Three Exercises for the Startup Business Owner

Who Wants to Raise Capital, Maintain Autonomy and Remain Profitable in the Long Run

To launch a business startup you need a lot of expertise, but also a lot of groundwork. Some great business ideas never become commercialized because the
people who think them up do not possess the wherewithal to raise the funds
needed to promote a new company. A lot of entrepreneurs face this predicament.
Many wonder whether their new startup business will be able to firmly stay on course in
the long run, and are even uncertain about how to raise capital.

As an entrepreneur you must first recognize the different avenues of financial
support available to you before you can raise capital for a startup, find the
one that best matches your requirements, and then fulfill the given conditions
of the lender. By following these critical steps you can have the chance to
effectively raise capital and so you won’t have to leave your startup business idea
behind.

You should first examine your funding alternatives and carry out a full market
research project to completely identify with your potential customers and your
key competitors. You can find most of this information online, but you should
also be prepared to do some offline research. Below are three quick, but
effective, exercises – specifically developed for the busy entrepreneur – to
secure funding for your startup business and keep it strong so that it will survive
economic downturns and other mini-disasters.

Exercise 1: Identify Sources of Financing for your Startup Business

You have access to several types of funding and you can get financial backing
for your startup business through:

• Personal Funding. Using your own funds or “bootstrapping” should not be
  ignored, since this is a major way to raise capital for a startup business
  venture. Credit cards, personal checking, savings and retirement accounts
  can all be tapped for startup capital. You can also get equity from selling
  real estate you may own, automobiles, sporting and other equipment, and also
  rare collectibles.

• Equity Financing. This is a type of funding where an investor exchanges
  capital for an ownership stake in the startup  business. One of the benefits of
  financing your startup business with equity financing is that you can repay the
  borrowed amount over a set timeframe. One probable drawback is that you may
  lose some or in certain cases total autonomy over your business.

• Angel Investors and Venture Capitalists. You can use equity financing to
  get funding from venture capitalists and angel investors. These investors
  usually hope to acquire your business later on as it increases in value, or
  to make huge gains at the initial public offering, or at a future stock buy
  back. This is definitely a possibility to look at, particularly if you run
  out of conventional ways to raise capital, even if it might not be the most
  appealing option.

• Friends and Family. Your relatives and close associates can present a
  further way to gain funding for your startup business. This type of financing
  does not have the delays you’d find with a bank since your relatives and
  friends know you personally and may like the thrill of the new enterprise.
  The downside is that these same friends and relatives may think they are
  entitled to be in on each business decision made, or they may want
  additional shares in the new company since they lent money to you.

• Debt Financing. You can also get funding by taking a loan from a bank or
  government agency, otherwise known as debt financing. One benefit of this
  type of financing is that you’re able to maintain full control over your
  business. The drawback is that the large debt may repel other persons or
  entities that want to invest in your venture.

• Government Funding and the SBA. The Small Business Administration, which
  gives entrepreneurs government loans, is also considered an important
  resource if you’re looking for backing for your venture. Before going to the
  SBA as a fund to lend you startup money, however, you should understand that
  that agency does not pay out funds directly to business owners, but rather,
  acts as a guarantor via a local network of lending partners to help support
  the setting up, growth and success of small businesses in the US.

• Pre Qualification. Most financial experts agree that pre
  qualification is a way for startup business owners to easily find sources of
  financial support. You can get pre-qualified capital through liaison
  organizations, which help startup business owners with their loan application
  packages and with securing loans. A lot of these pre-approved loans give
  special consideration to minority groups.

Exercise 2: Develop a Startup Business Plan

Each startup business initiative with moneymaking potential should always be
accompanied by a well-constructed, complete business plan so as to successfully
raise capital. The first thing to do when creating your one-of-a-kind business
plan is to put your thoughts in order, and then you should make a first draft on
paper. Grammatical and spelling errors can critically harm your general
credibility and by extension your potential to attract funding, so have your
business plan proofread.

A lot of successful business owners will tell you that doing a business plan is
a lot like writing a resume. You have to give details on your educational
background and qualifications, explain how your skill can add value to your
venture, and focus on every detail. It is supposed to be created in a manner
that leaves potential financiers speechless, and it should not raise any awkward
questions. It should also give several references.

You will greatly boost your opportunities to gain financial backing for your
startup business enterprise by creating a well-prepared, solid business plan. It will
also boost your chances of raising further capital as the business develops in
the long term.

