While sales can ensure a constant flow of cash for any business, it may not be sufficient to finance the expansion/growth plans of the company. Similarly, an individual may have a good business idea to start a company; he/she may not have sufficient funds to invest in the company. In such cases, it becomes important to raise money from external sources such as banks, venture capitalists and so on. It may be extremely difficult for a startup company to obtain funds from banks and financial institutions. Such businesses can raise funds from angel investors or venture capitalists.
Four Ways for Encouraging an Investor to Finance Your Business
Develop a Business Plan
It is important for the company to develop a business plan. Details such as business (es) proposed to be carried on by the company, financial projections, expected return on investment and so on should be included in the business model. Business plan should be designed in such a way that it generates interest in the mind of the lender/investor. Investor should be able to identify the benefits he/she can expect from his/her investment in the business. It is important to include information on business risks and opportunities in the business plan. Such information can help the investor/lender in understanding the risks that may be associated with the investment in the business.
Offer Appropriate Returns
In case investor is not satisfied with the returns expected on his/her investment in the business, he/she may not invest in the business proposed to be carried on by the company. Therefore, it is important to highlight the estimated percentage of return that the investor can expect from his/her investment in the business. It is important for the entrepreneur to understand that there is a cost associated with each form of financing. Some investors may prefer to obtain a fixed return on investment while others may prefer to obtain a shareholding in the company. It is important to note that ownership in the company should be offered only after assessing the market reputation of the investor.
Obtain Credit Rating
In case funds are required to finance growth and expansion plans, a company can also use the services of a credit rating agency. Credit rating agencies evaluate the creditworthiness of the company and assign a rating based on the strengths and weaknesses of the company. Such rating is often used by financial institutions at the time of approving company’s loan requests. Even though it is not mandatory to obtain such a credit rating, a good credit rating certainly increase the chances of obtaining funds from investors/lenders.
Hire a Financial/Business Consultant
It is generally advisable to hire a financial/business consultant to act as a representative on the part of the company. A financial/business consultant is generally aware of current market conditions and is in a better position to convince the investors with his/her expert knowledge. Many small scale enterprises prefer to hire qualified accountants with years of experience in the industry to act as business representatives while dealing with banks, financial institutions, venture capitalists and angel investors.
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