Funding Is Not Magic

Here is the conversation:

Me: Hello this is Michael Bowers. How can I help you?

Caller: I need to speak to someone about my business.  I am having someone write my business plan and I should have it in the next week or so.  I need to discuss how to get funding.

Me: How much do you need?

Caller: $1.2 million.

Me: What are your thoughts on getting the funding?

Caller: I was wondering what was out there in the way of grants, loans or investors. 

Now is when the caller expected me to put on a magic show and pull $1.2 million out of my hat.  As much as I want to help I don't see it happening. 

It is critical that when you know funding will be needed you make the capital access plan a major part of your business planning process.  To many people see the business plan as the path to capital.  However, if you have not thought through how and from whom you are likely to get funding the plan won't be sufficient. 

Thinking through the "Uses" of funds without a strategy around the appropriate "Sources" of funds is a recipe for disaster.   Just like marketing, staffing and sales your capital raising plan needs to be thought through strategically.  Here are key points to address as you are building out your plan.

• Understand where you are in the funding process. Early stage, high risk opportunities don't appeal to banks so you either need to find other sources or figure out how to reduce the level of risk to the bank.
• What is your equity position and how does that relate to your current or prospective debt position.  The more money you need the more equity you need to have in the business.
• Develop your plan including the fund raising strategy.  This should not only include what you need but who provides that kind of funding and how do they evaluate opportunities.
• Be advised...There is no 100% funding. I don't care if you are approaching banks or investors you need to put some of your own cash into the opportunity.
• Not qualifying for loans does not mean you should be approaching investors. 
• Don't expect to find grants to fund your business start-up.  Depending on your business you might find grant dollars to provide services (usually only available to non-profits) but grants don't provide dollars to set up the business.  You need to have the business set-up and successfully operating before you can access most grants.
• Revenue is the best financing! Focus on customers and driving revenue.  This will make getting financing easier when the time is right.
• Push the need for financing out as long as you can.  The more operating history you have the better banks will like you and the higher your valuation will be if you are seeking equity investment.
• Remember the Golden Rule ~ He who has the gold makes the rules.  Don't expect banks or investors  to change the way they do things for you.  You will need to build a plan that works within their systems.
• Don't wait until the last minute.  That is the whole point of this to be prepared to seek financing.  By doing this kind of planning you should be able to avoid an urgent need for cash that is not taken care of you will be out of business.
• Realize that everything will take longer than you expect.  Think ahead and leave plenty of time to get financing arranged.
• If you don't have enough experience to justify getting financing you can build expertise into your team by adding people to your team or through an Advisory Board.

If you are seeking financing know that you need to be thinking several steps ahead.  The more you know about your needs, who can provide the financing and what they need to provide the financing the better your chances of success.

Comments

[Chris Holehouse]

Hello,

I'm the Business editor at Before It's News. Our site is a People Powered news platform with over 2.5 million visits a month and growing fast.

We would be honored if we could republish your blog RSS feed in our business category. I believe the content on Ideas to Deals would be a great fit for our readers.

Syndicating to Before It's News is a terrific way to spread the word and grow your audience. Many other organizations are using Before It's News to do just that. We can have your feed up and running in 24 hours. I just need you to reply with your permission to do so. Please include the full name and email of the person who will be attached to the account, and let me know the name you want on the account (most people have their name or their blog name).

You can also have any text and/or links you wish appended to the end or prepended to the beginning of each of your posts on Before It's News. Just email me the text and links that you want at the beginning and/or ending of each post. If you know html you can send me that. If not, just send me the text and a link to your site. It should be around 200 characters or less (not including links).

You can, if you like, create a custom feed for Before It's News that includes multiple links back to your blog or web site. We only require that RSS feeds include full stories, not partial stories. We don't censor or edit work.

Talk to you soon.

Best,

Chris Holehouse
Editor, Before It's News
www.beforeitsnews.com

[Raela Drigger]

The moment the chime that signals an idea rings in your head, you mold that idea and plan things out. As the author said, money doesn't pop out of a magician's top hat. Thinking of where you're getting the funds to mold your ideas into reality is part of the planning. You don't skip that because making things real depends on that.

[Matthew Engquist]

Well, before doing anything, make sure that your plan will be successful before executing it. The author has a point. It's not easy to make money, so don't expect it to magically appear in front of you. Doing your research is also a good idea before you make a plan.

[Shane Adams]

You thought you had everything planned out. You went ahead and then bam! You run out of capital because you miscalculated your investment cost. It's always good to have an extra funding for backup, in case something goes wrong. Never put all your eggs in a single basket. At least provide some kind of a safety net for yourself.