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Your support makes all the difference.Ask entrepreneurs to name the greatest obstacle they face in their business and I would expect most to say raising finance. Even at the best of times, securing sufficient funds to get an idea off the ground is a challenge and in today’s climate entrepreneurs are finding this increasingly difficult.
It’s my strong belief that wherever possible, ventures should be launched without giving away any equity in the business. Retaining full ownership of a company is most entrepreneurs’ primary aim and in most entrepreneurs’ best interests, so all avenues should be considered. That includes taking out personal loans and credit cards and even selling possessions online, anything to retain 100 per cent ownership of the business.
Before approaching banks or private equity firms, entrepreneurs should look at alternative ways to source finance. This could involve approaching friends and family, arranging early payments from customers or special credit terms with suppliers and exploring invoice-discounting arrangements.
However, if raising funds through selling equity remains an option, entrepreneurs should always know what they want and what they’re prepared to give. Financial matters always involve negotiation right from the outset, so it’s crucial that business owners are clear about this, while being prepared to walk away if they can’t get what they want.
With this in mind, it’s important to always have a plan B. Entrepreneurs need to understand how investments will benefit their business, but also what will happen to the business without it. Above all, they should prepare for other options and be flexible in their approach.
Business plans play a pivotal role in any venture and they should be short, credible and well-tested. When sourcing finance, business owners will be asked extensive questions so they must prepare convincing answers and must provide credible reasons for their assumptions. Taking out professional advice is a good idea, even if only to test out the credibility of the business plan. It’s worth noting that a good accountant can help to hone the numbers and might be able to make introductions to potential investors.
Entrepreneurs should also be prepared for delays. This is one of the main frustrations for people starting out, however patience is key because raising finance takes a lot longer and is more costly than most entrepreneurs expect. They should take account of this and work to longer timescales than originally anticipated.
They should also make use of other people’s experiences and get recommendations from their network of contacts on how to go about raising finance and what pitfalls they should avoid. In my experience most CEOs are happy to recount war stories.
But, perhaps my greatest piece of advice is the most simple: reputation, reputation, reputation. Entrepreneurs must always pay people back on time, because it’s far easier to raise funds if you maintain a good reputation for paying back what’s expected and when it’s expected. It’s tough if it’s your first time round, but establishing trust is a vital currency.
Rupert Lee-Browne is founder and chief executive of Caxton FX. For more information, videos and advice for SMEs, visit www.freshbusinessthinking.com
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