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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 the 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 the various loans
you've had in the past, what they
were for, and your history in paying
them off.
You'll have to explain in detail how
the 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 the
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 the
opportunities for expansion or
secondary products.
This prospectus will have to state
precisely what you're offering the
investor in return for the use of
his money. He'll want to know the
percentage of interest you're
willing to pay, and whether monthly,
quarterly or on an annual basis. Are
you offering a certain percentage of
the profits? A percentage of the
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" the
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 the 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 the facts on the 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 the
easiest ways of raising money is by
advertising in a newspaper or a
national publication featuring such
ads. Your ad should state the amount
of money you want - always ask for
more money than you need so you have
room
for negotiating. Your ad should also
state the type of business involved
(to separate the curious from the
truly interested), and the kind of
return you're promising on the
investment.
Take a page from the party plan
merchandisers. Set up a party and
invite your friends over. Explain
your business plan, the 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 the current tax
regulations. You may be allowed up
to 25 partners in Sub Chapter 5
enterprises, opening the 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 the
Federal Trade Commission. You'll
need the help of an attorney to do
this, however, and of course a good
tax accountant as well wouldn't
hurt.
It's always a good idea to have an
attorney and an accountant help you
make up your business prospectus. As
you explain your plan to them, and
ask for their advice, casually ask
them if they'd mind letting you know
of, or steer your way any potential
investors they might happen to meet.
Do the same with your banker. Give
him a copy of your prospectus and
ask him if he'd look it over and
offer any suggestions for improving
it, and of course, let you know of
any potential investors. In either
case, it's always a good idea to let
them know you're willing to pay a
"finder's fee" if you can be
directed to the right investor.
Professional people such as doctors
and dentists are known to have a
tendency to join occupational
investment groups. The next time you
talk with your doctor or dentist,
give him a prospectus and explain
your plan. He may want to invest on
his own or perhaps set up an
appointment for you to talk with the
manager of his investment group.
Either way, you win because when
you're looking for money, it's
essential that you get the word out
to as many potential investors as
possible.
Don't overlook the possibilities of
the Small Business Investment
Companies in your area. Look them up
in your telephone book under
"Investment Services." These
companies exist for the sole purpose
of lending money to businesses which
they feel have a good chance of
making money. In many instances,
they trade their help for a small
interest in your company.
Many states have Business
Development Commissions whose goal
is to assist in the establishment
and growth of new businesses. Not
only do they offer favorable taxes
and business expertise, most also
offer money or facilities to help a
new business get started. Your
Chamber of Commerce is the place to
check for further information on
this idea.
Industrial banks are usually much
more amenable to making business
loans than regular banks, so be sure
to check out these institutions in
your area. Insurance companies are
prime sources of long term business
capital, but each company varies its
policies regarding the type of
business it will consider. Check
your local agent for the name and
address of the person to contact.
It's also quite possible to get the
directors of an other company to
invest in your business. Look for a
company that can benefit from your
product or service. Also, be sure to
check at your public library for
available foundation grants. These
can be the final answer to all your
money needs if your business is
perceived to be related to the
objectives and activities of the
foundation.
Finally, there's the Money Broker or
Finder. These are the people who
take your prospectus and circulate
it with various known lenders or
investors. They always require an
up-front or retainer fee, and
there's no way they can guarantee to
get you the loan or the money you
want.
There are many very good money
brokers, and there are some that are
not so good. They all take a
percentage of the gross amount
that's finally procured for your
needs. The important thing is to
check them out fully; find out about
the successful loans or investment
plans they've arranged, and what
kind of investor contacts they have
- all of this before you put up any
front money or pay any retainer
fees.
There are many ways to raise money -
from staging garage sales to selling
stocks. Don't make the mistake of
thinking that the only place you can
find the money you need is through
the bank or finance company.
Start thinking about the idea of
inviting investors to share in your
business as silent partners. Think
about the idea of obtaining
financing for a primary business by
arranging financing for another
business that will support the
start-up, establishment and
development of the primary business.
Consider the feasibility of merging
with a company that's already
organized, and with facilities that
are compatible or related to your
needs. Give some thought to the
possibilities of getting the people
supplying your production equipment
to co-sign the loan you need for
start-up capital.
Remember, there are thousands upon
thousands of ways to obtain business
start-up capital. This is truly the
age of creative financing.
Disregard the stories you hear of
"tight money," and start making
phone calls, talking to people, and
making appointments to discuss your
plans with the people who have money
to invest. There's more money now
than there's ever been for new
business
investment. The problem is that most
beginning "business builders" don't
know what to believe or which way to
turn for help. They tend to believe
the stories of "tight money," and
they set aside their plans for a
business of their own until a time
when start-up money might be easier
to find.
The truth is this: Now is the time
to make your move. Now is the time
to act. The person with a truly
viable business plan, and
determination to succeed, will make
use of every possible idea that can
be imagined. And the ideas I've
suggested here should serve as just
a few of the unlimited sources of
monetary help available and waiting
for you!
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