The natural inclination to fund a business is to invest your finances on it. However, to get real, substantial capital for a business and to move it forward, you have to start searching for investors and funding. You can’t shoulder everything anyway.
On the other hand, if the reason why you’re searching for funding is because you’re very excited to start a business based on an idea you just had, you might end up disappointed. Seeking for funding has to be done when you and your business is ready. In other words, it has to be done in the right time.
Jayson Demers, founder and CEO of AudienceBloom, a company that helps startups with their online marketing initiatives, suggests checking off these requirements before you search for funding.
- A Payoff
You should have a specific payoff for your investors – an exchange for the funds that they will provide you with. Payoffs can vary. For individual investors, it may mean a projected amount of money that your business has earned after a certain period of time. For a crowdfunding initiative, it may mean having rewards or offering sample products for different investment levels.
- A Goal
You need to know the amount of funding you exactly need before you start asking for funds. Investors will most likely ask why you need that certain amount as well, so be prepared in answering such question. Explaining where the money will go will let your investors know that you have a solid plan and that the money is going to something worthwhile.
Here are two examples:
- “I need cash for my startup business.”
- “I need $5,000 for marketing, $15,000 for product manufacturing and sales, $20,000 for equipment, and $10,000 to setup an office.”
- A Brand
Your brand will not be discussed during the fundraising phase of your business’s development. However, it will be mentioned most prominently during the marketing phase. Investors are interested in all phases of your business development. Showing them that you have a strong brand proves the character and viability of your business. It’s a display of identity that can creatively and concisely drive your pitch successfully.
- Existing Funds
Investors find startup businesses credible if founders invest their own money in their business. It also shows your commitment to the success of your business. Initial funding can be sourced from your own bank account, and even from friends and family’s financial help.
- Skills and Talent
You should have the skills and talent to run your business and manage your employees (or interns). Make sure that you can personally handle the first stages of business growth and development.
You’re in good shape if you have proven credentials or more importantly, years of experience in the industry. Otherwise, you’ll need to secure outside resources or undergo training to gain some business and management skills.
- Potential Customers
The only way to determine your customer base is to conduct market research. Once you’ve identified your target market, gather a few testimonials and present it to your investors. They will be much more interested to work with you if you already have a demand from customers.
- Long-term Plans
You need to chart out your projected long-term growth. Create business plans that will cover the course of your business first year, and then three years, up to the next five years. Many investors want to fund a business with a long-term solution to the challenges that it will face in the future. Don’t create the mistake of focusing exclusively on how to build a business from the start. Think about how your business will move forward.
- Financial Structure
A financial structure is an important part of your business plan. It’s one of the most detailed parts that investors scrutinize over. Investors want to know that you understand your business’ finances and that you have a clear business model for it.
A financial structure should include growth rates, profit margins, sales and revenue, acquisitions, and projected costs. It should show how your business will create profit.
- Market Research
You need to have a numerical grounding to prove the potential worth of your business. The best way to do this is to conduct market research, which contains verifiable data that can show the viability of your business or idea. It verifies that your theory can be applicable.
You can perform some research yourself. You can also hire someone or a company to conduct research for your business.
- A Business Plan
Finally, the most important requirement is a business plan. It’ll be the foundation of your idea. It should include all the details of your business and how it should make profits.
It’s a challenge to complete all the requirements in this list. The good thing is, you can miss one or two. Just make sure that you can provide nearly every item before you ask an investor for funds.