If you believe the statisticians half of all new enterprises will fail. What is a fact is that one of the main reasons for business failure is poor or no cash flow. Even those businesses that manage to navigate their first few years and stay solvent will find it difficult to grow without external capital. Very few businesses manage to bootstrap (grow without external capital) and so planning a business’s funding routes and getting it ready for investment should be a consideration right from the outset.
Entrepreneurs should take a long-term view to finance their business through the various growth stages in much the same way they develop their strategic sales, recruitment and marketing goals.
When the time comes to approach investors for funding it’s vital to have a well-researched business plan. The depth and detail of the plan will depend on the amount of capital being sought.
Most entrepreneurs see the time and resources needed to formulate a funding strategy and prepare a good business plan or investment memorandum as a headache and an unnecessary diversion from their normal business activities, but it doesn’t have to be a nightmare. There are professionals and resources out there to help business owners prepare for their funding rounds. Business owners rarely prepare their own legal, tax or accounting documents and the mindset around creating a business plan should be no different. Seeking the experience and knowledge of a professional will give you the best chance of getting funded because investors don’t take a lot of time to review your proposal. In many cases you only get one shot, so invest the time and money to get it right the first time and this will save you time and potentially thousands of pounds in the longer term.
How to choose the right professional
A good funding advisor or business planner will take the time to review your business, the wider market and learn about your skills, objectives, products/ or services and work with you to develop your documents and not simply hand over a generic template will a few of your companies details slotted in.
It is quite normal for a business to have several versions of a business plan or investor memorandum because, in much the same way a CV or resume is written for a specific employer or job opening, a business plan must be tailored to the type of investor it is presented too. Investors range from individual angels, syndicates or crowds of investors, venture capitalists, direct lenders or fund managers and they all have different priorities for their investment decisions and distinct expectation of returns. Therefore tailoring your business plan to fit their specific formula will ensure you have a fighting chance of getting a seat at the table for further discussion rather than automatic rejection.
A solid basis for a good business plan will follow the formula below:
|1||YOUR BUSINESS IDEA||10%||Research your market and customers and make sure your products or services are something your customers want. Make sure you can deliver your products and services with a healthy return.|
|2||YOU||10%||Funders want to know all about the entrepreneur. Who is responsible for driving the business forward? You may have the best product in the world but if you cannot get it to market, the business will fail. So it’s important to demonstrate that the founder and the whole team have the necessary skills and experience to develop and take the business forward.|
|3||MARKET RESEARCH||20%||Market Research forms the base of a good business plan. Evidence what is happening in your market, know the current trends are and what your competitors are doing? What are they doing well/badly and where is there a gap for improved good/services?|
|4||CUSTOMER RESEARCH||30%||Once you know where your business will sit in the market, you need to determine the demand from your customers. This is the most important part of the plan and should be given the most attention. It’s really important that you are able to demonstrate a need for your products or services and know the price people want to pay.|
|5||MARKETING||20%||Knowing who your customers are will help you create and plan a marketing strategy that will help you launch and grow your business.|
|6||OPERATIONS||10%||Premises, staff, suppliers, rules and regulations – Now that you know all you can about your market and customers you have the foundation for an operational plan to pull it all together.|
Show me the money
When approaching funders, don’t make the mistake of targeting every investor that you can find on Google, and just because an investor funded your mate’s company doesn’t mean they will automatically fund yours. Investors have specific criteria, they fund distinct sectors, business stage, capital requirement, returns and for some even the geography of your business or the type of customers you have makes a difference. So do your homework and search out the most compatible investors for your business ensuring you get the right type of funding at the right price and the right time. Consider using a broker, it often takes many months and a considerable amount of effort to find a suitable investor. A broker or funding consultant will have knowledge of the market, and, as most investors have fluid criteria and funding pots, they will know who has got the finance in place to move quickly.
Choose a broker that is well networked and has worked with similar businesses to yours. These days traditional funders are nestled alongside a new breed of alternative financiers challenging the market status quo and this is good news for entrepreneurs because funders are jockeying for position. More competition in the market means cheaper finance. Technology is the main driver for this expanding capital market and whether it’s a new platform, a crowd or direct lender app the supply of capital is more diverse than it ever has been, so proceed with caution and advice. Make sure your broker is familiar with this new industry and can navigate the various funders as well as the types of capital available to suit your business. The right capital over a short-term fix might take a little bit longer to put in place but will save you time and money in the longer term.
New research from The British Business Bank shows that warm introductions (where a pitchdeck comes in via a
pre-existing relationship) formed 82% of equity deals, despite forming only 39% of the pitchdecks VCs receive. So you are more likely to receive funding if your business has been introduced by a professional.
At York Lane Finance we help entrepreneurs and management teams create compelling, concise pitches for investors. We know how to maximises your appeal for investors and increase your chance of funding. We can then identify suitable investors and act for you throughout the fundraising cycle.
If you’re considering raising capital for your business, give us a call today on 0800 975 0270 or email email@example.com to arrange a discussion about your fundraising.