Key 1:Plan ahead
This may sound obvious but a surprising number of entrepreneurs wait until the last moment to seek financing. By then, their desperation shows through---making potential lenders leery.
The fact that a company needs money urgently makes no difference whatsoever to financial institutions or investors. What they do care about is the credibility of the company’s business plan and the character and commitment of its managers. And they will take their time doing what they call their “due diligence,” which basically means calling around to check on your background and evaluating financial viability.
The length of time required to evaluate and approve a loan or investment varies from source to source. In general this period is shorter if the risk is lower or if an established relationship exists with the borrower. Government agencies such as the Federal Small Business Administration, tend to take longer than commercial lenders with the paperwork, but their terms are generally more attractive and well worth the wait.
A general rule of thumb is to get the financing wheels in motion at least six months before you actually will need the money. Planning ahead like this will give you the luxury of meeting and evaluating a broad range of financiers to find out if you fit their criteria and, if you do to choose among their offers.
There is a right way and a wrong way to make contact. The wrong way is the cold call: ”Hi, my name is Sarah and I’d like some of your money.” The right way is an introduction from a financial professional that the financier is sure to respect, such as an accountant, an attorney, a financial consultant or another entrepreneur. Investors often receive thousands of business plans over the course of their careers, but meet with fewer than 20 percent of the people who pitch them. The surest way to count yourself among the elite fifth is to get a personal introduction.
What if you don’t need financing in the foreseeable future? Our advice is the same: Plan ahead; better yet, plan way ahead. Developing positive relationships with potential financiers should be an ongoing process; you never know when you’ll suddenly be short of cash.
Having the right management team in place is crucial. Financiers like to work with companies whose management is experienced in the industry, who have had high-level responsibility in their previous jobs and who have a solid track record of success. No matter how dazzling your business plan or how promising our product, they will balk at thought of “training” your management with their money.
Venture capitalists prefer to invest in businesses that are managed by a team rather than an individual. They are even happier if the team has worked together successfully in the past.
If you do not have the sort of training financiers look for you should immediately:
u Go and get it; or
u Find a partner who does have it.
One last tip: You won’t get very far with financiers if you haven’t made a serious financial commitment to your business. Are you willing to risk most or all of your net worth to see your venture through? Are you willing to take a pay cut from your previous salary until it becomes profitable? You had better be; financiers expect you to share in the pain for the promised gain.