Your best bet when writing your business plan is to seek the help of
professionals such as lawyers or accountants, to further increase your chance to
raise capital. These experts can supply all of the required paperwork for the
business plan, and they are an important resource to entrepreneurs looking for
funding. In some cases they can write the entire business plan for you.

Always ensure that the accountants and legal consultants you work with are
qualified and that they know about developing a startup  business from the ground up
before you seek their help. Investors will certainly be impressed if you go to
the trouble of getting help from qualified, experienced professionals when
creating your business plan, and this will increase your chances of effectively
raising capital.

A financial worksheet should be incorporated in your business plan, outlining
all of your monthly fixed costs. You can provide lenders and investors three
crucial financial measures when you use a financial worksheet – the income
statement, cash flow statement, and balance sheet.

Of the three, the income statement is crucial for raising capital. It has an
estimated cost report, which gives estimated revenues and the anticipated income
for your business for the next three to five years. When you give lenders and
investors who want to partner with you such financial forecasts, it will allow
you to gain credibility and ultimately their trust. You will also gain an edge
if you want to raise capital from other sources.

Your business plan will most likely be the first impression a lender has of your
business, whether you choose an angel investor or a bank loan. Keep in mind that
even if you have an excellent business plan, you could face numerous negative
responses. Don’t be discouraged, but try to keep an optimistic, professional
outlook.

Once you have strong faith in your project, don’t lose hope, but look outside
the box for different ways to raise capital. If a lender or investor thinks your
business ideas have merit, then they will think about giving you a chance by
providing you with financial support for your startup business endeavor.

Exercise 3: Determine Your Startup Business Expenses

You should find out how much capital is required to start your business once you
identify the different sources of financial support available. Operating cost
for running an office, R&D and advertising costs, technical expenses, and staff
costs are all part of your essential business expenses, and they cause startup
costs to be pretty steep.

You should also consider professional fees such as hiring an accounting firm to
audit your books and a law firm for setting up the business as well as the
salary you will live on for at least a year. All of these operating costs can
mount up extremely fast during the initial years of a business, and it can be
discouraging to you as an entrepreneur. If you have a good business plan and
proper research, however, you can certainly boost your chances to get funding
for your startup business.

Poor funding remains one of the main reasons why a lot of companies fail. Too
many times, in fact, the amount needed for the new company to survive is
overlooked. A lot of entrepreneurs with shaky economic situations cause their
startup  businesses to fail purely by misjudging the monetary cost of running it.

These new entrepreneurs have a tendency to limit their operating cost instead of
resorting to raising capital somewhere else, and this instantly hampers the
capacity of the startup  business. This also hinders the business from growing, and
causes it to be unstable.

It’s strongly recommended that you raise capital from external sources if your
business falls upon hard times and you need extra capital to continue operating
or to build up your finances. The bank, your relatives and friends, or angel
investors and venture capitalists are all good sources to approach for a loan to
get funding for a floundering startup business.

Your fast growing expenses should not dishearten you since there are a lot of
different ways to raise capital, even if you underestimate your startup costs.
It is very important to explore the various possibilities carefully so you can
understand the different options and procedures so you can plan properly and
make an informed decision. Researching your options and educating yourself are
the two most important components that will lead you to effectively raise
capital.

You must know how to distinguish between two kinds of expenses you will have:
variable and fixed costs. Your financiers will expect you to know these costs,
since this is what will determine how much capital is awarded.

Fixed Expenses – you need to think about the amount you have to shell out
for your lease, utilities, administrative, insurance and other costs, when you
make the decision to raise capital.

Variable Expenses – stock, cost of shipping and handling, commissions for
your salespeople and other costs connected to selling your product or service
should also be taken into account when you’re looking for capital for your
startup business.

Conclusion

You have a lot of different funding options available to you if you want to
raise capital. Prior to starting your funding quest, however, you should
recognize the various sources of funding and carefully try to meet the desired
conditions. You must do sufficient industry research, form an effective startup
business plan, and maintain and repair your credit report where necessary.

Cash from friends and relatives and your personal savings may be convenient
forms of funding, but these sources may not be sufficient to start up your
business. As a startup business owner you can, as an alternative, raise capital from
banks and other lending agencies, get government funding, and even approach
angel investors and venture capitalists.

Love & Light

Glenn Louis Parker
Life Coaching & Business Mentorship

Dream, Prioritize, Execute, Achieve, Repeat!