Raising Capital for Your Business: 6 Critical Questions
A half million Americans have started new businesses since 2012. They’ve learned the hard truth that money indeed makes the world go ‘round. The need for capital is endless. So knowing how to shake that money tree is crucial. Before beginning your search, here are six questions to ask.
How much capital do I need?
You know what they say about that which sounds too good to be true. Don’t allow the popular literature to mislead you. Most businesses fail because of little or no capital. Entrepreneurs are optimists and risk takers by nature. They’ll do anything to get their ventures off the ground. But the truth is that no business can succeed without a detailed and actionable plan. Creating this plan can clarify issues you never considered and help you evaluate your progress against your expectations. As part of this planning process, you must be able to answer the question of how much capital you need, and to understand how changes in the market and your business might alter the answer to that all-important query.
How can I raise new capital?
Owners are the most common source of startup capital, but aren’t always the best. When you’ve exhausted loans and grants, commercial and investment banks, venture capital funds, and private investment groups may help. The investment is usually styled as debt equity. For this reason, it’s best to delay capital infusions from third parties for as long as possible. When you need them and use them intelligently, however, these third parties can mean the difference between smooth sailing and a sinking ship.
How much is my company worth?
The value of a company forms the basis of the cost of new capital when you seek an infusion of equity. A valuation looks at today’s value, the potential future value, and which strategies are most likely to bring that future value to fruition. The valuation may also assess how likely it is that the company will be able to follow the steps necessary to increase value. Your company’s actual value, not its value to you or the work you’ve put into it, is what matters most. So leave your emotions behind as you pursue an objective evaluation.
Who might be interested in investing in my business?
As the money you need increases, you’ll need to appeal to an increasingly more sophisticated group of investors who are seeking premium returns on their investments. Friends and family are often less discriminating and more willing to help. Of course, they also bring their own set of problems. There are important disparities in access to capital. Women and minorities often face more funding barriers. They lack access to the “old boys’ network,” and may be taken less seriously. Working with an advisor can help you determine how to most effectively penetrate these networks.
What do I owe potential investors?
Owners seeking money from investors must offer specific accurate information so that the investors can critically and fully evaluate the business. You may have additional continued legal duties to your investors. These requirements depend on the type of investment, the type of company, and the specifics of the contract you both sign. So seek legal advice before moving forward, because signing the wrong contract can constrain your actions and put you in legal jeopardy for years to come.
How do I negotiate a fair agreement?
Funding involves at least two parties. Both must get something from the investment. Negotiating this investment is all about understanding and protecting the interests of both sides. Factors such as the amount of the investment, the return on the investment, the terms of the investment, and the involvement of each party in the business are often highly negotiable. So consider working with a skilled advisor to ensure you negotiate an airtight agreement that benefits you both.
About CBS Global
Since 1979, Creative Business Services has specialized in the sale of businesses and companies throughout Wisconsin. We have the experience to assist you in the difficult process of selling or buying your business or company.
Creative Business Services is a leader in the growing and dynamic business brokerage industry, providing its team of professional brokers with tried and true tools and methodologies to help buyers and sellers get businesses transferred. In addition, Creative Business Services offers its affiliate brokers the most advanced technology to manage their offerings and buyers, to generate professional reports, and to outperform the competition.