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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: 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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