What to Do Before You Seek Funding 


Whether you are an entrepreneur with a new startup idea or a business veteran looking to expand, seeking funds is an important step for all entrepreneurs. To ensure that everything goes as smoothly as possible, here are some important things to make sure you’ve taken care of before you seek funding.

To ensure that everything goes as smoothly as possible, here are some important things to make sure you’ve taken care of before you seek funding.The first thing to do is take stock of your assets and determine your options for seeking funding. If you are starting a new business, you should add up what you have in savings and also the assets of anyone who you wish to go into business with. Not only does this mean you need to borrow a smaller sum, but it proves to lenders that you are serious about your business.

“It looks good to potential investors if you already have some skin in the game,” states Jayson Demers, contributor to Entrepreneur.com. “Take whatever savings you can spare, and gather up some initial capital from friends and family, to show investors you already have some financial backing.”

Next, you need to determine which funding source can best help you make up the difference between the money you have and what you need for your business.

Crowdfunding is becoming more popular, but it typically is successful at raising only small sums. Crowdfunding efforts that raise large amounts typically do so because they go viral online, and this same viral media coverage creates a false impression that this method is more common than it truly is. If you do want to give it a try, keep in mind that the most popular platform, Kickstarter, charges 5 percent if you reach your goal, and you have to pay another similar percentage (typically between 3 and 5 percent) to the company that processes the payments.

Venture capital is another source of funding that gets a lot of press in the media, but it is not a very common or reliable way for small-business owners to acquire the type of funding they typically need.

“Getting financing from [a venture capital fund] can be a high-wire dance,” according to Kerry Hannon, contributor to Forbes. “But if you can do a little soft-shoe and have a great idea and terrific business plan, these types of investors will back you in exchange for equity or partial ownership.”

Entrepreneurs who don’t want to give up part of their business to an angel investor or a venture capitalist can seek funding in the form of a small-business loan. These loans have much better rates than credit cards and have terms that make them perfectly suited to the needs of small businesses. Small financial institutions typically prioritize lending to small businesses in a way that big chain banks don’t, so that is a great place to start.

Once you identify the best place for you to look for funding, you need to ensure you have everything in order. The first and most important step you need to complete prior to seeking funding is creating and perfecting a business plan. The U.S. Small Business Administration has tools and tips for building your business plan at https://www.sba.gov/writing-business-plan.

“You’ll also need to make sure that you’re capable of handling the first stages of development and business growth personally,” states Demers. “If you have years of experience in the industry or other proven credentials, you should be in good shape. Otherwise, you’ll need to undergo training or secure outside resources to help you along.”

Making sure that you can enact the tasks outlined in your business plan will not only help your business make the most out of your funding, it will help you achieve funding in the first place. This makes the time spent gathering skills and experience well worth the effort.

Getting funding for a new business or for a project for your current business is an exciting prospect, so be sure not to let the excitement cause you to rush ahead. Carefully preparing prior to seeking funding will make the whole process go more smoothly and successfully.

 

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