Every new business needs some sort of startup fund. For some businesses, the costs are small, for example your local youth club’s carwash enterprise needs are simple; there are sponges, soap and a hose pipe. A professional valet’s costs would be much higher, with the right shampoos, pressure hoses, vacuums, alloy wheel treatments and any other number of high end cleaning products come at a much higher price.
Whether you call it seed money, fundraising, venture capital or any other number of terms, you could well find yourself needing to apply for outside investment at some point, either before you begin or as a business, new or old, that needs to expand. There are definitely right and wrong ways to do this and getting the right information, delivered the right way can go a long way to increasing your likelihood of catching the interest of the right people.
Know your business
Firstly, you need to be capture the essence and outline of your business. Not everybody who is looking to fund or invest in small businesses will work in your field, so what seems obvious to you may not even occur to them, getting a handle on what you do may go a long way to connecting the dots between potential and investment. A lender may not be interested in the aforementioned carwash, but an elite valeting service for high-end vehicles that protects the beauty and value of supercars may seem a much more enticing and profitable business option.
Understand the figures
You also need to be honest about your financial situation. Understanding your current income, cash flow, expenses and liabilities makes it easier for investors to adequately grasp the potential of your business. A good financial summary allows you to project how much money you’ll need and outline what it will be used for, meaning that it’ll be possible to extrapolate how much more this will allow the business to earn and provide investors with a likely Return on Investment (ROI). Knowing how much money investors will get back for each pound put into a new business is a key concern and not being able to provide a good financial representation will reduce the likelihood of funding approval.
Look to the future
It’s also important to make sure you give a guideline about the direction of the business – outline future outgoings, loan repayments or dividends to shareholders and thinking a bit ahead of time shows that the business is meant to be an ongoing concern. Plans for expansion are one thing, but detailing future plans shows a commitment to the business that might just be enough to draw an investor’s eye and make them sign on the dotted line.
Tailor your application
It’s worth remembering that there are many different types of funding available, so make sure that you’re giving relevant information to each type of financial source. A request for a business loan will be more concerned with the ability of the business to meet the repayment and interest on the lending, whereas a startup capitalist may be more interested in funding a sustainable, profitable business where dividend repayments increase with the growth of the business. Tailor your applications accordingly and you might just find that you’re able to choose between multiple funding sources for the one that’s best for you!