You might have heard that you don’t need money to start a business. I think the better way to put it is – you don’t require capital to start working on your business idea.
Every business at any stage requires capital – to start, to run or even to expand. No business can out-grow the need for external funding. Let me put it in a better way; no business is too big or too small to ask for more money.
The focus of my thoughts on this matter will be on two things. First, what to do before you ask for (more) money and second, where to look for money. Join me on this ride.
Four things to do before you ask for (more) money
- Move past the idea stage.
- Know what you want
- Use your own money
- Horn your communication Skills
Let’s take a look at each of them one after the other.
1. Move past the idea stage
One day I was in my business mentors office, and a young man (let’s call him Nemi) came asking for money to fund what I called a very brilliant business idea. That idea was so bright that when I heard it, I was like wow! I will invest in this idea if I have the money. But after listening to Nemi with rapt attention for like 20 minutes, my mentor simply asks, “How much do you need?”
Nemi replied with a very ridiculously low amount? He smiled and asked again, “What did you need the money for?”
“To start the business”, Nemi responded.
“What precisely”, my mentor propped further.
Nemi man could no longer answer.
He simply asked Nemi to go and bring his business plan.
After Nemi has gone, my mentor turned to me and said, “Nick, you see that young man, he is not returning to me again. The best way to turn down young entrepreneurs who don’t know what they are doing is to ask them to bring a business plan. They will never return.
That was three years ago. Since then, I have learned never to ask anybody for money until I have done real work on my idea. I mean real work.
They are five stages of business growth – the idea, startup, growth, expansion and maturity stages.
The idea stage is the stage of conceptualisation. You just got this excellent business idea that is going to among Fortune 500 in the next five years. You have everything figure out in your head, you want to start tomorrow, and you need the money now.
Well, I will say, calm down. It doesn’t happen that way. Only a few funders fund ideas, but no one who can, will resist investing in a startup that has proven sustainability and scalability. So before you ask for money, do some work about your idea?
Carry out a feasibility study, identify your target customers, validate your users and be sure that they will love to pay to use your solution. Do your financial analysis and have figures at your fingertips. All this information will lead you to write a “killable” business plan or business proposal.
A powerful tool that can simplify this for you is called “The Business Model Canvas (BMC)”. Maybe one these days we will look deep into it.
2. Know What You Want
From our little story above, the significance of knowing what you want, when it comes to getting funding for your business is apparent. Nobody, including your friends and family, will take you seriously if you do not know what you want. Run your figures to understand what you want, how much you need and how much is for what. You can even go-ahead to run the financial projection of your profit.
Find out your break-even points, break-even revenue or even break-even unit. You can learn this calculation online. Seek for an assistant if you need to. If you can memorise your figures and have them handy, it will be super awesome. It shows you know what you are doing.
3. Use your own money
You are the first investor in your business. If you can’t put your money into your idea, don’t expect others to do so. No matter how little it is, put your money in your business. It also helps to show others that you are serious-minded.
4. Horn your business Communication Skills
When you have done your underground work, ran your figures and even invested your money in your business idea, there is still a high possibility that you will not get the fund if you don’t know how to pitch your business idea correctly.
When pitching your idea, the first thing you should take note of is your target audience. Different things attract different sets of funders.
The investors are more concern with the scalability and sustainability of your idea, especially in the long term. Thus net profit (bottom line) and break-even analysis ( how long it takes you to generate them) is fundamental to them.
The bank is interested in your cash flow and ability to pay to pack the principal and the interest. They are less concern with your bottom line (net profit), unlike the investors.
Most grant donors are more interested in the social impact of your business. They gave out money for a course and achieving that course is very important to them. If it is to create more jobs, they will be interested in your number of employees. They always are concern with your environmental sustainability and social impact on the community or the less privilege and venerable.
Your friends and family will want to know if you will be able to pay back them their money back. Or that you will use the funds appropriately and expand your business. Some of your uncles will think you should not be asking them for money any longer because he has empowered you.
The summary is, you should know what your funder wants and design your pitch to amplify it.
A business pitch can be writing or oral. Whatever means you are using or you are required to use, always try to be clear, concise and straightforward. You wouldn’t want to bore your audience with unnecessary jargons or unfamiliar business terminology.
Now, where can you source your business funds?