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 5 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! |
RoDI
ISOC
IWA
ARTT
RTS
WQC 2003 
ISAQ 2005