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HOW TO RAISE MONEY FOR STARTING A BUSINESS
Copyright 2004 Hutoxi
Hodiwalla
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 eachcompany 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!
About the
Author:
----------------------------------------------------
Ordinary
people are making EXTRAORDINARY money WORKING FROM HOME on the
Internet! To get F*R*E*E info by email. Send your request to:
hutoxihodiwalla@getresponse.com Or fill
out your details at our website:
http://www.hutoxi.com
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