When you're starting a small business, raising money is one of your most important tasks. No matter how you approach it, here are some things to remember when you are raising funds for your business.
Be honest
While you're looking for someone to fund your enterprise, you might be tempted to overvalue your business in the hopes that your potential investor will provide funds commensurate with how you have valued your business. Keep in mind when you are telling a potential investor about your company that only a very small percentage of businesses that are pitched get funded by a given investor. If you give a false representation of the value of your company, your chances of being funded could decrease simply because you're being dishonest right from the start. Your investor would like to know that you can be trusted before funding your business.
Ask for the correct amount of capital
This goes hand-in-hand with being honest. On the one hand, you don't want to ask for so much capital that your potential investor will be unwilling to give it. On the other, you don't want to request too little and end up short of your goal. That leaves you in a spot where you've burned through your investment money but still don't have enough to remain liquid. Furthermore, it puts you in a position where you might have to ask for more funding, which makes you look like a poor manager of resources. Consequently, your investor will be less likely to contribute the funds to help you remain solvent.
Give realistic projections
It's great to have goals for your business, but those goals have to be realistic. For example, it's ambitious to aim to increase your revenue by 500 percent over the next five years, and it's great for you if that actually happens. However, you can't base your projections on a goal that's been pulled out of thin air. Your revenue projections need to be based on how much revenue you have generated and how much growth you have experienced over time. If you wouldn't base your salary on your unrealistic projections, you can't expect an investor to base his or her investment on them.
This article was written by Gary Schwind for Small Business Pulse