10 Important Techniques To Get Your Business Financeable(Part 1)

  • SumoMe

Can I give my whole philosophy? Two phases with every brand.

Getting there. Staying there. As difficult as getting there can be

under today’s conditions, staying there is even more difficult.

—Steve Meisner, Marketing Director, Ferrari-Carano

The number one concern of start-up entrepreneurs and growing small business owners and managers is how to finance their business. When the personal financial resources of the entrepreneur are exhausted, when the tradition of going to family and friends for “cradle equity” has been thoroughly “worked,” and when incurring personal debt from a bank for a loan is no longer a viable option, then raising private capital can be one of the toughest challenges for many entrepreneurs. Whether you have an as-yet-unproven, visionary start-up or already own a small established company hungry for expansion capital, access to capital on the right terms is critical to your success.

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Available for financing are an array of alternative capital resources, but the problems center on which are most appropriate for you and where do you find them. For some companies—those possessing the right mix of attributes—money will be available; yet for many, understanding where to look, how to present, and how much money is needed comprise just a few of the questions for which business owners are ill-prepared to answer. How do you uncover the dozens of alternative ways to finance your company and prepare for raising capital?

The following advice is just what the investors look out for in a venture.

1. Management TeamExperience is crucial, an astute investor has said, “If the critical element in a successful real estate transaction is ‘location, location,location,’ the critical element in a successful business endeavor is ‘management, management, management.”’ In determining if your business deal is financeable, consider the quality of the managers, their references, the extent to which the team is complete, whether they have worked together as a team, their past success in the business’s industry, and the relevance of their backgrounds to the entrepreneurial task at hand. Especially in an early-stage venture, experience in the industry far exceeds the importance of functional expertise. The venture needs a CEO who understands the industry, its market, and the application of its underlying technology more than it needs a financial expert, operations officer, or advertising maven.

For some companies—those possessing the right mix of attributes—money will be available; yet for many, understanding where to look, how to present, and how much money is needed comprise just a few of the questions for which business owners are ill-prepared to answer.

2. Market size must be calculated. Assess the size of the market, specifically whether the total number of potential customers in the target market share is substantial enough to generate the revenues stipulated in the marketing plan.Consider whether there are enough qualified buyers to provide revenues and subsequent return to investors? This calculation needs to be not only accurate but demonstrable. Entrepreneurs need to demonstrate that they understand exactly who their customers will be and describe knowledge and understanding of these customers. Investors also have an inclination toward rapidly growing markets and markets that will continue to grow.

3. Market readiness should be considered as well. Will the technology or product require missionary selling, the kind that convinces people they need it? Missionary selling, of course, will increase the cost and expand the time needed to bring the product to market.

4. Competition must not be underestimated. Although many entrepreneurs will insist that none exists, every compelling venture has a direct or indirect competitor.cash4weath

More to the point, however, is not the immediate competition but the competition that will surely emerge within three to five years. The discerning entrepreneur anticipates the inevitable competition and the resources those competitors may bring to bear on the market, and also contemplates the barriers that the entrepreneur can erect to the competitor’s entry into the market. A clear understanding of the competitive marketplace is paramount in order to be taken seriously by an investor. Poor analysis can kill your deal! Although competitive analysis is far from an exact science, entrepreneurs must demonstrate a deep appreciation for present competitors and future barriers to inspire investor confidence that they have a plan to respond to inevitable challenges. Typically, investors are interested in reducing the risk associated with the investment by identifying investments involved in established or emerging industries.

Obviously, the more useful a service or product is, the more financeable it becomes

The ability to analyze financial projections is much easier for an existing industry because data are readily available in order to test the hypotheses and other assumptions associated with the pro forma. However, investors “swinging for the fence” are inclined toward growing markets or markets that are growing at high rates. For early-stage deals, a fast-growing market can be more forgiving if not more fruitful. The high profit margin potential even if described in pro forma financials can be very compelling to the investor looking for high returns.

5. Proprietary Technology is important in reducing the investor’s perceived risk in a venture. If you have developed a technology advantage, investors will want assurance that you have protected it. From the investor’s point of view, properly protected technology reduces risk in the venture. Intellectual property protection in the form of patents, copyrights, or trade secrets do represent legal advantages. However, because the deepest pocket often wins in legal proceedings, most investors are aware of the shortcomings in patent protection; of course, the investor’s appraisal can be influenced by advantages in access to resources or customers, or from being able to exploit a “first-in-the- market” positioning, or being first to enter the targeted market.

6. Production – Does the product or service work? Has the designed service or product demonstrated its function? Is there a working prototype, or are you still operating at the conceptual stage of development? Obviously, the more useful a service or product is, the more financeable it becomes. Also, is the venture just a one-product company, or has management developed a plan to expand, and offer follow-on products to customers? Another consideration regarding the financeability of your deal is whether production can currently be performed. In other words, will it be necessary to create not only a prototype and a product, but also the machinery necessary to construct a prototype or product? Risk is significantly increased— as are capital requirements—when the production facilities do not exist to manufacture the product.

A clear understanding of the competitive marketplace is paramount in order to be taken seriously by an investor. Poor analysis can kill your deal!

7. Channel economics demonstrates that the entrepreneur possesses an understanding of the cost of bringing a product or service to market. The key word here is demonstrates. How will management distribute the product or service? In detail, how will the company connect the product or service it offers with the customers it is targeting? This question goes to the heart of how management plans to sell and devise a detailed strategy and cost structure for accomplishing its goals. The question asked by investors is how will distribution be managed. Early-stage company entrepreneurs with their minimal financial resources sometimes can lose sight of how important it is to clarify distribution and cost of distribution to achieve the “hockey stick” projections in their financial forecasts!

Watch out for the concluding part 2 of this post, keep a date with us on Cash4wealth .I am sure you like this rich article; you must know that it’s worth hundreds of dollars made available to you free. Kindly share with business colleagues and friends. Are you in need of help or consultancy do not hesitate to contact us.

 

 

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