you are in business, and how you will get them to buy your product or service. Your marketing strategy should also contain details of how you will get you product or service to the market e.g by opening a shop, selling online, selling through existing retailers or wholesalers.
A good marketing strategy is necessary, as you cannot sell if people do not know you exist or if you can’t get your product or service to the customer. Investors will expect that you have considered and addressed how you will market your business.
8. Do You Have an Expert Team in Place?
Do you have the required level of expertise in place with regard to both your product or service and your business strategy. Investors are keen to know who they are dealing with. They will not only want to meet with you but also the team that are working with you in the business, as they will need to trust that sufficient expertise is in place to help grow the business and ensure the return on their investment.
9. Are You Confident About Presenting Your Product or Service To Investors?
When seeking investment for your business, it is imperative that you approach the right people, there is no point in approaching those with no interest or expertise in the area your business relates to. Do you have the right contacts and connections to allow you to approach the right people or do you need to build your network more in order to find these people?
Research has shown that when it comes to seeking finance many business owners fall at the last hurdle by not preparing their pitch to investors properly (think Dragons Den). Investors will want to be assured that you can sell your product well and if you have a hard time convincing them that you are worth investing in then they will doubt your ability to sell to customers.
Make sure that you have a clear focus and vision for your business that you are able to share in a confident and persuasive manner. That you can clearly show what your business is worth, know your projections and all of your figures off so that you can answer all potential questions. Mentorship from a business leader in your local community most areas have enterprise offices may be helpful to you.
If you have taken all of these factors into consideration and have taken steps to ensure you can answer yes to all the questions, then you can confidently and optimistically approach and present your business to potential investors for the investment required to help grow your business.