You have a great idea, want to open up a shop or simply expand your existing business. There is only one problem. You need more money, and not just a few bucks either. Before running off to the Bank, nearest Venture Capital Firm, Angel Group, friend, relative or other money source you need to learn the rules of the road and exactly how this process works.
This will insure a solid foundation of communication and also prepare you for a rigorous examination of your plan, should a source become interested. So here are some simple tips to get started.
1. Don’t assume everyone will share your passion or enthusiasm without hard facts and figures. A detailed “Use of Funds” statement with exact costs for the first year of operations, or more, is strongly advisable. It is also important to be accurate and not use rounded off figures that appear to be guesswork. After all if they think you are guessing then they might think you don’t know enough about your own business proposal to run it properly.
2. Take the time to do realistic projections based on facts. Probably more important than what it costs is what it will make. Take your time and stack up cost vs. profit. After all, it’s not how much you make, it’s how much you keep, and how much you can make to pay a loan back or show growth.
3. Know and write down the 5 W’s. Who, What, Why, When, Where and more importantly How! First of all capital sources need to know who you are. What makes you uniquely qualified to run this business, what is your experience and what successes have you had. They need to know what it is you want to do. Be specific. Selling ice cream in LA is probably better than selling it in Anchorage, Alaska. They will also know why you are doing this, who and where your market is, when do you plan to launch or expand, and how long will it take to get operational.
After you have done that and documented it in detail, (Please don’t put who, what, why, when, where and how in your business plan as headings OK!) you need to look at the laws and regulations regarding raising capital. If you are asking for investment, and not a loan from a Bank, you will probably be required to produce Offering documentation which allows you an exemption under various securities laws, both state and federal. Even if you aren’t raising that much capital, or you plan to get it from family and friends, a Private Placement Memorandum will not only keep you compliant with SEC rules and regulations but it is worth its weight in gold if future lawsuits or claims should arise.
Well there is a lot more I want tell you, but that its for now. Next week we will cover source criteria and industry protocols. Good hunting.