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: Any time 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 through" those extreme "ups and downs" inherent in
any
beginning business. You should also describe what makes your
business
unique---how it differs form 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 directories?
An
investor uses his money to make more money. He wants to make
as
much as he can, regardless whether it's 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,
and
"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 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
potential,
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
without 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 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 of 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 directories of
another
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're 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 developing 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 invest. There's
more
money now than there's ever been for a 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!
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