Lynne Franks talks about raising money for your new business.
Many of us have had wonderful ideas for a new business only to be stymied by the essential question: But how do I come up with the initial investment? The answer is clearly going to be different for each of you, according to how much you ll need.
Perhaps you can fund yourself or get help from family, spouse or friends. Or maybe you will have to go to a financial institution to raise money.
Financial institutions
These range from your local branch of a large commercial bank to small community banks, investment bankers and venture capitalists. And they will all need proof from you of your financial planning. For that matter, even your relatives will want to know the specifics of how you intend to initiate your business and turn a profit.
If you have a good relationship with the bank you are already with, make an appointment to see the manager or loan officer and outline your general plans. See how he or she responds to your future needs, explaining that you would like to meet with her or him again once you have a written business plan in place. If you have a positive response, talk to them about their interest rates and see how flexible they are.
* Bear in mind that all interest rates and fees will be a major overhead for you to add on your start-up costs.
* Be prepared, though; banks in general are not very positive about lending money to women.
Make sure that you personally interview the bank officials responsible for loans at those banks from which you intend to borrow money. Find out what their attitude toward women-owned businesses is, how flexible they are with regard to overdrafts and how friendly they are. Make sure you get to meet as many of the decision-makers at your chosen bank as possible, and try, in this day of impersonality, to create some kind of personal relationships.
Collateral
Borrowing money from a bank is never easy, and be prepared to have some of your own, or someone else's, collateral available. Try to avoid putting your house up as collateral, particularly if you have a young family. This was a near-fatal mistake I once made when starting a high-risk fashion shop with my ex-husband. Collateral can be in the form of shares, insurance policies, pension funds, jewellery or art. Or someone close, a parent or spouse, could guarantee your overdraft facilities or loan. Never risk more than you can afford to lose!
Personal investors and investing in yourself
Borrowing from a bank isn't the only way to get your business off the ground. Most of us know people who would be open to the idea of investing in our enterprise: perhaps the proverbial "rich uncle" who believes in you or friends and relatives who also believe in you but may only be able to afford a modest investment.
If you are bringing in friends, lovers and neighbours as financial partners, beware. Look at the relationship you have with each and decide, firstly, if you're even compatible enough with that person to be in business with them. Secondly, be aware that even the best of friends and lovers can fall out when it comes to money and business.
Do you want your parents or partner to be constantly on your back about their investment? If they do become investors, unless you want their professional involvement, make it very clear that you want complete autonomy. Also, always conduct your meetings in an organised, professional way. Make sure that they fully understand the risk they are taking and that they can afford to stand the loss, if anything goes wrong.
External Investors
There are other ways to find investors, outside your own circle, who might want to have some involvement with a business such as yours. Investment bankers, wealthy individuals, venture capitalists and angel investor networks are all possibilities. There are trade organisations that you can find them through, or ask around for recommendations and introductions.
This can be an expensive way to finance your business, though, where you may have to give away a large percentage of shares. However, if you need a lot of funding, you should explore all possible avenues.
Government Agencies
Speak also to your national and regional small business agencies (e.g Business Link), which can recommend different financing routes, including themselves. Some of these provide loans for women and minority-owned businesses or can point you in the direction of those who do. There are also women and community banks in certain places, which are obviously more sympathetic towards women-owned businesses. A lot of funding-source research for this can be done on the Net. If your proposed business is a non-profit or community service one, you can also search the Net for foundation or government grants.
Investment Arrangements
The type of arrangements you could make with your potential investors vary between some form of partnership, where the business shares are distributed (don't give away more than 49 per cent if you want to keep control), to a more straightforward return of the loan, either short-or long-term, plus interest.
Ways to save money
While planning your budgets, be creative about ways to save money. I ve listed several ways for you to cut costs and, once you get going, you ll need to keep an eye out for others.
Interns or students are often available for work experience and can save you the cost of one full-time staff member.
Take advantage of the many inexpensive telephone services.
Collect your air miles wherever you can.
Check out if your trade associations offer joint cooperative purchasing strategies.
Research reasonable leasing terms.
Always search the Net for bargains.
Plan your credit terms, whether buying or selling, as advantageously as possible, so that your cash will flow.
Bartering
Why not test the idea of bartering, by offering some form of exchange to suppliers while setting up your enterprise? I've often helped with PR advice in return for design work or other necessary tools of my trade - it s a win-win situation.
Bartering is the exchange of goods and services for other goods and services without the use of cash or community currency. This can be done on an informal basis, as I've done, or by forming a network with a group of others for whom an arrangement like this would work.
