HOW TO RAISE MONEY FOR STARTING A BUSINESSCopyright © Kevin Purfield
The task of raising money for a business is not as difficult as most people seem to think. This is especially true when you have an idea that can make you and your backers rich. Actually, there's more money available for new business ventures than there are good business ideas.
A very important rule of
game to learn: Anytime you want to raise money, your first move should be to put together a proper prospectus.
This prospectus should include a resume of your background, your education, training, experience and any other personal qualities that might be counted as an asset to your potential success. It's also a good idea to list
various loans you've had in
past, what they were for, and your history in paying them off.
You'll have to explain in detail how
money you want is going to be used. If it's for an existing business, you'll need a profit and loss record for at least
preceding six months, and a plan showing how this additional money will produce greater profits. If it's a new business, you'll have to show your proposed business plan, your marketing research and projected costs, as well as anticipated income figures, with a summary for each year, over at least a three year period.
It'll be advantageous to you to base your cost estimates high, and your income projections on minimal returns. This will enable you to "ride thru" those extreme "ups and downs" inherent in any beginning business. You should also describe what makes your business unique - how it differs from your competition, and
opportunities for expansion or secondary products.
This prospectus will have to state precisely what you're offering
investor in return for
use of his money. He'll want to know
percentage of interest you're willing to pay, and whether monthly, quarterly or on an annual basis. Are you offering a certain percentage of
profits? A percentage of
business? A seat on your board of directors?
An investor uses his money to make more money. He wants to make as much as he can, regardless whether it's a short term or long term deal. In order to attract him, interest him, and persuade him to "put up"
money you need, you'll not only have to offer him an opportunity for big profits, but you'll have to spell it out in detail, and further, back up your claims with proof from your marketing research.
Venture investors are usually quite familiar with "high risk" proposals, yet they all want to minimize that risk as much as possible. Therefore, your prospectus should include a listing of your business and personal assets with documentation - usually copies of your tax returns for
past three years or more. Your prospective investor may not know anything about you or your business, but if he wants to know, he can pick up his telephone and know everything there is to know within 24 hours. The point here is, don't ever try to "con" a potential investor. Be honest with him. Lay all
facts on
table for him. In most cases, if you've got a good idea and you've done your homework properly, an "interested investor" will understand your position and offer more help than you dared to ask.
When you have your prospectus prepared, know how much money you want, exactly how it will be used, and how you intend to repay it, you're ready to start looking for investors.
As simple as it seems, one of
easiest ways of raising money is by advertising in a newspaper or a national publication featuring such ads. Your ad should state
amount of money you want - always ask for more money than you need so you have room for negotiating. Your ad should also state
type of business involved (to separate
curious from
truly interested), and
kind of return you're promising on
investment.
Take a page from
party plan merchandisers. Set up a party and invite your friends over. Explain your business plan,
profit potentials, and how much you need. Give them each a copy of your prospectus and ask that they pledge a thousand dollars as a non-participating partner in your business. Check with
current tax regulations. You may be allowed up to 25 partners in Sub Chapter 5 enterprises, opening
door for anyone to gather a group of friends around himself with something to offer them in return for their assistance in capitalizing his business.
You can also issue and sell up to $300,000 worth of stock in your company with out going through
Federal Trade Commission. You'll need
help of an attorney to do this, however, and of course a good tax accountant as well wouldn't hurt.