Ask any entrepreneur to name the biggest obstacle they face and most will say raising finance.
Even at the best of times, securing sufficient funds to get your idea off the ground is a challenge, but in today’s climate, with banks still resistant to lending, entrepreneurs are finding this crucial task ever more difficult.
The good news is that there are a number of options available to business owners looking to raise money, so it’s just a question of picking the right one for your venture.
1. Wherever possible, launch your venture without giving away any equity in the business. Consider taking out personal loans and credit cards and even selling your possessions on eBay – anything you can do to retain 100% ownership of the business.
2. Look at alternative ways to raise money before going to banks or private equity firms. Approach friends and family, arrange early payments from customers, or special credit terms with suppliers and explore invoice-discounting arrangements – all avenues should be tried before approaching the banks.
3. Make sure your business plan is short, credible and well-tested. When sourcing finance, you will be asked extensive questions, so you need prepare convincing answers and must provide credible reasons for your assumptions.
4. Take out professional help, even if only to test your assumptions on your business plan. A good accountant will help to hone the numbers and they might be able to introduce you to potential investors.
5. Know what you want and what you’re prepared to give. If you’re looking to raise funds through selling equity then understanding this is crucial. Financial matters always involve negotiation right from the outset so you must be certain about what you want and be prepared to walk away if you can’t get it.
6. Always have a plan B. You need to understand how the investment will benefit your business, but also what will happen to the business without it. Prepare yourself for other options and be flexible in your approach.
7. Make use of other people’s experiences. Get recommendations from your own network or other CEOs on how to go about raising finance and what pitfalls they have encountered. Most CEOs are happy to recount war stories!
8. Expect delays. Raising finance takes a lot longer and is more costly than most entrepreneurs expect. Take account of this and work to much longer timescales than you would normally expect to.
9. Pay people back! The best way to raise funds is by establishing a good reputation for paying people back what they expect – or preferably more. It’s tough if this is your first time round but establishing trust is a vital currency.
10. Get the legals right. There is so much that can go wrong when you take poor legal advice (or none at all). So the contract with any investor is vital in the defence of your business going forward. Protect yourself with a proper shareholder agreement. And don’t buy a template off the internet!
Rupert Lee-Browne is founder and CEO of foreign exchange and international payments business Caxton FX.
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