Finding financing to start or grow your small business is difficult—but not impossible. In today’s guest post, business financing expert Dave Lavinsky (left) shares five secrets to raising the capital you need.
Most entrepreneurs require funding to start their business. And later on, most seek additional funding to turn their small business into a thriving one.
Here are five keys to help you succeed:
1. Understand that funding is a progression. Few to no companies raise millions of dollars out of the gate. Rather, companies typically raise a smaller “seed” round of funding, and use that funding to launch and start growing their venture.
The initial traction you gain from your seed round reduces the risk of failure to future investors. Start by seeking smaller amounts of funding, and later you can access larger amounts.
2. Go after the proper funding sources. Most entrepreneurs fail to raise funding because they pursue the wrong funding sources. For example, if you are just starting out and have no traction, then venture capitalists (VCs) generally aren’t interested. Likewise, if you aren’t a technology company, VCs are typically not the right funding source.
There are many potential funding sources, from credit cards to grants to angel investors to vendor financing. When seeking funding, identify all the potential funding sources available to you now, and systematically pursue them.
3. Begin cultivating relationships early. Consider a situation whereby within a six month period you built a business with 10 customers and $25,000 in revenues. In one scenario, you met an investor before you accomplished this and told them what you were doing, and in another scenario, you didn’t.
Although your accomplishments are the same, in the first scenario, the investor is infinitely more likely to fund your future growth. Why? First, because they’ve known you for six months. And second, because you told them that you were going to accomplish something, and then you did it. This breeds trust.
Meet potential investors early, forge real relationships with them and they will be much more likely to fund you.
4. Develop a formal business plan. To raise funding, you need a formal business plan. Your plan needs to credibly detail what your company is about and why it will be successful. As a wise investor once told me, “I’m not going to entrust my money to an entrepreneur who can’t even put together a credible and professional business plan.”
5. Always be marketing. Raising funding is marketing. You’re marketing your business plan and company to prospective investors and lenders. Treat it like any other marketing endeavor. Find the best target customers. Find the best channels to reach them (e.g., introductions). Give them your best presentation possible. Then rinse and repeat.
Dave Lavinsky is the president of Growthink, a consulting firm that, since 1999, has helped over 500,000 entrepreneurs develop business plans, raise funding and grow their businesses. Follow him on Twitter @davelavinsky.
Photo courtesy: Dave Lavinsky