Mike raised a glass to toast everyone at the table. “Here’s to another year as successful as this one.”
He was celebrating the fact that over the last year he’d made more money with his own business than he had in 10 years of working for someone else, and things never looked brighter. But the interesting thing about it was that one year ago, Mike had been practically broke – and all he had to his name was one good idea.
I still remember when he told me about his idea. “It’s a sure winner, but I’ll need at least $5,000 to get started … and I’ve got zilch in the bank.”
I’d been in the same position myself, so I knew what Mike had to do. I told him that if he approached it right, he would be able to raise the money without having to embarrass himself by begging for it from friends or family.
Mike followed my advice, and today he’s got a new house, a new car, and he’s enrolling his three kids in private school.
Quite frequently, people don’t make the effort to begin a business venture because they don’t have adequate funding. According to Michael Gerber, founder and CEO of Gerber Business Development Corporation and author of “The E-Myth: Why Most Small Businesses Don’t Work and What to Do About It”, 80% of all new small businesses fail – and a lack of capital is one of the top three reasons.
If you are considering going into a new business, you should certainly pay serious attention to your ability to fund it. Nevertheless, there is no reason why you can’t overcome a shortage of cash.
If you don’t have enough cash yourself, rather than give up on your business idea, consider doing what Mike did: Find another source for your capital needs.
While it is possible to obtain a business loan if you have good credit, it’s very difficult to obtain one for a new business. And even in the case of a type of business loan that is specifically intended for a start-up (such as a Small Business Administration guaranteed loan), there is a mountain of paperwork and a long waiting period until it’s all processed.
That’s why the method I recommend for getting a small business started when you don’t have enough capital – which I’ve used successfully on more than one occasion – is to find a partner who does have capital.
Many people are under the impression that it is hard to find a person with money who will invest in a small business. I have found that not to be at all true. The fact of the matter is that there are many people who have accumulated money that they’d like to put to work for them. The fact that interest rates are so low in the current marketplace is another big plus in your favor. The real trick is to have a good business plan to present to these private investors that looks certain to make a profit.
It’s been my experience that when going after a private investor, you will generally want to provide the same information that’s on a formal application for a business loan. But you will probably be better off if you do it with a simpler, “reader-friendly” package. Your package should include:
1. a description of your business (what you sell, who you sell it to, and how you sell it to them)
2. some background on the management of your business (information about yourself that supports your ability to run it successfully)
3. financial projections (a forecast of sales, expenses, and profits)
This is enough to get the ball rolling and perhaps enter into some serious negotiations.
Some people blench (see Word to the Wise, below) at the prospect of asking someone else for money. But remember that if you have a solid business proposal that is likely to make a substantial return, you’re not asking anyone for any favors. In fact, you’re doing them a favor.
One technique for probing a prospect to see if they might be interested in investing in your small business is to ask them, “If I happen to come across any interesting business opportunities, would you be interested in hearing about them?” If they respond negatively and tell you that they simply wouldn’t be interested in investing in any small businesses, you can leave that prospect alone – and you will have avoided a potentially uncomfortable situation.
On the other hand, if they indicate that they might be interested, you can proceed to tell them that the reason you asked is because you’ve been working on developing a new project … and give them some of the basics. If they are interested in hearing more, you can then provide them with the paperwork that you’ve prepared.
Most wannabe entrepreneurs don’t realize that they know people who might have capital that they’re looking to invest. Start your list with your immediate family and friends … but then think a little further. Do you have a lawyer, a doctor, a dentist, a real estate agent? All of these professionals may have investable capital themselves, or may know of people they could refer to you. Think about other businesses you frequently patronize. What about the owner of that restaurant or your barber or hair salon? You might also consider attending networking events (e.g., Chamber of Commerce or other local business meetings). Many of the people you’ll meet will likely have capital.
If you make the kind of approach I suggested, you’ll have a good chance to find a partner who has the capital to make your business happen.
If you’d like more information on raising capital for your business and other “Street Smart” Business Techniques, follow this link: www.paullawrenceproductions.com[Ed. Note: Paul Lawrence is a regular contributor to ETR and is the author of the Microbusiness Program, which describes 40 different businesses that you can start with under $100.]