Here is a snippet from my upcoming book. Hope you like it. It is after a chapter where we talk about making your business plan.
If you have done a good job with your business plan you should have something that you can take to bankers, investors or private people to borrow money from.
The people who will be putting up the money will want to know what their money is going to be put to use for and what kind of return they will be getting for their investment.
Here is a cosmic truth that some people know very well and others need to be reminded:
PEOPLE WILL PUT THEIR MONEY INTO SOMETHING THAT THEY THINK WILL MAKE THEM A TREMENDOUS AMOUNT OF MONEY
Think it is an obvious statement? It is beyond obvious because people are G-R-E-E-D-Y. That is why despite warnings from Better Business Bureaus, the Internet, television news teams, etc people fall for scams.
People think that they can invest one dollar and in one day get back $100. People spend billions on lottery tickets where you have the same odds of winning whether you are playing or not and they get nothing for their trouble accept losing a dollar.
How does this work in terms of your business? Bankers and relatives want to give you a dollar to make a hundred dollars and of course, know that they are not going to lose it. In other words they want a risk free investment that will return 100 times the investment.
Sounds silly? It is. Knowing this to be the case, you have to make your financial pitch being brutally honest so they can see that what you are proposing has a certain degree of risk but the rewards outweigh the risks.
People say that banks are not lending money now. Banks may have some stricter guidelines but if the loan officer sees a business where he can not only get back his loan but more than enough interest he will okay the loan.
Private parties will be happy to invest in your presentation if you can honestly show them that they will be getting a decent rate of return and their money is relatively safe.
There are the keys to your financial kingdom. You obviously can’t give the proposed lender a bullet proof investment that will return buckets of money but you can show the lender a realistic investment. In this current economy a lot of people will be content will single digit returns on their investment if it is safe and there is room to grow.
If your business is something that you have a track record for making money with that is something that you need to let the potential investor know.
If you are approaching relatives, unless they are very wealthy (and even then that might be more of a hassle), you should still present everything in a realistic light (knowing that you can still put positive spins on things in your business plan and presentation).
As a business person I am all about full disclosure. That means that in your business plan (your verbal pitch), let your potential investor know how many other gigs like this succeed or fail and what the risk/reward is for them.
Without getting too deep into other forms of business entities, you may be approached to turning your business into a partnership or corporation with the investor having a certain percentage and maybe wanting to control the whole thing.
You need to weigh the best direction for you since you will be the one who ultimately will have to work under those business conditions on a daily basis. If you feel that your business has a lot more potential, then find other sources of income to get your business going.
Another interesting phenomenon which you may see happen is that once you are a success or on the track and you don’t need money, people will start coming over to you and offer to help you expand, want in, they might practically be throwing cash at you.
Having people toss money at you is always a good idea but be very cautious in taking it if it will jeopardize the business model that you have that is making money.
Remember that times to get more money are when you are comfortable that your business is growing and you need the cash to keep things going and to expand your business.
Some businesses have done just fine sticking to basics and not going out of their core business despite market competition. In and Out Burger comes to mind that they haven’t budged from their basic format of burgers, fries, sodas and shakes. Their menu is basic but there are always lines of cars going through their drive thru windows and their recipe for success hasn’t changed.
Don’t be fooled by the lure of money if that will clobber your business in the long run. If somebody wants to buy you out, congratulations, just run the numbers and make sure that is something that you want to do and get started on getting your next business ready. People might be waiting to invest with you again since you have a track record of having hits.
After all nothing feeds success like success, right?
May 03 2011
Kim Isaac Greenblatt
Thoughts About How You Raise Money
