Starting up a small business has provided many entrepreneurial individuals with an alternative to the corporate grind. However, small business owners cannot get very far unless they either have their own capital to invest in growing their business, or have found a way to get capital from external sources.
Many new small businesses only have one or two employees, requiring them to spend time looking for financing while keeping the business running at the same time. Following are six efficient steps that small business owners can take to locate the necessary funds that can help them get their business off the ground, and keep it growing into the future.
1. Locate Investors
Finding people to invest in your start-up venture or small existing company is one of the toughest parts of entrepreneurship. Many people start by approaching their family, friends, acquaintances and business contacts. Certain banks and government institutions can also offer small business loans. Once an entrepreneur locates potential investors, their business plan needs to do most of the convincing and selling. Many new business people fail to assemble a worthy business plan, which makes it very difficult for them to obtain any kind of financing.
2. Have the Right Mindset
Some business people approach venture capital sources with a tense, distrusting mind-set. Remember that as much as the business owner needs money to grow their business, the venture capital provider needs money to make their investment worthwhile. The more money the business makes, the better reward for both the entrepreneur and the investor, so both need to focus on how they can work as partners, making money as a team. Portfolio Dashboards have an excellent web-based product that improves communication between a company and its investors or potential investors. Check it out here
3. Qualify Each Source
After identifying potential investors for a small business, the entrepreneur needs to analyze each one. Why would they be interested in investing in the business? What does this particular source look for in terms of investing criteria? It is helpful to study each potential investor’s other investments and look for commonalities. Every investor has different reasons for choosing certain deals, and savvy entrepreneurs need to identify the selling points for why a given venture source needs to invest in their business.
4. Present a Convincing Business Plan
An entrepreneur is an expert in their company and their product, but some make the mistake of over-focusing on technical product information. The business plan should be presented with a balanced view to include the benefits available for potential investors. Never assume that investors will do the work to figure out the benefits themselves. Spell out all of the reasons why people should invest and why the business is a solid, viable concept. Explain the product’s function, perceived value and important features. Tell potential investors why everyone needs the product and how it is different from, or similar to, other available products. Explain barriers to competition, and what will happen to consumers if they do not purchase the product.
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5. Handling Investors’ Objections
Always expect and prepare for objections. In a small business the definition of getting financing boils down to doing an effective sales job, and one of the primary techniques good salespeople use is identifying and overcoming objections. Prepare answers ahead of time, and never react defensively. Acknowledge a potential investor’s objection, make it legitimate, and then give a sincere answer that introduces new information that turns the objection around into a positive. Expect to have questions about product concept, sales approach, marketing plans, competition and customer demand. Prepare to tell why the product is different and better than what is already out there.
6. Getting Investors to Commit
Getting a financial commitment from potential investors becomes quite easy if the first five steps have been handled well. Continuing to address objections and converting them into positives is very important. Most investors want to see entrepreneurs who are fired up about their business plans, with enough enthusiasm and experience to make their business take off.