Raising capital is hard work. Sometimes it seems like you'll never be able to nail down the financial resources you need to achieve your goals. But finding capital doesn't have to be so difficult. By working a little smarter, you can greatly improve your ability to find funds for your company.
Here are some tips to help you get on the road to successful capital acquisition:
- Know why you need capital.
You might be surprised at how many business owners are unable to clearly articulate why they need the capital they are trying to raise. Not surprisingly, potential investors and lenders don't like to finance businesses that don't appear to have a firm understanding of their own capital needs.
Consequently, your first step in the capital acquisition process is to clarify why you need capital and how you will use it once you have acquired it. This is not only helpful for you, but also for the potential investors and lenders who have to decide whether or not to invest in your business.
- Know how much capital you need.
Once you have decided why you need to raise capital, the next step is to determine how much you need to raise. Again, lenders and investors are not impressed by business owners who can't confidently state how much capital they need to raise to accomplish their goals. Do your research!
Keep in mind that the goal of capital acquisition is not, "How much money can I borrow?" rather "How much money do I need?" Excessive borrowing is never good for business, particularly if the funds are employed in an inefficient manner.
- Know when you need the funds and how they will be repaid.
Having the capital you need when you need it is largely a factor of planning. It's not realistic to assume that funds will just magically appear the moment you need them. Capital acquisition takes time, so plan ahead.
Similarly, you need to consider how loans will be repaid before you sign on the dotted line. Will the loan be repaid from operating revenue or will it be repaid from the sale of an asset? What is a reasonable repayment term? When it comes to repayment, a little planning now will help avert big surprises later.
- Know Plan B.
Okay, so you have a plan. You know exactly how much money you need, what you'll use it for and how it will be repaid. But have you considered what you'll do if you can't raise all the capital you are asking for? In other words, what is Plan B?
Establishing an alternate capital acquisition plan gives your business the flexibility to overcome unforeseen obstacles. Your Plan B can be a scaled-down version of Plan A or a different plan altogether. In some cases, you may decide to put off your plans until you can raise the required capital, and that's okay. The important thing is that you know what you will do if things don't work out exactly as you had hoped.